[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
Sunday, September 30, 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.
Tuesday, August 28, 2007
Good News for Lenders: IndyMac Sells Alt-A Bonds
IndyMac sells $590 million in Alt-A MBS
Says it's a sign that 'modest liquidity' is returning
Tuesday, August 28, 2007
IndyMac Bank last week sold $590 million in bonds backed by prime jumbo loans, the company said Monday -- the first bonds the lender has traded since July 19, when "fear-induced illiquidity" froze the market.
In a statement posted on the official company blog, IndyMac communications director Grove Nichols said the bonds traded Friday sold at prices below "historical ranges" but at smaller discounts than "fire sale" trades conducted by other lenders in recent weeks.
IndyMac traded $240 million of AAA bonds backed by prime jumbo fixed-rate mortgage loans and $350 million of AAA bonds backed by prime jumbo adjustable-rate mortgage (ARM) loans
"We are encouraged by these sales as they represent the first small sign that the ice is beginning to melt, and some modest liquidity is beginning to return to the private-label mortgage market," the statement said. "It appears as though, given the current historically wide spreads, significant tightening of underwriting standards by lenders, and the updated rating agency models requiring stronger subordination levels, investors are beginning to recognize that private mortgage-backed bonds may offer strong risk-adjusted returns."
The lack of demand for mortgage-backed securities (MBS) had forced IndyMac to stop offering jumbo loans. On Wednesday, the company announced it had resumed originating prime, single-family residential, full-documentation jumbo loans.
The loans, including 5/1 ARMs, 7/1 ARMs, and 15- and 30-year fixed-rate products, are available only to borrowers providing full documentation.
Borrowers with FICO scores of 680 and above and a 25 percent down payment are eligible for a loan of up to $2 million, or up to $1 million with 20 percent equity. A borrower with a FICO score of 700 or better, a 15 percent down payment and mortgage insurance is eligible for a loan of up to $750,000.
In its last quarterly earnings report, IndyMac said it laid off 400 employees as a cost-cutting measure and had been forced to repurchase $443 million in loans in the first six months of the year.
Says it's a sign that 'modest liquidity' is returning
Tuesday, August 28, 2007
IndyMac Bank last week sold $590 million in bonds backed by prime jumbo loans, the company said Monday -- the first bonds the lender has traded since July 19, when "fear-induced illiquidity" froze the market.
In a statement posted on the official company blog, IndyMac communications director Grove Nichols said the bonds traded Friday sold at prices below "historical ranges" but at smaller discounts than "fire sale" trades conducted by other lenders in recent weeks.
IndyMac traded $240 million of AAA bonds backed by prime jumbo fixed-rate mortgage loans and $350 million of AAA bonds backed by prime jumbo adjustable-rate mortgage (ARM) loans
"We are encouraged by these sales as they represent the first small sign that the ice is beginning to melt, and some modest liquidity is beginning to return to the private-label mortgage market," the statement said. "It appears as though, given the current historically wide spreads, significant tightening of underwriting standards by lenders, and the updated rating agency models requiring stronger subordination levels, investors are beginning to recognize that private mortgage-backed bonds may offer strong risk-adjusted returns."
The lack of demand for mortgage-backed securities (MBS) had forced IndyMac to stop offering jumbo loans. On Wednesday, the company announced it had resumed originating prime, single-family residential, full-documentation jumbo loans.
The loans, including 5/1 ARMs, 7/1 ARMs, and 15- and 30-year fixed-rate products, are available only to borrowers providing full documentation.
Borrowers with FICO scores of 680 and above and a 25 percent down payment are eligible for a loan of up to $2 million, or up to $1 million with 20 percent equity. A borrower with a FICO score of 700 or better, a 15 percent down payment and mortgage insurance is eligible for a loan of up to $750,000.
In its last quarterly earnings report, IndyMac said it laid off 400 employees as a cost-cutting measure and had been forced to repurchase $443 million in loans in the first six months of the year.
SCV Residential Rehab Program
Residents in the City of Santa Clarita are being encouraged to improve their homes through the City’s Residential Rehabilitation Program and Property Rehabilitation Program.
The program assists qualified residents in keeping their homes up to the standards of their communities by providing grants for mobile homes, condominiums, or single family homes.
Over $50,000 in grants is still available to residents who own a home in Santa Clarita and use it as their primary residence. The annual household income must be at or below 80 percent of the median household income for Los Angeles County in order for the resident to apply for assistance.
Repairs include include interior and exterior painting, roof repairs or replacement, plumbing and electrical work, heating and air conditioning repair, flooring and window repairs as well as disabled access modifications.
City’s Housing Program Administrator Erin Moore-Lay says, “The City of Santa Clarita is very happy to have the funds to help more people this year. Being lower income does not mean a family has to live with faulty electrical systems, leaking pipes, a non-working furnace, or broken gates. These programs are here to improve the quality of life for our lower income residents and maintain the community standards throughout the City.”
Homeowners who wish to take advantage of the grants have until June 30, 2008 to apply.
The City can be reached at (661) 286-4156.
The program assists qualified residents in keeping their homes up to the standards of their communities by providing grants for mobile homes, condominiums, or single family homes.
Over $50,000 in grants is still available to residents who own a home in Santa Clarita and use it as their primary residence. The annual household income must be at or below 80 percent of the median household income for Los Angeles County in order for the resident to apply for assistance.
Repairs include include interior and exterior painting, roof repairs or replacement, plumbing and electrical work, heating and air conditioning repair, flooring and window repairs as well as disabled access modifications.
City’s Housing Program Administrator Erin Moore-Lay says, “The City of Santa Clarita is very happy to have the funds to help more people this year. Being lower income does not mean a family has to live with faulty electrical systems, leaking pipes, a non-working furnace, or broken gates. These programs are here to improve the quality of life for our lower income residents and maintain the community standards throughout the City.”
Homeowners who wish to take advantage of the grants have until June 30, 2008 to apply.
The City can be reached at (661) 286-4156.
Monday, August 27, 2007
10 Projects With the Biggest Payback
Want that dream kitchen or sunroom addition? Even if you've decided to move forward, it makes sense to consider your return on investment (ROI). Not all home improvement projects are created equally, with some adding more value than others when it comes time to sell.
The 2006 Cost vs. Value Report (a combined effort by Remodeling magazine and REALTOR® Magazine) explains which home improvements pay off when you sell your home - and which don't.
10 Projects With the Biggest Payback
The 2006 Cost vs. Value Report (a combined effort by Remodeling magazine and REALTOR® Magazine) explains which home improvements pay off when you sell your home - and which don't.
10 Projects With the Biggest Payback
Thursday, August 23, 2007
Median Price Increase in a Declining Market
It’s not the first time that California has been home to some anomalous social phenomenon that lacks a ready explanation. But this time, because it has to do with real estate, the topic may be of general interest.
The oddity is this: On the one hand, the real estate market is, to say the least, a bit slow. The inventory of homes for sale is at all time highs, while the numbers of sales are at the lowest point in decades. On the other hand, the median price in much of the state is at or near record highs. Statewide, the median price of a single-family home is most recently reported as $591,180, barely off the highest ever. In our area, the median price of a residential dwelling is a record high around $600,000.
Now, this seems to fly in the face of whatever we might have learned in Economics 101. If supply is high, and demand is low, prices should be declining. How is it that the median price keeps climbing?
Not only does the increasing median price counter our expectations, it also doesn’t square with the experience of real estate practitioners. I have personally spoken with dozens of local Santa Clarita, San Fernando, and Antelope Valley Realtors® who say that they see prices decreasing in the neighborhoods where they do business. So, how can the median price keep rising?
First of all, we need to remind ourselves of what the median is. It is the mid-point. In any given period, the median sales price represents that price where an equal number of sales were below it and above it. It is not the average. For example, in the series of numbers 1,2,5,10, and 12, the median is 5, whereas the average would be 6.
How can the median mislead us? Imagine a marketplace where eleven homes sold, with the lowest being $200,000, and each other selling for $100,000 more than the one that preceded it. Next, imagine the same marketplace a year later, where each house sold is at a price 10% less than it was the year before, and the two lowest-priced houses don’t sell at all. Respective tables of these markets would look like the following:
Year One Year Two
$200,000 No Sale
$300,000 No Sale
$400,000 $360,000
$500,000 $450,000
$600,000 $540,000
$700,000 $630,000
$800,000 $720,000
$900,000 $810,000
$1,000,000 $900,000
$1,100,000 $990,000
$1,200,000 $1,080,000
In the first year, the median price is $700,000, with five sales below it and five sales above it. In year two, the median price is $720,000, with four sales below it and four sales above it. The second year median is $20,000 higher than the first year, even though values in the second year had decreased by 10% across the board.
Some suspect that the same thing is going on in the southern California market right now, and perhaps across the whole state.
It is no wonder that what might be called “entry-level” sales have dropped. For one thing, as many have observed for the past years, the price of entry had just become too high. The only thing that enabled entry into the market was the use of those now-infamous sub-prime and exotic loan products, including 100% financing and no-doc loans. Now, those are pretty much gone.
Along with the disappearance of the E-Z loans comes a drop in the sale of lower-priced homes, which ripples right up the entire housing market. And the ironic by-product? An increase in median prices, even while values go down.
Changes in the mix of housing in the local area can also skew the median price. For example, in the last few years homes were built that were generally higher-priced than the average price of the existing housing composition. As those homes have gone to a re-sale status, the median price sold for all homes in the area goes up.
This confusion about what the median sales price really means has given many sellers empty confidence in holding onto higher than market price list prices, which as the market makes a dive to the bottom, can significantly hurt them when their home does sell for much lower than they could have gotten at the beginning of the listing period.
Nobody wants to 'give your house away', but without exception I hear that phrase from sellers. As your listing agent, I do want to get absolutely the highest price possible given the market. It is a very competitive market environment, and I do closely watch market trends. Take my advice... you will end up netting a higher price if you do.
The oddity is this: On the one hand, the real estate market is, to say the least, a bit slow. The inventory of homes for sale is at all time highs, while the numbers of sales are at the lowest point in decades. On the other hand, the median price in much of the state is at or near record highs. Statewide, the median price of a single-family home is most recently reported as $591,180, barely off the highest ever. In our area, the median price of a residential dwelling is a record high around $600,000.
Now, this seems to fly in the face of whatever we might have learned in Economics 101. If supply is high, and demand is low, prices should be declining. How is it that the median price keeps climbing?
Not only does the increasing median price counter our expectations, it also doesn’t square with the experience of real estate practitioners. I have personally spoken with dozens of local Santa Clarita, San Fernando, and Antelope Valley Realtors® who say that they see prices decreasing in the neighborhoods where they do business. So, how can the median price keep rising?
First of all, we need to remind ourselves of what the median is. It is the mid-point. In any given period, the median sales price represents that price where an equal number of sales were below it and above it. It is not the average. For example, in the series of numbers 1,2,5,10, and 12, the median is 5, whereas the average would be 6.
How can the median mislead us? Imagine a marketplace where eleven homes sold, with the lowest being $200,000, and each other selling for $100,000 more than the one that preceded it. Next, imagine the same marketplace a year later, where each house sold is at a price 10% less than it was the year before, and the two lowest-priced houses don’t sell at all. Respective tables of these markets would look like the following:
Year One Year Two
$200,000 No Sale
$300,000 No Sale
$400,000 $360,000
$500,000 $450,000
$600,000 $540,000
$700,000 $630,000
$800,000 $720,000
$900,000 $810,000
$1,000,000 $900,000
$1,100,000 $990,000
$1,200,000 $1,080,000
In the first year, the median price is $700,000, with five sales below it and five sales above it. In year two, the median price is $720,000, with four sales below it and four sales above it. The second year median is $20,000 higher than the first year, even though values in the second year had decreased by 10% across the board.
Some suspect that the same thing is going on in the southern California market right now, and perhaps across the whole state.
It is no wonder that what might be called “entry-level” sales have dropped. For one thing, as many have observed for the past years, the price of entry had just become too high. The only thing that enabled entry into the market was the use of those now-infamous sub-prime and exotic loan products, including 100% financing and no-doc loans. Now, those are pretty much gone.
Along with the disappearance of the E-Z loans comes a drop in the sale of lower-priced homes, which ripples right up the entire housing market. And the ironic by-product? An increase in median prices, even while values go down.
Changes in the mix of housing in the local area can also skew the median price. For example, in the last few years homes were built that were generally higher-priced than the average price of the existing housing composition. As those homes have gone to a re-sale status, the median price sold for all homes in the area goes up.
This confusion about what the median sales price really means has given many sellers empty confidence in holding onto higher than market price list prices, which as the market makes a dive to the bottom, can significantly hurt them when their home does sell for much lower than they could have gotten at the beginning of the listing period.
Nobody wants to 'give your house away', but without exception I hear that phrase from sellers. As your listing agent, I do want to get absolutely the highest price possible given the market. It is a very competitive market environment, and I do closely watch market trends. Take my advice... you will end up netting a higher price if you do.
Friday, August 17, 2007
Market Volatility Directly Tied to Housing Market
The opening bell of this morning's stock market brought a continuation of a high degreee of volatility, first since this was an options expiration day where many began positions to heavily short the market, then with the news that the Federal Reserve was cutting the overnight discount rate half a percentage point. This move by the Fed portends an easing of interest rates at the September and October meetings.
What does this mean for the housing market? Both Countrywide Financial and Washington Mutual were in serious danger of declaring bankruptcy over the next week. For those not in the housing market CFC is the number one mortgage originator in the country by volume. Wamu is I think #3 or 4. Should these two have gone under the country would have quickly followed into a full recession. This Fed action frees up a lot of liquidity between financial institutions, and access to credit is the grease in the wheels that help make this whole system run.
Fed Chairman Bernanke and company have really taken an extraordinary step at a time when the stock market was facing a day of unprecedented danger of falling an all-time record in terms of point drop along with record-setting volume. It doesn't mean that everyone is out of the woods and we can all party once again. It does mean that the financial environment is in a precarious position and that volatility will be the watchword for quite a while.
If I have said it once, I have said it a thousand times over the past three years. You cannot have 20% plus appreciation in housing prices each year for three years and more running without building excess into the market, and the unwinding of the excesses will take years, not days, months, or a season. The sub-prime and Alt-A mortgage markets brought many people into home purchases, where now that interest rates are adjusting many loan payments are going beyond the financial capacity of the home owners. As these people stop making their loan payments and go into foreclosure, the securitized financial products that these loans became a part of turn to junk, and nobody wants to buy them. This restricts the credit market big time. Hence, the market crisis.
That said, it is always a great housing market in California... but not for everybody at the same time. If you are in my local market area, give me a call and let's talk about how you can profit from this market environment.
You can depend on us to give you the straight scoop here in the Blog, and when you work with us as either a Buyer or Seller of real estate.
What does this mean for the housing market? Both Countrywide Financial and Washington Mutual were in serious danger of declaring bankruptcy over the next week. For those not in the housing market CFC is the number one mortgage originator in the country by volume. Wamu is I think #3 or 4. Should these two have gone under the country would have quickly followed into a full recession. This Fed action frees up a lot of liquidity between financial institutions, and access to credit is the grease in the wheels that help make this whole system run.
Fed Chairman Bernanke and company have really taken an extraordinary step at a time when the stock market was facing a day of unprecedented danger of falling an all-time record in terms of point drop along with record-setting volume. It doesn't mean that everyone is out of the woods and we can all party once again. It does mean that the financial environment is in a precarious position and that volatility will be the watchword for quite a while.
If I have said it once, I have said it a thousand times over the past three years. You cannot have 20% plus appreciation in housing prices each year for three years and more running without building excess into the market, and the unwinding of the excesses will take years, not days, months, or a season. The sub-prime and Alt-A mortgage markets brought many people into home purchases, where now that interest rates are adjusting many loan payments are going beyond the financial capacity of the home owners. As these people stop making their loan payments and go into foreclosure, the securitized financial products that these loans became a part of turn to junk, and nobody wants to buy them. This restricts the credit market big time. Hence, the market crisis.
That said, it is always a great housing market in California... but not for everybody at the same time. If you are in my local market area, give me a call and let's talk about how you can profit from this market environment.
You can depend on us to give you the straight scoop here in the Blog, and when you work with us as either a Buyer or Seller of real estate.
Wednesday, August 15, 2007
What Kind of Concessions Can Buyers Expect?
On Top of Buyer’s Closing Costs, Perks and Price Cuts Become More Lavish
With the housing market looking increasingly frail, home builders and home sellers are going to new extremes to attract buyers, dangling lavish incentives and slashing prices.
In a recent Wall Street Journal article, examples of some concessions include:
In Boca Raton, Fla., Gordon Homes is offering to pay two years of property taxes and insurance -- worth as much as $150,000 on houses priced as high as $2.5 million -- for buyers of completed homes at its upscale Azura development. In Richmond, Va., Orleans Homebuilders Inc. is offering "Sizzling Summer Sale Savings" that include as much as $100,000 off the cost of upgrades ranging from granite countertops to a conservatory. And in Medford, Ore., Diane Adams, a real-estate agent, is offering to pay four months of mortgage payments on the $975,000 house she and her home-builder husband constructed on 20 acres near Crater Lake. "I'd also negotiate a lower price, too," says Ms. Adams, an agent with Re/Max International Inc. "I just want this house off our books."
Across the country, the theme is the same: Home builders and home sellers are juicing their efforts to unload single-family homes. Among other things, they are offering buyers cash discounts of as much as 20%, throwing in a pool and agreeing to finish basements, garages and other spaces at a cost of several thousand dollars -- incentives much richer than builders were offering as recently as six months ago, when the downturn didn't look as bleak.
The full article can be found at http://online.wsj.com/article_email/SB118661750287092393-lMyQjAxMDE3ODA2OTYwMTk3Wj.html
So what is happening locally??
Price concessions are rampant in the market, as motivated to sell homeowners continue what I have termed ‘the dive to the bottom’. Unmotivated sellers may be sticking to their price, but their numbers of showings decline and disappear as buyers look for deals elsewhere. Increasingly, sellers are offering to pay buyers’ closing costs, which is a nod to the already well-established de facto practice when an offer to purchase comes in for review. All buyers have already caught on to this perk. They ask: What else?
I’ve had sellers offer to include TVs, refrigerators, washers and dryers, gym setups, other furniture, cars, and all sorts of personal property as incentive to buyers. While these things are nice, it doesn’t swing the deal. More important to buyers can be financing terms such as buydowns, where the seller pre-pays interest on new loans. Increasingly buyers are asking sellers to carry a second mortgage of 5% or 10% (or even more!) for those sellers who have a lot of equity in the home.
For some sellers, a monthly payment on a second mortgage can be more important than all the cash in hand at once. A common arrangement for the seller carrying a note would be at 10% interest, amortized over 30 years and all due in 5 years.
Other concessions that buyers are asking for (and sometimes getting) would be pre-paid property taxes and insurance, homeowners association fees, Mello-Roos fees, and other recurring fees of that kind. Pre-payment terms can be six months, a year, or even more.
Motivated sellers who want their homes sold can get pretty innovative, given their particular circumstance.
If the property needs repairs or updating and the sellers can’t financially handle it prior to close, credits can be given to be applied to this type of work to be performed after close of escrow. Usually the lender will require these funds to be held in a special account to ensure that the work gets done and the buyer doesn’t just pocket it at close, but I’ve also seen some cash backs to buyers. Examples of work needed in a home for sale: new roof, re-piping, painting, carpets and flooring, landscaping, updating kitchens and baths, and miscellaneous repairs.
The home builders are another matter. Lennar, KBhomes, KHov, and the other builders active in the area have various incentives that are available to buyers, and some additional incentives if home buyers take a Realtor along on their first visit to the sales office. While buyers, as usual, overestimate their negotiating prowess when dealing with home builders, often choosing to ‘go it alone’ without the assistance of a Realtor, they end up unrepresented in the transaction and lose big time in the end. But that’s the psychology and ignorance of the new home buyer at work. God luv ‘em!
New home builders employ a sales staff to work in the builder’s interests, not to just smile and give away the store! Think about it the next time you go to a new home development. Then call me at 661-287-9164 and I will go with you, but remember, it must be on first visit when you register. Otherwise, I cannot help you get the best deal possible.
Builders generally try to avoid outright price markdowns, in part because it angers prior home buyers who don't want prices in their subdivisions forced down. These days, though, builders increasingly resort to price cuts because it's all about avoiding bankruptcy for some.
Builders are increasingly willing to pay agents substantially larger commissions -- as much as 4% or locally, even 5% of the home's sales price, up from 1.5% or less -- to help unload inventory homes. This trend is reflected in the re-sale market, where discount brokers are having a tough time with many going out of business, and the 6% commission as the standard for listing a home has returned to the market. Lower commissions just don’t work in a market where the average time on market is well over 90 days and there are few buyers. Incentivizing the listing agent to fully explore marketing outlets is important, and bringing the buyers in the door involves offering a competitive (and higher) commission to the selling agents. With as many homes on the market as there are, the selling agent has many many choices of homes to show a prospective buyer. One way to get that buyer in is to increase the Realtor’s commission. What many home sellers often don’t understand is that keeping a buyer involved through the escrow period is just as important, and the offering of a competitive commission is a critical aspect of that process.
This trend toward more-generous incentives is "likely to intensify," says Mark Zandi, chief economist at Moody's Economy.com, citing a growing inventory of new homes, an oversupply of pre-owned homes on the market and "a glut of homes that are a year or two old that investors bought as rental property that have never been lived in, and those investors are now trying to sell, too."
The best deals go to those who are ready to buy and can close within 30 days and who have no contingencies in their contracts, such as the need to sell another house or find financing. Those buyers get the highest concessions. Also, have a preapproval letter in hand, which indicates that a lender is ready to fund your mortgage immediately up to a certain amount, is an essential part of the offer. After all, an offer and a contract is only the beginning, closing the escrow is the real deal.
With the housing market looking increasingly frail, home builders and home sellers are going to new extremes to attract buyers, dangling lavish incentives and slashing prices.
In a recent Wall Street Journal article, examples of some concessions include:
In Boca Raton, Fla., Gordon Homes is offering to pay two years of property taxes and insurance -- worth as much as $150,000 on houses priced as high as $2.5 million -- for buyers of completed homes at its upscale Azura development. In Richmond, Va., Orleans Homebuilders Inc. is offering "Sizzling Summer Sale Savings" that include as much as $100,000 off the cost of upgrades ranging from granite countertops to a conservatory. And in Medford, Ore., Diane Adams, a real-estate agent, is offering to pay four months of mortgage payments on the $975,000 house she and her home-builder husband constructed on 20 acres near Crater Lake. "I'd also negotiate a lower price, too," says Ms. Adams, an agent with Re/Max International Inc. "I just want this house off our books."
Across the country, the theme is the same: Home builders and home sellers are juicing their efforts to unload single-family homes. Among other things, they are offering buyers cash discounts of as much as 20%, throwing in a pool and agreeing to finish basements, garages and other spaces at a cost of several thousand dollars -- incentives much richer than builders were offering as recently as six months ago, when the downturn didn't look as bleak.
The full article can be found at http://online.wsj.com/article_email/SB118661750287092393-lMyQjAxMDE3ODA2OTYwMTk3Wj.html
So what is happening locally??
Price concessions are rampant in the market, as motivated to sell homeowners continue what I have termed ‘the dive to the bottom’. Unmotivated sellers may be sticking to their price, but their numbers of showings decline and disappear as buyers look for deals elsewhere. Increasingly, sellers are offering to pay buyers’ closing costs, which is a nod to the already well-established de facto practice when an offer to purchase comes in for review. All buyers have already caught on to this perk. They ask: What else?
I’ve had sellers offer to include TVs, refrigerators, washers and dryers, gym setups, other furniture, cars, and all sorts of personal property as incentive to buyers. While these things are nice, it doesn’t swing the deal. More important to buyers can be financing terms such as buydowns, where the seller pre-pays interest on new loans. Increasingly buyers are asking sellers to carry a second mortgage of 5% or 10% (or even more!) for those sellers who have a lot of equity in the home.
For some sellers, a monthly payment on a second mortgage can be more important than all the cash in hand at once. A common arrangement for the seller carrying a note would be at 10% interest, amortized over 30 years and all due in 5 years.
Other concessions that buyers are asking for (and sometimes getting) would be pre-paid property taxes and insurance, homeowners association fees, Mello-Roos fees, and other recurring fees of that kind. Pre-payment terms can be six months, a year, or even more.
Motivated sellers who want their homes sold can get pretty innovative, given their particular circumstance.
If the property needs repairs or updating and the sellers can’t financially handle it prior to close, credits can be given to be applied to this type of work to be performed after close of escrow. Usually the lender will require these funds to be held in a special account to ensure that the work gets done and the buyer doesn’t just pocket it at close, but I’ve also seen some cash backs to buyers. Examples of work needed in a home for sale: new roof, re-piping, painting, carpets and flooring, landscaping, updating kitchens and baths, and miscellaneous repairs.
The home builders are another matter. Lennar, KBhomes, KHov, and the other builders active in the area have various incentives that are available to buyers, and some additional incentives if home buyers take a Realtor along on their first visit to the sales office. While buyers, as usual, overestimate their negotiating prowess when dealing with home builders, often choosing to ‘go it alone’ without the assistance of a Realtor, they end up unrepresented in the transaction and lose big time in the end. But that’s the psychology and ignorance of the new home buyer at work. God luv ‘em!
New home builders employ a sales staff to work in the builder’s interests, not to just smile and give away the store! Think about it the next time you go to a new home development. Then call me at 661-287-9164 and I will go with you, but remember, it must be on first visit when you register. Otherwise, I cannot help you get the best deal possible.
Builders generally try to avoid outright price markdowns, in part because it angers prior home buyers who don't want prices in their subdivisions forced down. These days, though, builders increasingly resort to price cuts because it's all about avoiding bankruptcy for some.
Builders are increasingly willing to pay agents substantially larger commissions -- as much as 4% or locally, even 5% of the home's sales price, up from 1.5% or less -- to help unload inventory homes. This trend is reflected in the re-sale market, where discount brokers are having a tough time with many going out of business, and the 6% commission as the standard for listing a home has returned to the market. Lower commissions just don’t work in a market where the average time on market is well over 90 days and there are few buyers. Incentivizing the listing agent to fully explore marketing outlets is important, and bringing the buyers in the door involves offering a competitive (and higher) commission to the selling agents. With as many homes on the market as there are, the selling agent has many many choices of homes to show a prospective buyer. One way to get that buyer in is to increase the Realtor’s commission. What many home sellers often don’t understand is that keeping a buyer involved through the escrow period is just as important, and the offering of a competitive commission is a critical aspect of that process.
This trend toward more-generous incentives is "likely to intensify," says Mark Zandi, chief economist at Moody's Economy.com, citing a growing inventory of new homes, an oversupply of pre-owned homes on the market and "a glut of homes that are a year or two old that investors bought as rental property that have never been lived in, and those investors are now trying to sell, too."
The best deals go to those who are ready to buy and can close within 30 days and who have no contingencies in their contracts, such as the need to sell another house or find financing. Those buyers get the highest concessions. Also, have a preapproval letter in hand, which indicates that a lender is ready to fund your mortgage immediately up to a certain amount, is an essential part of the offer. After all, an offer and a contract is only the beginning, closing the escrow is the real deal.
Tuesday, August 14, 2007
Impact of Mortgage Crisis Spreads Beyond Housing
Impact of Mortgage Crisis Spreads
Dow Tumbles 2.8%
As Fallout Intensifies; Moves by Central Banks
By GREGORY ZUCKERMAN, JAMES R. HAGERTY and DAVID GAUTHIER-VILLARS
August 10, 2007; Page A1
Fallout from the intensifying credit crisis stretched from a French bank to the largest home-mortgage lender in the U.S., triggering unusual central-bank interventions and driving the Dow Jones Industrial Average to its second-worst drop this year.
The troubles demonstrated both the global reach of the crisis and its impact on a widening circle of markets and companies. The first jolt came from French bank BNP Paribas, which said early in the day that it was freezing three investment funds once worth a combined $2.17 billion because of losses related to U.S. housing loans. That prompted the U.S. and European central banks to inject cash into money markets to keep interest rates down.
The unease accelerated in the U.S. with news that several hedge funds were in the red and selling off assets. Apartment and condominium builder Tarragon Corp. raised doubts about its ability to remain in business amid weak demand and an inability to raise new financing. After markets closed, mortgage-lender Countrywide Financial Corp. said "unprecedented disruptions" in credit markets could affect its financial condition.
The stock market, which on Wednesday had risen sharply on hopes credit problems were being contained, swooned as hedge funds, many of which borrowed increasing amounts of money in recent years to boost returns amid placid markets, scrambled to sell holdings and cut their borrowings. The Dow Jones Industrial Average ended down 387.18 points, or 2.8%, at 13270.68.
Meanwhile, Countrywide, of Calabasas, Calif., said in a Securities and Exchange Commission filing that it was shoring up its finances and had "adequate funding liquidity." But the company, the nation's largest home-mortgage lender in terms of volume, warned that "the situation is rapidly evolving and the impact on the company is unknown." Reduced demand from investors is prompting Countrywide to retain more of its loans rather than selling them.
The statement could send shivers through financial markets today. It came just a week after Bear Stearns Cos., the Wall Street trading giant, had to reassure investors that it had ample cash on hand amid concern that it faced funding problems because of deteriorating credit-market conditions and the implosion of two of its hedge funds.
On Friday, markets in Asia tumbled in early trading. After the Nikkei 225 index fell more than 2%, Japan's central bank injected $8.39 billion into money markets. That followed actions Thursday by the European Central Bank, which provided more than $130 billion to money markets, and the U.S. Federal Reserve, which added $24 billion in reserves to the U.S. banking system.
What started late last year as worry over a sharp rise in defaults on subprime mortgages has mushroomed into a crisis for the entire home-loan industry and investors world-wide. By March, late payments were reaching worrisome levels on Alt-A mortgages, a category between prime and subprime that includes many loans for which borrowers "state" rather than verify their incomes. Most prime loans continue to perform well, but Countrywide has reported a rapid rise in delinquent payments on certain prime home-equity loans that were used by people stretching themselves to buy homes with little or no money down.
Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier, the company said. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home-equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half -- meaning they will stay on the books instead of being sold. Countrywide marked the value of those loans down to $800 million. Despite its current woes, the company argues that it is well-placed to gain market share from weaker rivals.
Rattled by a constant stream of bad news, investors in recent days have been shunning nearly all mortgages except for those that can be sold to Fannie Mae and Freddie Mac, the government-sponsored investors that guarantee payments on loans that "conform" to their standards. That has prompted lenders to boost rates on prime "jumbo" loans -- those totaling $417,000 or more, too big to be guaranteed by Fannie or Freddie -- to as much as 7.25% or 8%. Usually, such loans cost only about a quarter percentage point more than "conforming" mortgages, but the gap has ballooned to as much as 0.8 point during the past week.
In financial markets, several entities thought to be insulated from the subprime meltdown now turn out to be affected, leading investors to wonder who might be next. For instance, BNP just last week had said the three funds were conducting business as usual. But Europe's sixth-largest bank by stock-market value said yesterday that it had been forced to suspend the funds on Tuesday because of a sudden and unexpected dearth of buyers and sellers.
"The market for the assets has just disappeared," said Alain Papiasse, head of BNP Paribas's asset-management-services division. "Since the start of this week, there are no prices for instruments that carry, directly or indirectly, some types of U.S. assets."
In the U.S. the latest crop of hedge funds to be hit hard by the market's turmoil includes those that focus on "market-neutral" strategies, or strategies that seek to do as well in both falling and rising markets. The strategy has been embraced by some of the biggest names in hedge funds, in part because it's popular with institutional investors who hunger for gains in any kind of market.
Many market-neutral funds have been wagering on high-quality stocks, or stocks that trade at low valuations based on various metrics, and betting against stocks that look expensive. Because this stance is seen as relatively conservative, the funds felt comfortable borrowing money to boost returns.
But as banks began getting worried about their hedge-fund clients in recent weeks, some hedge funds were asked to put up more collateral to back the loans, or anticipated these requests. The funds sold some of their holdings of high-quality stocks to raise the cash, and closed out "short" trades, or bets against companies, by buying back shares of companies seen as expensive. Others sold positions simply to become more conservative, in a rocky market.
Since market-neutral funds often are guided by similar computer models and share similar holdings, the actions magnified moves in asset prices. The last week has been the worst on record for many large hedge funds focusing on this strategy, worrying traders across Wall Street, many of whom look to these firms for signs of stability in difficult markets.
During the past several days, a number of other quantitative funds have also been hard-hit. These funds generally operate by building computer models of market behavior and then allowing computer programs to dictate trading. With the recent trouble in financial markets, many lenders, funds and brokerages were following statistical models that grossly underestimated how risky the environment had become.
--Kate Kelly, Alex Frangos, Henny Sender, Anita Raghavan and Ian McDonald contributed to this article.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com, James R. Hagerty at bob.hagerty@wsj.com and David Gauthier-Villars at David.Gauthier-Villars@dowjones.com
Dow Tumbles 2.8%
As Fallout Intensifies; Moves by Central Banks
By GREGORY ZUCKERMAN, JAMES R. HAGERTY and DAVID GAUTHIER-VILLARS
August 10, 2007; Page A1
Fallout from the intensifying credit crisis stretched from a French bank to the largest home-mortgage lender in the U.S., triggering unusual central-bank interventions and driving the Dow Jones Industrial Average to its second-worst drop this year.
The troubles demonstrated both the global reach of the crisis and its impact on a widening circle of markets and companies. The first jolt came from French bank BNP Paribas, which said early in the day that it was freezing three investment funds once worth a combined $2.17 billion because of losses related to U.S. housing loans. That prompted the U.S. and European central banks to inject cash into money markets to keep interest rates down.
The unease accelerated in the U.S. with news that several hedge funds were in the red and selling off assets. Apartment and condominium builder Tarragon Corp. raised doubts about its ability to remain in business amid weak demand and an inability to raise new financing. After markets closed, mortgage-lender Countrywide Financial Corp. said "unprecedented disruptions" in credit markets could affect its financial condition.
The stock market, which on Wednesday had risen sharply on hopes credit problems were being contained, swooned as hedge funds, many of which borrowed increasing amounts of money in recent years to boost returns amid placid markets, scrambled to sell holdings and cut their borrowings. The Dow Jones Industrial Average ended down 387.18 points, or 2.8%, at 13270.68.
Meanwhile, Countrywide, of Calabasas, Calif., said in a Securities and Exchange Commission filing that it was shoring up its finances and had "adequate funding liquidity." But the company, the nation's largest home-mortgage lender in terms of volume, warned that "the situation is rapidly evolving and the impact on the company is unknown." Reduced demand from investors is prompting Countrywide to retain more of its loans rather than selling them.
The statement could send shivers through financial markets today. It came just a week after Bear Stearns Cos., the Wall Street trading giant, had to reassure investors that it had ample cash on hand amid concern that it faced funding problems because of deteriorating credit-market conditions and the implosion of two of its hedge funds.
On Friday, markets in Asia tumbled in early trading. After the Nikkei 225 index fell more than 2%, Japan's central bank injected $8.39 billion into money markets. That followed actions Thursday by the European Central Bank, which provided more than $130 billion to money markets, and the U.S. Federal Reserve, which added $24 billion in reserves to the U.S. banking system.
What started late last year as worry over a sharp rise in defaults on subprime mortgages has mushroomed into a crisis for the entire home-loan industry and investors world-wide. By March, late payments were reaching worrisome levels on Alt-A mortgages, a category between prime and subprime that includes many loans for which borrowers "state" rather than verify their incomes. Most prime loans continue to perform well, but Countrywide has reported a rapid rise in delinquent payments on certain prime home-equity loans that were used by people stretching themselves to buy homes with little or no money down.
Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier, the company said. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home-equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half -- meaning they will stay on the books instead of being sold. Countrywide marked the value of those loans down to $800 million. Despite its current woes, the company argues that it is well-placed to gain market share from weaker rivals.
Rattled by a constant stream of bad news, investors in recent days have been shunning nearly all mortgages except for those that can be sold to Fannie Mae and Freddie Mac, the government-sponsored investors that guarantee payments on loans that "conform" to their standards. That has prompted lenders to boost rates on prime "jumbo" loans -- those totaling $417,000 or more, too big to be guaranteed by Fannie or Freddie -- to as much as 7.25% or 8%. Usually, such loans cost only about a quarter percentage point more than "conforming" mortgages, but the gap has ballooned to as much as 0.8 point during the past week.
In financial markets, several entities thought to be insulated from the subprime meltdown now turn out to be affected, leading investors to wonder who might be next. For instance, BNP just last week had said the three funds were conducting business as usual. But Europe's sixth-largest bank by stock-market value said yesterday that it had been forced to suspend the funds on Tuesday because of a sudden and unexpected dearth of buyers and sellers.
"The market for the assets has just disappeared," said Alain Papiasse, head of BNP Paribas's asset-management-services division. "Since the start of this week, there are no prices for instruments that carry, directly or indirectly, some types of U.S. assets."
In the U.S. the latest crop of hedge funds to be hit hard by the market's turmoil includes those that focus on "market-neutral" strategies, or strategies that seek to do as well in both falling and rising markets. The strategy has been embraced by some of the biggest names in hedge funds, in part because it's popular with institutional investors who hunger for gains in any kind of market.
Many market-neutral funds have been wagering on high-quality stocks, or stocks that trade at low valuations based on various metrics, and betting against stocks that look expensive. Because this stance is seen as relatively conservative, the funds felt comfortable borrowing money to boost returns.
But as banks began getting worried about their hedge-fund clients in recent weeks, some hedge funds were asked to put up more collateral to back the loans, or anticipated these requests. The funds sold some of their holdings of high-quality stocks to raise the cash, and closed out "short" trades, or bets against companies, by buying back shares of companies seen as expensive. Others sold positions simply to become more conservative, in a rocky market.
Since market-neutral funds often are guided by similar computer models and share similar holdings, the actions magnified moves in asset prices. The last week has been the worst on record for many large hedge funds focusing on this strategy, worrying traders across Wall Street, many of whom look to these firms for signs of stability in difficult markets.
During the past several days, a number of other quantitative funds have also been hard-hit. These funds generally operate by building computer models of market behavior and then allowing computer programs to dictate trading. With the recent trouble in financial markets, many lenders, funds and brokerages were following statistical models that grossly underestimated how risky the environment had become.
--Kate Kelly, Alex Frangos, Henny Sender, Anita Raghavan and Ian McDonald contributed to this article.
Write to Gregory Zuckerman at gregory.zuckerman@wsj.com, James R. Hagerty at bob.hagerty@wsj.com and David Gauthier-Villars at David.Gauthier-Villars@dowjones.com
Countrywide Financial Hit by Credit Market Woes
Countrywide Hit by Credit Market Woes
By JAMES R. HAGERTY
August 9, 2007 8:23 p.m.
Countrywide Financial Corp. and other mortgage companies are facing "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing. (Read the SEC filing)
The statement was a supplement to the standard "risk factors" listed in Countrywide's 2006 annual report.
See the SEC filing from Countrywide Financial.The company, the largest U.S. home mortgage lender in terms of loan volume, said reduced demand from investors is prompting it to retain more of its loans rather than selling them. The company also has been shoring up its finances. "While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown."
Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half. Countrywide marked the value of those loans down to $800 million. It also decided to retain as investments, rather than sell, $700 million of prime home equity loans, marking them down to $600 million. Countrywide has said many of those home equity loans were second-lien mortgages used by people who put little or no money down in buying a house.
Write to James R. Hagerty at bob.hagerty@wsj.com
By JAMES R. HAGERTY
August 9, 2007 8:23 p.m.
Countrywide Financial Corp. and other mortgage companies are facing "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing. (Read the SEC filing)
The statement was a supplement to the standard "risk factors" listed in Countrywide's 2006 annual report.
See the SEC filing from Countrywide Financial.The company, the largest U.S. home mortgage lender in terms of loan volume, said reduced demand from investors is prompting it to retain more of its loans rather than selling them. The company also has been shoring up its finances. "While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown."
Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half. Countrywide marked the value of those loans down to $800 million. It also decided to retain as investments, rather than sell, $700 million of prime home equity loans, marking them down to $600 million. Countrywide has said many of those home equity loans were second-lien mortgages used by people who put little or no money down in buying a house.
Write to James R. Hagerty at bob.hagerty@wsj.com
Saturday, August 11, 2007
The Mania for Sellers is Out. The Mania for Buyers is In.
Mania.
Fixation. Madness.
Also: abberation, compulsion, craving, craze, craziness, delirium, dementia, derangement, desire, disorder, enthusiasm, fad, fancy, fascination, fetish, fixed idea, frenzy, furor, hang-up, infatuation, insanity, lunacy, obsession, passion, preoccupation, rage, thing.
That what Roget's Thesaurus comes up with as related words.
It is now conventional wisdom that a few years ago, during the 'seller's market', that excesses were introduced into the housing market that are now being worked out. Back then, lots of liquidity poured into the housing market, with low interest loans, teaser loans, option ARMs, no document/no verification loans, and other 'exotics' that got more and more people into home purchasing and 'flipping' for profit. Every month home prices went up, year-to-year appreciation registered 20% or more for three years running, and the adjoining years weren't far off the pace. If you didn't buy RIGHT NOW, you were thought a complete idiot. Sellers asked for the moon, and got it. Appraisers and lenders went along. A lot of Realtors did too. Easy money bought the American Dream, and people from all over the world flocked to the party. Want a new car? Refinance at a lower (initial) rate, no costs, and pull money out. Get a HELOC and don't worry about it... price appreciation and low interest rates will finance your new lifestyle. And don't worry about the future... this is the New Reality. The party will go on forever!
Yes, I heard exactly these lines from sellers and mortgage brokers and Realtors and all kinds of people. Homes came on the market and were sold within days or even hours, seemingly no matter what the price was. It was a Mania, especially for Sellers but one that infected the entire market.
The party is over. At least for sellers.
Homes are now undergoing a re-valuation, and this time, it is the Buyer who is setting the price. [In reality, the Buyer always sets the price. That is a basic market mechanism.] Those sellers who got used to 20% and more appreciation per year bemoan the fact that they have to now 'give the home away'. Nevermind that a 20% appreciation on a home with a zero or 5% equity position has a pretty nice annual rate of return on investment, as long as you sell. Nowhere else in the market can you make that kind of money. But I digress...
Sellers aren't giving away their homes, and the family down the street who actually sold and closed their home sale last week isn't destroying your home's value. Home prices go up, home prices go down. If you thought that home prices were on the unending up escalator forever, well, all I can say is welcome to reality. Your fever may have broken and your sanity may be returning. The mania for sellers is over. Catch up with the facts, deal with the New New Reality.
So what is the New New Reality? I have had some people who self-describe themselves as serious buyers tell me that all homes on the market are foreclosures, or will soon be in foreclosures. They look at the local newspapers and see that there are notices of default on $600,000 or more homes on notes worth $7 or $10,000, and want to know how they can buy these homes for the defaulted note amounts or less. Some have gone on RealtyTrac.com and one told me she wanted the kind of deal she read about: a 4500 square foot home valued at $1.7 million dollars, for $350,000. She said she was prepared to buy that kind of deal TODAY!
Yeah, who isn't?
Of course she didn't have an address or any other information that at all indicated that she could or anyone else was getting that kind of deal. But people tell me 'those deals are out there... find one for me.' Of course they are ever so reluctant to even meet and seriously talk about their finances, enter a buyer's broker agreement, or do anything else that would at all justify the considerable amount of legwork required for what? Missed appointments, unanswered emails and a load of hot air? Don't get me wrong... serious buyers get serious service. But money talks. Bullshit walks. When we work together, I will respect your time and you will respect mine. Just because somebody might say they are a serious buyer doesn't mean they will buy in my lifetime, or through me. That last part is really operative if someone wants to work with me. They will buy through me without games or guile. Work with me, otherwise, why waste my time?
Are there deals out there? There are!! And I would be very happy to get you into one! But don't expect sellers to just give you the keys. It doesn't work that way. And don't expect to get a deal at fifteen cents on the dollar. If that is your expectation, you will need to work with someone else. It is fantasyland that you are living in. I live in Reality. It's the New New Reality, minus the mania.
If you are a serious buyer, let's get together. Call me at 661-287-9164 and we will set a time to meet.
Fixation. Madness.
Also: abberation, compulsion, craving, craze, craziness, delirium, dementia, derangement, desire, disorder, enthusiasm, fad, fancy, fascination, fetish, fixed idea, frenzy, furor, hang-up, infatuation, insanity, lunacy, obsession, passion, preoccupation, rage, thing.
That what Roget's Thesaurus comes up with as related words.
It is now conventional wisdom that a few years ago, during the 'seller's market', that excesses were introduced into the housing market that are now being worked out. Back then, lots of liquidity poured into the housing market, with low interest loans, teaser loans, option ARMs, no document/no verification loans, and other 'exotics' that got more and more people into home purchasing and 'flipping' for profit. Every month home prices went up, year-to-year appreciation registered 20% or more for three years running, and the adjoining years weren't far off the pace. If you didn't buy RIGHT NOW, you were thought a complete idiot. Sellers asked for the moon, and got it. Appraisers and lenders went along. A lot of Realtors did too. Easy money bought the American Dream, and people from all over the world flocked to the party. Want a new car? Refinance at a lower (initial) rate, no costs, and pull money out. Get a HELOC and don't worry about it... price appreciation and low interest rates will finance your new lifestyle. And don't worry about the future... this is the New Reality. The party will go on forever!
Yes, I heard exactly these lines from sellers and mortgage brokers and Realtors and all kinds of people. Homes came on the market and were sold within days or even hours, seemingly no matter what the price was. It was a Mania, especially for Sellers but one that infected the entire market.
The party is over. At least for sellers.
Homes are now undergoing a re-valuation, and this time, it is the Buyer who is setting the price. [In reality, the Buyer always sets the price. That is a basic market mechanism.] Those sellers who got used to 20% and more appreciation per year bemoan the fact that they have to now 'give the home away'. Nevermind that a 20% appreciation on a home with a zero or 5% equity position has a pretty nice annual rate of return on investment, as long as you sell. Nowhere else in the market can you make that kind of money. But I digress...
Sellers aren't giving away their homes, and the family down the street who actually sold and closed their home sale last week isn't destroying your home's value. Home prices go up, home prices go down. If you thought that home prices were on the unending up escalator forever, well, all I can say is welcome to reality. Your fever may have broken and your sanity may be returning. The mania for sellers is over. Catch up with the facts, deal with the New New Reality.
So what is the New New Reality? I have had some people who self-describe themselves as serious buyers tell me that all homes on the market are foreclosures, or will soon be in foreclosures. They look at the local newspapers and see that there are notices of default on $600,000 or more homes on notes worth $7 or $10,000, and want to know how they can buy these homes for the defaulted note amounts or less. Some have gone on RealtyTrac.com and one told me she wanted the kind of deal she read about: a 4500 square foot home valued at $1.7 million dollars, for $350,000. She said she was prepared to buy that kind of deal TODAY!
Yeah, who isn't?
Of course she didn't have an address or any other information that at all indicated that she could or anyone else was getting that kind of deal. But people tell me 'those deals are out there... find one for me.' Of course they are ever so reluctant to even meet and seriously talk about their finances, enter a buyer's broker agreement, or do anything else that would at all justify the considerable amount of legwork required for what? Missed appointments, unanswered emails and a load of hot air? Don't get me wrong... serious buyers get serious service. But money talks. Bullshit walks. When we work together, I will respect your time and you will respect mine. Just because somebody might say they are a serious buyer doesn't mean they will buy in my lifetime, or through me. That last part is really operative if someone wants to work with me. They will buy through me without games or guile. Work with me, otherwise, why waste my time?
Are there deals out there? There are!! And I would be very happy to get you into one! But don't expect sellers to just give you the keys. It doesn't work that way. And don't expect to get a deal at fifteen cents on the dollar. If that is your expectation, you will need to work with someone else. It is fantasyland that you are living in. I live in Reality. It's the New New Reality, minus the mania.
If you are a serious buyer, let's get together. Call me at 661-287-9164 and we will set a time to meet.
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