Real Estate News & Commentary by Chris McLaughlin, October 21, 2009

http://www.shortsalesriches.com

* Follow me on Twitter: http://www.twitter.com/mclaughlinchris

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Fix A Flip … Replay Comes Down Soon!

We’ve been flooded with phone calls and e-mails begging
us to reopen Fix A Flip … so today you get another
chance!  If you’ve been frustrated by not being able to close
your flip transactions due to 30 to 90 day seasoning
requirements, this program is for you!

Watch the replay here:

http://www.shortsalesriches.com/fixaflipwebinar
(please allow a few minutes to upload)

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MBA – Mortgage applications down

The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 16, 2009, decreased 13.7 percent on a seasonally and holiday adjusted basis from one week earlier, and  22.4 percent compared with the previous week on an unadjusted basis.  The Refinance Index, also adjusted for the holiday, decreased 16.8 percent from the previous week and the seasonally adjusted Purchase Index decreased 7.6 percent from one week earlier.  The unadjusted Purchase Index decreased 16.7 percent compared with the previous week and was 3.4 percent lower than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is down 1.0 percent, the four week moving average is down 1.7 percent for the seasonally adjusted Purchase Index, and the Refinance Index  is down 0.6 percent.  The refinance share of mortgage activity decreased to 65.0 percent of total applications from 67.4 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.4 percent from 6.2 percent of total applications from the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 5.07 percent from 5.02 percent, with points increasing to 1.13 from 1.11 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Hidden bailout costs

Neil Barofsky, the special inspector general for Treasury’s financial sector rescue, reports that the bailout has several hidden costs. One is obvious – the hard cost of borrowing money to fund the rescues of banks and other companies – while the others are less tangible but no less important. There is, according to both Barofsky and common sense, a danger that comes with rewarding companies that took excessive risk, and that’s the loss of the government’s credibility with taxpayers.  The government’s lack of transparency about the bailout could cost taxpayers in the long run, as a growing distrust of the government could impede its ability to enact important legislation.  “I think we are already seeing the political costs of people losing trust and faith in their government, such as the palpable anger this summer in response to health care,” Barofsky said. “It requires a certain amount of good will to support extremely important and expensive programs like bailouts.”  Barofsky said Treasury’s assurances to the public last year that it would only invest in healthy companies was undermined by the need to give additional, emergency bailouts to Citigroup and Bank of America, and Treasury’s refusal to require TARP recipients to report on their use of taxpayer funds have both damaged the government’s credibility and also the effectiveness of the bailout.

NAR testifies to Congress

 Ron Phipps, First Vice President of The National Association of Realtors (NAR), called for an extention of the $8000 home buyer tax credit during a hearing on “The State of the Nation’s Housing Market” in front of the Senate Banking, Housing and Urban Affairs Committee.   Phipps called upon Congress to take action on a number of additional fronts to strengthen the recovery. He wants Congress to make the FHA and Fannie Mae/Freddie Mac loan limits, set to expire on December 3, permanent and too continue federal government involvement in the secondary mortgage market. Other issues he says need attention are the lack of liquidity in the jumbo mortgage market; tight credit in the commercial real estate market; the Home Valuation Code of Conduct’s unintended side effects that are hindering sales; increased funding to help FHA upgrade their technology and for Congress to ensure that funding be included in the final version of the FY2010 appropriation for HUD; administration incentives and uniform procedures for speeding short sales under a new Foreclosure Alternative Program; and the potential for significant spikes in interest rates or disruptions to the flow of mortgage capital as the Federal Reserve unwinds the mortgage-backed securities purchase program to ensure that this does not happen.

Some bailout to be cut – but not housing

Treasury Secretary Timothy Geithner says the Obama administration will shut down some programs but remains focused on supporting the economic recovery.  He says the administration will focus on “more-targeted programs directed at what are the principal areas where there’s still weakness in access to credit,” he said, specifically citing housing and small businesses.  Another Treasury official said three programs will be shut down by year-end: the Capital Purchase Program that was used to pump funds into banks, a version called the Capital Assistance Program that was never tapped, and the Targeted Investment Program that supplied $40 billion of additional capital to prop up Citigroup and Bank of America.  The official also said the total of bailout funds dedicated to a Federal Reserve securities loan program and to a public-private investment program for so-called toxic assets would be capped at $30 billion each.  The U.S. budget shortfall hit a record $1.4 trillion in the fiscal year that ended Sept. 30. At 10 percent of U.S. GDP, it was the largest budget gap since World War Two.  The prospect of continued huge budget deficits has worried some investors and has helped drive the U.S. dollar to 14-month lows against a basket of currencies.

Cheaper to foreclose than offer loan modifications?

A new report from the National Consumer Law Center says Mortgage servicers have found it cheaper to foreclose on homeowners than offer loan modifications.  The report points out that servicers in charge of modifying distressed loans are separate from the lenders, who have packaged the loans and sold them in pieces or pools to other banks and investors.   “In the majority of cases, servicers have nothing to do with what’s in the best interest of those investors,” said Diane Thompson, the author of the report and attorney at the NCLC. “We figured this out by following the money, by following who plays what role in all of these business transactions and who gets paid what for doing what.”  Financial incentives encourage servicers to pursue a foreclosure in lieu of a modification, which costs the servicer upfront money in fixed overhead costs, and out-of-pocket expenses such as property valuations and credit reports, according to the report.  “A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified, and no penalty, but potential profit, if the home is foreclosed,” according to the report.

Now on to our real estate investing educational arena …

New Rules for Investing after the Bust

Investing in short sales after the big real estate bust is different. There was a time not so long ago when the only factor required to make a profit in real estate was ownership; wait long enough and the price would go up magically. There was little need to repair, renovate or even rent out the property. Just sit on it a few months and allow the market to drive up the cost until it was time to sell. Today, things are not so simple; it requires an entirely different mindset to invest in real estate after the bust but that doesn’t mean there are no profits to be made. In fact, there might be more profits than ever for those willing to keep pace with change and modify their investment strategy. Here to help are new rules for investing in short sales after the big bust:

1. Know the Area and Audience. Take the time to understand the area, target audience and banks you will be working with. The more informed you are the better prepared you will be to take advantage of the best opportunities. 
2. Follow the dumb-money. Unlike investing in the stock market where people constantly try to figure out where the smart money is going…short sale investors should be on the trail of ‘dumb money’…those people that bought more than they could afford, failed to have a safety net or otherwise need out –now. You are their solution so search for the problem.
3. Don’t take it personally. While some media pundits make short sale investors out to be greedy land barons (you should be so lucky!), the reality is those that dislike short sales are no more honest nor less self-interested than those that deal directly with foreclosures, by-owner listings or other types of investments.
4. Understand opportunity. There are times when “averages” don’t truly reflect the full value of short sales; remember, there are always bad deals made by ill-informed people including those new to short sale investing. Unfortunately, it tends to drive down the full potential by hiding the outstanding profit potential realized by those that work deals right from start to finish. Tune in to some of our free webinars or read other testimonials to see what people just like you are doing to transform their life.
5. Admit when you are wrong. Falling in love with a property happens – it shouldn’t but it does. Learn how to cut your losses and work this system like a business. If you don’t know enough – learn it. If you are making emotional decisions – get a mentor. Everyone has something to learn so face the facts…admit when you are wrong or in need of help then take action.
6. Don’t take advice from inferior agents or others without a proven track record! Book knowledge is one thing but results are entirely something else. Before taking advice from anyone – ask to see their real results….the ones with the dollar sign in front. Then ask to see how many times they were able to repeat the results. Remember, anyone can get lucky once in awhile but that doesn’t mean they have a system that really works.
7. Portfolio’s matter especially when credit gets tight. Have a track record of success to show prospective lenders – it makes each consecutive deal even easier.
8. For the right price even inferior properties can be a good buy. Perhaps a house isn’t to your personal preference but it could be the perfect bachelor pad for someone that desires low cost and easy maintenance; whatever the specifics of the property may be – chances are it works for someone. Learn to ascertain the value of the property by price, cash flow and appreciation rather than personal preference.
9. Keep your eye on the big picture. Know why you are investing in short sales and then work the program.
10. Beware of hysterical analogies. Yes, the nation has problems but we’ve had problems before. Rather than take a hysterical outlook on life, learn how to become proactive instead. It refines the ability to invest, protect your financial future and form a strategy for tomorrow. Even if this nation were to confront a “lost decade” like that experienced by Japan…take a look at how real estate performed. While it didn’t go up (little did), it managed to hold its own…an impressive feat considering they have 100 year mortgages (intergenerational) in some part of Japan.

See you at the top!

Chris McLaughlin

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Copyright Loss Mitigation Institute LLC 2009.

All Rights Reserved.

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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
     400 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
    * Follow me on Twitter: http://twitter.com/mclaughlinchris
    * Add me on Facebook: http://www.facebook.com/mclaughlinchris
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