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

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“Lazy Person’s Way to Pre-Foreclosure Riches”

Since putting this system to work instead of me, I’m

slaving away at the beach with sun screen on my arms,

and my cell phone at my ear for a full, uh, 20 hours

a week.

Life’s not so tough when others willingly do your work.

And the earnings?  Out of this world!  See how I do it

anywhere I want from my iPhone… and it won’t cost you

a cent Thursday at 8:30 PM ET, 5:30 PM PST:

https://www2.gotomeeting.com/register/553411947

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FDIC combats foreclosure scams

The Federal Deposit Insurance Corp. (FDIC) just released a tool kit to stop “rescue” scams that promise — but do not deliver — aid to borrowers on the verge of losing their home.  The tool kit includes information to point borrowers to the right contacts and clarifies what documents they need to apply for loan modifications.  The “Beware of Foreclosure Rescue and Loan Modification Scams” brochure provides information on common schemes, like partial interest bankruptcy scams.  A partial interest bankruptcy scam asks a borrower to give one or more third parties a partial interest in the home, as the borrower makes payments on the delinquent mortgage.  One by one, the holders of the interest file for bankruptcy to delay foreclosure while the scam operator collects payments.  “Everyone with a stake in this issue – from community leaders to those with a neighbor, friend or family member facing hardship – must take responsibility for reporting questionable activity and directing consumers to legitimate sources for assistance,” says FDIC chairman Sheila Bair.

Economy improving…or not

The Commerce Department said Thursday housing starts rose 1.5 percent from July to a seasonally adjusted annual rate of 598,000 units.  In another report, the Labor Department said the number of workers filing new claims for jobless benefits fell by 12,000 last week to 545,000, the lowest level since early July.  A survey yesterday showed that confidence among U.S. home builders reached its highest level in 16 months in September, which bodes well for future home construction.  All this sounds just peachy, and fuels speculation that the economy is improving, but we’ve heard that before…a lot.  The flip side is that The Labor Department report showed the number of people still on jobless aid after an initial week of benefits increased by 129,000 to 6.230 million in the week ending Sept 5, the latest for which data is available.  It was the largest one week gain since late June.  Meanwhile, the inventory of total houses under construction fell to a record low 595,000 units in August, the Commerce Department said, while the total number of permits authorized but not yet started also hit an all-time low of 99,000 units.

MBA Study Shows Increased Production Profits

According to the Mortgage Bankers Association’s (MBA) Quarterly Mortgage Bankers Performance Report, mortgage bankers made an average profit of over $1,088 on each loan they originated in the first quarter of 2009 – a marked improvement over the 4th quarter 2008 results in which average profits were $148 per loan.  85 percent of the firms in the study posted pre-tax net financial profits in the first quarter 2009.  In the fourth quarter 2008, only 53 percent of the companies posted profits.  The average number of retail loans originated per retail sales employee rose to 10.4 loans per month in the first quarter 2009, from 5.3 loans per month in the fourth quarter 2008.  The “net cost to originate” fell to $1,725 per loan in the first quarter 2009, compared to $2,324 per loan in the fourth quarter 2008.  The “net cost to originate” includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.  Net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest paid on a warehouse line of credit, continued to pose a challenge for the mortgage bankers in this study.  Interest spread dropped to 6.60 basis points in the first quarter 2009, compared to 9.28 basis points in the fourth quarter 2008.

Bill Promoting Warehouse Lending Passes House

A resolution directing Administration officials to provide support and facilitate increased warehouse credit capacity for qualified warehouse lenders passed in the House.  The bill notes that while warehouse lenders account for as much as 40% of all residential mortgage loans in the US and nearly 55% of FHA loans, warehouse lending capacity has declined by nearly 90% to the current level of approximately $20bn to $25bn.  The resolution, H.R. 3146, would expand Federal Housing Administration (FHA) personnel and training and requires the Department of Housing and Urban Development (HUD) continue to review FHA-insured loans that become 60 days delinquent in the first 90 days of origination to allow earlier intervention and sanctions against potentially underperforming lenders.  It also directs HUD to carry out “demonstration programs” to analyze loss mitigation strategies for FHA-insured loans.  The House resolution will now go to the Senate for consideration.

The blame game begins

A 10-member bipartisan Financial Crisis Inquiry Commission, charged with getting at the roots of the debacle that late last year brought world banks and capital markets to the brink of collapse, will hold its first meeting today.  Critics say the causes of the crisis are already understood, ranging from deceptive mortgage lending and reckless debt securitization, to irresponsible banker bonuses and unregulated over-the-counter derivatives markets, and that dredging through all that again will only be a waste of time and a distraction from more urgent tasks.  Its proponents say that it has the potential to profoundly influence policy, and point at the impact of the so-called Pecora Commission in the 1930s, on which today’s panel was loosely modeled.  The Pecora Commission, initiated by the Senate Banking Committee, exposed rampant misconduct among some of the richest and most powerful men in America and led to reform…which brings us to the real reason for the commission:  it may be the Obama administration’s best hope of reinvigorating a push for tougher financial regulation…and to take a whack at capitalism in the process?

Now on to our real estate education section…

Capital Gains or Cash Flow?

Not so very long ago the rage of the day was investing for capital gains and future appreciation with very little consideration given to cash flow. In fact, many so-called real estate “investors” were more than willing to buy high with the hope of selling even higher while carrying a negative cash flow all the way. Debt was viewed as only a temporary situation likely to be rapidly resolved as soon as the property sold…and properties were selling in record numbers at record prices.

Unfortunately, the tide changed (as it is prone to do) and by 2009, the vast majority of “investors” that purchased exclusively with capital gains in mind are now crying the blues. It’s not limited to real estate investors; the stock market dropped by over 50 percent at the low while home prices plummeted by a third.

On the other hand, those investors that invested for cash flow are in a much better position since rents have not experienced such a dramatic decline. They are able to sit out the financial storm while collecting a steady stream of earnings each and every month or even purchasing additional properties via short sales at bargain basement prices. Remember, rentals are not the only way to invest for cash flow; flips, lease and even owner finance all present the potential for cash flow but the basic idea is always the same….make sure you buy low enough to generate cash flow and keep a little “buffer” just for emergencies.

So, is there a time to invest exclusively for capital gains without regard to cash? Perhaps. Like any investment, if you have additional money to burn and can afford to support the property during any downturns it is possible to generate major returns. However, always be aware of the inherent risk of a property unable to “pay for itself” while still generating a profit.

The bigger question is why settle for a high risk endeavor when there are so many short sale properties that are able to generate substantial cash flow for the taking? If you are still stuck in the capital gains only mindset try out these quick tips:

1. Crunch the numbers. We have said it time and time again – know the numbers for each and every property. Buy right and selling is simple but even if faced with a delay, the property is able to generate enough cash flow to pay for itself and put a little extra in your pocket for the trouble. Learn to do the math…it’s not hard especially if you are a regular reader of the www.shortsalesriches.com/blog.
2. Use a “worst case” cash flow example and a “best case” cash flow combined with capital gains scenario.
3. Improve or purchase currently owned properties. Not only are there plenty of properties to chose from but labor is less expensive thanks in part to extremely competitive bids among contractors. Increase the earning potential of properties to enhance long term capital gains while continuing to college cash flow.
4. Don’t be afraid to sell. Cash is still king and another important source of cash flow that can be used to finance or expand your present forms of property.
5. Calculate your cash flow from assets independent from “earned income” or work. It is more important than ever not to risk your entire financial future solely upon your job.

See you at the top!
Chris McLaughlin

http://www.shortsalesriches.com

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