Real Estate News & Commentary by Chris McLaughlin, August 27, 2009

http://www.shortsalesriches.com

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Fed makes a profit on bank loans

The Financial Times reports that The Federal Reserve has made $14 billion in profits on loans made in the last two years.  The U.S. central bank also earned about $19 billion from interest and fees charged to institutions that tapped liquidity facilities during the global financial crisis, the report said. Sounds great, but according to Linus Wilson, a finance professor at the University of Louisiana at Lafayette, who analyzed the data for the Times, if private investors had taken a stake in the banks last October on par with the government’s, they would have had profits three times as large — about $12 billion, or 44 percent if tallied on an annual basis.  Why?  Finance experts say the government overpaid for the bank assets it bought.  A Congressional oversight panel concluded in February that the Treasury paid an average of 34 percent more than the estimated fair value of the assets it received.

We don’t want a second stimulus package!

Not surprisingly, a semi-annual poll by the National Association for Business Economics (NABE) found that most economists believe the US should cut spending from its current levels, and shouldn’t embark on a second stimulus package.  They also doubted that health-care reforms proposed by the Obama administration would lower costs.  “This is one of the fastest-moving and most controversial economic policy environments we have experienced in a generation,” said NABE president Chris Varvares.  the economy saddled with a $1.58 trillion budget deficit in fiscal 2009, and a shortfall of about $9 trillion between 2010 and 2019.  The budget deficit is causing alarm and creating opposition to President Obama’s central policy priority of overhauling the US healthcare system…now sitting at $1 Trillion.

Oil prices fall

Oil investors often look to stock markets as a barometer of sentiment about the economy, and China’s benchmark fell 6.7 percent today.  Oil prices fell to near $71 a barrel Monday as China’s stock market tumbled and commodities investors questioned whether the U.S. economy can recover strongly in the second half.  Benchmark crude for October delivery was down $1.81 to $70.93 a barrel in afternoon European electronic trading on the New York Mercantile Exchange.  The contract Friday added 25 cents to settle at $72.74 after tumbling from near $75 earlier in the week.  The U.S. economy will likely have to grow at least 2 percent in the third quarter to enthuse traders and push the oil price past $75, according to Christoffer Moltke-Leth, head of sales for Saxo Capital Markets in Singapore.  “We’re seeing an economic recovery, but that’s already been built into the price.”

No inflation?

William Dudley, New York Fed president, says that fears of inflation because of the Federal Reserve’s massive stimulus package are overblown, because the Fed has the ability to pull the liquidity out of the market fast enough to prevent price rises.  “My view is that we have tools to manage our balance sheet so that we’ll not have an inflation outcome,” Dudley told CNBC.  “We’re far along in terms of having the interest on excess reserves and, just in case, developing other means of pulling out the excess reserves.”  It will be interesting to see what these “other means” are.  Many analysts have warned that printing handfuls of money carries a high risk of inflation – in fact the NABE survey I mentioned above showed that 41 percent of them believed the measures to be inflationary.

Now on to our real estate education section …

What Banks Want & How to Handle Stonewalling Lenders

Sooner or later every short sale investor, broker or agent is likely to
encounter a less than agreeable lender. Understanding what banks want is the first step to sealing the deal rather than walking away. Use this quick checklist and helpful tips to stay on task and streamline the process both mentally and literally.

1. Banks want to know you will seal the deal! Despite what you might hear about banks stalling or backing out at the last minute, lenders are just as anxious as you are to make sure the deal goes through. Put your best foot forward by letting lenders know you are serious about short sales. If you are an investor – don’t be afraid to say so (contrary to popular opinion, this is not a negative and actually may weigh heavily in your favor for those able to demonstrate a track record of success. Just be aware of the type of loan and any limits to the number of mortgages they are willing to underwrite well in advance of applying).
2. Seller Side Documents. Banks require relatively few documents from the homeowner; purchase contract, estimated closing costs and hardship letter are the bare minimum but often sufficient to start the ball rolling as far as the seller is concerned. Pay stubs, tax returns and other financial information may or may not be essential at the start depending upon the lender in question.
3. Buyer/Investor Documents. Things are not quite so simple for the prospective buyer or short sale investor when it comes to documentation…this is one reason we bundle all the forms and other paperwork required to get started. Not only does it save time and money (the complete bundle is a fraction of the cost required to hire a real estate attorney on your own) but it is a proven process used repeatedly. In addition to cover letters, list and cost of repairs, authorization to release information and other standard forms, one of the most important is the “Net Sheet”. The net sheet is a quick and easy way for the bank to evaluate the offer and is often more important than the actual selling price. Always take the time to run the numbers – remember, the highest “net” price wins not necessarily the highest sales price of a given property.
4. Proof of Funds. Don’t expect to be taken seriously until you have proof of funding in place. Whether you are offering an all cash deal, partial financing or some other alternative it is essential to demonstrate you are ready, willing and able to close the deal as soon as possible. Don’t make the mistake of accepting pre-qualification…it means next to nothing as far as the lender is concerned; instead, get preapproved or some other proof of funds to include with the offer.

See you at the top!
Chris McLaughlin

http://www.shortsalesriches.com

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