Real Estate Riches News & Commentary by Chris McLaughlin, January 29, 2010

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Freddie Mac mortgage refinance purchases rise 41%

The volume of refinance loans bought by mortgage giant Freddie Mac swelled 41% in December from the previous month to $27.3 billion.  In November, Freddie bought $19.3 billion of refinance loans, a 7% gain from October.  Freddie’s total mortgage portfolio grew at an annualized rate of 5.7% in the month, while at the same time the aggregate unpaid principal balance of the mortgage-related investments portfolio slid to $755.3 billion, from $761.8bn at the end of November.  Purchases and issuance totaled $44 billion in December, bringing the full-year 2009 total to $548.37 billion. 

The delinquency rate in Freddie’s single-family portfolio grew 15 basis points to 3.87%, while the multifamily delinquency rate was virtually flat at 0.15% in December. A year earlier, the single-family portfolio was 1.72% delinquent, while the multifamily portfolio was 0.03% delinquent.  Freddie’s guaranteed participation certificates and structured securities issued increased at an annualized rate of 5.9% in December. Issuance for the month included $4.4bn of guarantees under the Housing Finance Agencies (HFA) initiative, in which the Treasury Department bears initial losses on these securities up to 35% of the program-wide issuance.

HAMP’s last stand

Yesterday the Treasury Department announced new guidelines that will require applicants to provide all paperwork before getting a trial modification.  The new policy should make it easier for homeowners to qualify for permanent assistance under President’s Obama foreclosure prevention plan, even though it makes it harder for them to start the process.  Borrowers have been complaining that their loan servicers constantly ask for additional documents and lose their forms. Servicers, meanwhile, say that borrowers are not handing in all that’s needed.  The new rules, which start June 1, will shift the paperwork burden from the back end to the front end of the process.  Distressed borrowers will have to fill out a three-page request form that asks them to explain their hardship and list their income and expenses.

They will also have to sign an IRS 4506-T form that allows servicers to pull their tax returns. Both forms are available on the Making Home Affordable program’s Web site.  Applicants will also have to verify their income. For those earning a salary, two recent pay stubs will be sufficient. Other earnings, such as income from self-employment, benefits, or rental properties, must still be documented.  Servicers must acknowledge receipt within 10 business days and, if the file is complete, let the borrower know within 30 days if he or she is approved for the trial modification. If the documentation is incomplete, the servicer must tell the borrower what is outstanding.  Those who are approved for trial adjustments and make three timely payments will be automatically converted to long-term modifications.  Both servicers and housing experts applaud the move, saying that borrowers will now have a better sense of their chances for permanent help.  “It will not lead to more modifications, but it will lead to more certainty,” said Howard Glaser, head of The Glaser Group, a financial services analytics firm.  At least now everyone’s bluff is being called…

GDP up

According to a Federal Reserve report, The nation’s gross domestic product (GDP) rose at a 5.7% annual rate in the fourth quarter. The growth in the fourth quarter was the highest since the third quarter of 2003, and economists surveyed by Briefing.com had only forecast growth of 4.7%. The economy rose at 2.2% annual pace in the third quarter of last year, but even with the strong growth in the second half of 2009, the economy shrunk by 2.4% last year. That was the biggest drop in 63 years and first annual decline for the economy since 1991.  The GDP report doesn’t mark an official end of the recession. That determination will be made by the National Bureau of Economic Research, and that group typically waits months — if not more than a year — to declare when recessions ended and began.  But two straight quarters of economic growth is typically a sign of a recovery, and most economists agree that the recession ended at some point in the middle of 2009.

The Federal Reserve even used the word “recovery” in the statement following its latest meeting earlier this week.  Much of the improvement was driven by a turnaround in inventories…3.4 percentage points of growth in the fourth quarter came from the change in inventories. A pickup in auto production was a significant part of the inventory turnaround, even though auto sales themselves only rose modestly. An 18% jump in the value of exports also played a major role in the economy’s rebound, contributing nearly 2 percentage points of growth.  Sung Won Sohn, economics professor at Cal State University Channel Islands, said there was good news in the report, but cautioned that the economy is unlikely to keep growing at such a strong pace.  “The not-so-good news is that most of the growth came from temporary factors such as inventories and government stimulus which can’t be sustained,” he said.  Federal spending on stimulus does not show up on any one line of the GDP report. In fact, government spending contributed nothing to growth by itself, even though tax cuts and spending by businesses that received stimulus dollars helped to feed temporary growth in the third and fourth quarters.

DSNews.com – Commercial real estate an opportunity?

According to the CCIM Institute and the Real Estate Research Corporation (RERC), commercial real estate is positioning itself to be an attractive investment on a risk-adjusted basis in 2010 and 2011.  Property prices in the retail and apartment sectors showed moderate increases in the fourth quarter of 2009, breaking the string of significant price declines during the previous 12 months. In addition, CCIM and RERC said weighted average capitalization rates for the office, industrial, retail, and apartment sectors increased by 20 to 30 basis points in the fourth quarter. 

The RERC/CCIM Investment Trends Quarterly Report showed that 12-month trailing transaction volume increased slightly in the apartment and retail sectors, hinting that volume may be starting to bottom out for these property types. While transaction volume for the office and industrial sectors continued to decline in the fourth quarter, it did so at a much slower rate than in the previous three quarters, the groups said. “The latter part of 2008 and all of 2009 were definitely the shock years, and we’re looking to 2010 as the recovery year,” said Richard Juge, the 2010 president of the CCIM Institute. “We will see more activity, perhaps not in gross dollar levels, but in the volume of deals that close in 2010. This is the time to buy.”

Economic outlook brightens a bit

According to a survey published yesterday by Towers Watson, a global human resources consultancy, 92% of employers plan to expand payrolls this year.  Unfortunately the survey also found that 36% of employers are planning “targeted workforce reductions” this year, down from the 58% that have cut workers since the financial crisis began in 2008.  “While there are signs of improvement, it’s clear we’re not going back to ‘business as usual’ anytime soon,” Laura Sejen, a rewards practice leader at Towers Watson, said in a statement.  While the weak job market has made it easier for businesses to retain workers over the last year, 51% said it will be harder to keep employees from jumping ship a year from now.  The survey also highlighted how the weak economy has forced employees to remain in the workforce longer and save less for retirement.

Over half of the businesses in the survey said the number of employees working past their desired retirement age has increased over the last year, and one third expect that trend to continue.  Almost a third of companies reported that employees have on average reduced their contributions to 401(k) plans from pre-financial crisis levels, and 51% have seen an increase in hardship withdrawals.  Employers also indicated that health care costs have gone up and will continue to rise in 2011.  Despite the challenging economy, 55% of employers believe worker productivity had risen compared with pre-financial crisis levels, and 48% expect productivity will continue to rise by next year.  The survey was conducted in early January with 118 mostly large employers in the United States and 459 employers globally.

Tax credit for jobs

President Obama plans to propose a $33 billion tax credit to encourage small businesses to hire workers and raise wages in 2010, according to an administration official.  The plan was alluded by Obama in the State of the Union address, where he claimed he would make jobs priority number one. It will grant a $5,000 tax credit for every net new worker hired in calendar 2010. The amount will be capped at $500,000 per firm to make sure that the bulk of the benefits go to small businesses. 

In addition to the jobs credit, firms increasing wages or hours for their workers will be reimbursed for the social security payroll taxes they pay on the real increase in their payrolls. This measure is included in the $500,000 cap to make sure the benefits stay focused mostly on small businesses.  Obama will propose to pay for the plan with savings from a $700 billion bank bailout fund, the official said, but made plain that this would be up to the Congress to decide.  In addition, Obama wants to use a further $30 billion from TARP to aid the flow of credit through community banks to small businesses. The White House said there would be more details on this aspect of Obama’s job strategy in the coming weeks.

Now on to our real estate investing educational section…

Friday File – 15 Minute Short Sale Resolution for the Week

With the beginning of a new year it is time to track your short sale progress and financial fitness. This week take 15 minutes to determine your net worth. Not only will it provide the foundation for determining your level of success throughout 2010, but it is a great way to obtain a realistic indication of your fiscal health and wellbeing.

1. To calculate your net worth simply sit down and add up the value of all your assets including home, cars, jewelry and anything else that could be sold or liquidated to generate cash. It is up to you whether or not to include your personal home or dwelling. Since you need a place to call home, many experts believe your primary residence should be excluded from the net worth calculation. On the other hand, if you can take a home equity loan or otherwise access cash from the property it may be fine to include the amount above and beyond what renting a home would cost.

2. Next, make a second list containing all debts and obligations; taxes, credit cards, student loans and other liabilities should be included.

3. Subtract #2 from #1 or, to express it another way, subtract all the debts and obligations from your assets. If the total is positive, then congratulations…you have a positive net worth. If the number is negative it is time to do some serious reflection on your financial status. Remember, it’s not necessarily related to the total amount of debt you owe but rather the total amount of assets at your disposal.

4. Once you have determined your net worth, set a realistic financial goal for 2010. If your net worth is negative, determine how many short sale deals will be required to put you into positive territory. If your net worth is positive, determine how much you want to increase it as a percentage then track your progress each month. Not only is it quick, easy and effective…but tracking your net worth is actually fun once you start showing progress!

Besides, it only takes 15 minutes. In less time than it takes to waste another coffee break you can take the first step in changing your life with short sales. Tune in next week for another 15 minute resolution designed to jump-start your short sale investments and transform your financial life. Meanwhile, have a great weekend!

See you at the top!

Chris McLaughlin

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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 over
     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
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
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