Foreclosures Jump 33% in June Over Prior Year
Real Estate News & Commentary by Chris McLaughlin, July 16, 2009
http://www.shortsalesriches.com
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Foreclosures hit over 1.5 million homes in first half of 2009
According to RealtyTrac, foreclosures rose 15% in first half of 2009 compared to a year earlier, impacting over 1.5 million homes. Foreclosure filings increased more than 33% in June compared with the same month last year and rose nearly 5% from May. More than 300,000 households have received foreclosure filings in each of the 4 months till June. About 79,000 homes were repossessed by banks in June, up from 65,000 in May.
Analysts say that the $50 billion in subsidies announced by the Obama administration for tackling the foreclosure crisis has not been effective so far. “Despite all the efforts to date, we clearly haven’t got a handle on how to address the situation,” said Rick Sharga, RealtyTrac’s senior vice president for marketing. Nevada saw the highest foreclosure rate in the first half of 2009 with over 6% of the households receiving a filing. Arizona was next to Nevada, followed by Florida, California and Utah. Analysts say the mortgage modification program announced by the government is mired in inefficiency and mortgage companies are not equipped to handle the program. “They need to automate the process, and they need better technology, and they need to do this quickly,” said Bill Kelvie, chairman of Overture Technologies.
Mortgage securities boost bank profitability
Despite all the gloom and doom in the housing market, mortgage securities are helping banks post better results. An analysis of the second quarter results of banks shows that banks have made hefty gains on account of the recent rallies in the price of mortgage securities. “It’s the mother of all mortgage quarters,” said Meredith Whitney, a banking analyst. Traditionally, mortgage banking has accounted for about 3% of revenues for large banks; it has more than doubled to 6.4% in the first quarter of this year.
According to Inside Mortgage Finance, a publication, lenders issued about $1 trillion worth of mortgages during the first half of 2009. Banks have seen an increase in margins in mortgage lending. New accounting rules which allow banks to book lower losses on troubled loans are likely to help. Jack Ciesielski of The Analyst’s Accounting Observer estimates that the earnings of the biggest banks could have decreased significantly but for the new accounting rule. With the housing sector not showing signs of sustained recovery, some analysts say profits from mortgage business may not sustain. “You might believe that the environment has stabilized, but looks are sometimes misleading,” said Whitney.
7-Eleven’s growth strategy amid weakness in the real estate market
7-Eleven, which has a chain of about 5,700 convenience stores, plans to add more than 200 new outlets this year. This is in contrast with retail chains closing their stores due to economic downturn. The company says the current weakness in the commercial real estate market will help keep its expansion costs low. The company has identified California and New York as the states where it will open most of the new stores. Dan Porter, vice president for real estate and new store development at 7-Eleven, says the company is getting access to retail space which was earlier too expensive. Consumers are trading down to necessities and chains like 7-Eleven are likely to be less-impacted by the recession than chains which sell high-end products. ”While the business is not recession-proof, it’s recession-resistant, and doing well, given the marketplace,” said Mike Friedman, a senior vice president of CB Richard Ellis, a real estate firm which works with 7-Eleven.
CIT Group on the verge of bankruptcy
It looks unlikely that CIT Group (CIT), a troubled commercial lender to small and medium firms, will be rescued by the government. CIT, which has already received $2.3 billion in bailout funds, has not been able to convince the government that its failure will lead to the collapse of financial system. CIT said that “there is no appreciable likelihood of additional government support” in a statement. CIT is facing a significant cash crunch and has to confront $1 billion debt maturing next month. The Federal Reserve, after conducting stress tests on CIT, concluded that CIT will need an additional $4 billion in capital under the worst economic scenario.
Government officials are reluctant to infuse additional funds since they say that the firm has no viable business plan and there is no point in throwing good money after bad. CIT has posted a loss of $3.4 billion across 8 straight quarters. “It’s a killer,” said Sean Egan, president of Egan-Jones Ratings while commenting on government’s refusal to infuse additional funds. “What’s next is that they’re going to have to scrape for capital to meet the next loan payment and it’s highly likely that they’re going to file for protection.”
Goldman’s average employee compensation set to double in 2009
With Goldman Sachs delivering a knockout second quarter profits, analysts say that the bank is on its way to doubling its average employee salary. Goldman’s compensation expense including salaries, benefits and severance payouts, was $11.4 billion in the first half of 2009; this is well above $8.5 billion in the first half of 2008 and $11 billion in the first half of 2007.
The average Goldman employee is projected to make $773,000 for 2009, more than doubling their 2008 salary; this is more than 10 times the typical American family’s income. Given the current mood in Capitol Hill, Goldman’s employee compensation could well become a target of populist anger. Some analysts say Goldman has performed better than its rivals by shedding risky assets, holding adequate cash reserves and raising capital, and hence its employees deserve pay hike. “Look, I hate the corporate welfare,” said David Merkel, chief economist at Finacorp Securities. “But at least Goldman did play all its cards right.”
Now on to our real estate investor education section…
Order of Work By Profit Potential
Whether you are seeking new ways generate the best rates of return or just searching for a bargain basement price to begin building a real estate portfolio, sooner or later you will encounter a property that needs work. The decision on what project to start with is more than an academic question – should you run out of time, or experience a set-back in funding, having the most important work performed first assures the highest selling price. In order of profit potential (or missed opportunity as the case may be) here are the major projects listed by order of importance:
- Exterior. Plain and simple…exteriors make or break the bank. Ugly houses bring less money. Pretty houses make more money. Search for ugly homes that are below the standards of the neighborhood then bring them up to par in order to buy low and sell high.
- Clean. It’s simple yet effective. Make sure the interior and exterior of the home is clean and freshly painted. Trim hedges, pressure spray walkways and driveways. It’s simple yet effective.
- Roof. Undoubtedly the next “biggie” when it comes to selling the home is the condition of the roof. Even the slightest appearance of a potential roof problem turns hot buyers cold. Research shows a disproportionate loss of income potential on a property that requires roof repairs…even if the repairs are relatively modest. Learn how to calculate the cost of roof repairs and submit bids where others fear to tread…and always makes sure the roof of your own property is in good condition to fetch top dollar.
- Exterior Doors, Windows & Siding. Exterior doors should be replaced with low cost builder quality models if damaged or aged. Windows must be in working order and should be appropriate for the weather in the given area. You can often repair windows for a fraction of the cost of replacing as long as they aren’t an eye-sore. Repair siding whenever needed – but only after taking care of doors and windows.
- Plumbing. The majority of plumbing problems tend to be relatively simple and straightforward but you will likely be surprised how many are neglected. Don’t allow your home to show any leaks or water stains! Invest a few bucks in washers or new faucets then cover or repair any areas that have water stains. Builder quality is sufficient for basic homes as long as it looks clean and fresh. Upscale homes should reflect better quality products and amenities.
- Duct Work & Insulation. The emphasis on clean and green has more savvy shoppers paying special attention to air quality and energy efficiency. Have an inspection performed and take care of any known problems in advance. It’s typically a low cost fix.
- Lighting, Molding & Other Details. Walk through the house beginning at the front door to make sure each door knob, trim and other details are in acceptable condition. Each should be clean, stable and perform without problem…otherwise, fix/replace it. Luxury homes should evoke a “ahhh” response for each item while modest homes should simple not evoke any response – ie, the items should be invisible.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com
Copyright Loss Mitigation Institute 2009.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting nearly
450 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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