Smart Real Estate News & Commentary by Chris McLaughlin, February 16, 2010

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WSJ – studies show more short sales opportunity

Two separate studies by John Burns Real Estate Consulting Inc. and Standard & Poor’s Financial Services LLC, both conclude that most efforts to modify loans with easier terms will delay, not prevent, the loss of homes to foreclosure.  The John Burns study estimates that five million houses and condominiums will go through foreclosure or related procedures that put them on the market over the next few years. That would represent the bulk of the estimated 7.7 million households behind on their mortgage payments.  The problem is concentrated in Arizona, California, Florida and Nevada. The shadow inventory is equivalent to 27 months of sales in Orlando, 24 months in Miami and 18 months in Las Vegas, the study estimates.  John Burns, chief executive of the consulting firm, said investor demand for foreclosed homes remained strong. Thus, he said, prices were likely to be about level over the next few years, despite the looming foreclosure supply, if the economy continued to recover and mortgage interest rates didn’t rise sharply.

But if the economy slumped anew and interest rates jumped, he said, “that’s going to cause prices to fall further.”  The S&P study also says that the “overhang” of foreclosed homes expected to go on the market points to lower home prices.  Some borrowers are catching up on payments after having their loan terms modified, but S&P says current trends suggest that 70% of such borrowers eventually will redefault. Loan servicers, firms that collect payments and handle foreclosures, seem to have “nearly exhausted the supply of plausible candidates for loan modifications” and will find that many loans are “unredeemable,” the S&P study says.  As a result, servicers increasingly are looking to arrange “short sales,” in which homes are sold for less than their loan balances.

Carter’s jobs bill

Increasingly the name “Jimmy Carter” pops up when President Obama is being discussed, and Obama’s jobs bill isn’t going to put a stop to the comparison.  The centerpiece of the bill — a tax break for companies that make new hires — is a play straight from Carter’s economic policy circa 1977?  Then, as now, the economy looked anemic and unemployment was high: 7.8% when Carter entered office, compared with 9.7% now. So just eleven days after his inauguration, the president proposed giving companies a temporary tax break if they hired new employees, calling it the New Jobs Tax Credit. The law went into effect for 1977 and 1978, over which time the unemployment rate fell 2%.  Economists today are divided on whether it was a success, and their reasons get at the heart of the current jobs bill debate. The goal of any jobs tax credit is to spur a company to hire when it otherwise wouldn’t. The trouble is, it’s impossible to distinguish exactly which companies have plans to hire anyway.

Lawmakers can only do their best to design a bill with the right incentives.  Critics of Carter’s plan — and Congress’ now — say that the problem with any jobs credit is the potential for waste. It’s estimated that of the companies that claimed the tax credit under Carter’s plan, two-thirds would have hired those employees regardless of the tax break.  Rea Hederman, a senior policy analyst at the Heritage Foundation, says the big beneficiaries of the tax credit this time around would be companies in the big-growth areas of health care and education.  Another problem with the 1977-78 effort is that many companies, especially small businesses, didn’t even know about the tax credit. A survey by the National Federation of Independent Business found that only 43% of their members knew of the law in January 1978.  Unfortunately everyone agrees the latest version of the jobs bill on the Hill isn’t going to do much. Bartik estimates that with its $13 billion price tag, the law would create 350,000 jobs at best — a drop in the bucket compared with the over eight million jobs lost since the end of 2007.

DSNews.com – Moody’s forecasts 8% decline in prices

Moody’s Investors Service is forecasting another 8% decline in home prices over the course of 2010 before a bottom in residential property values is reached, largely because of the “underwhelming” success of the administration’s Home Affordable Modification Program (HAMP).    When all is said and done, the ratings agency predicts a peak-to-trough drop of 34% in national home prices. That’s actually an improvement over Moody’s estimates last month, when the agency was expecting a total peak-to-trough decline of 37 percent. However, it’s the duration of depreciation that’s the headline grabber. Previously, Moody’s analysts were predicting the price floor to be reached in the third quarter of this year. Now they say it won’t be hit until the end of the fourth quarter.  The reason for the extended freefall is the timing of foreclosure sales hitting the market. Market barometers such as the S&P/Case Shiller index and the National Association of Realtors’ existing-home median price have, in fact, shown improvements in recent months, but Moody’s says the progress is short-lived.  “We believe that the recent improvement in house prices is a temporary reprieve,” Moody’s said in its latest ResiLandscape report. “A decline in distress sales-including foreclosure, deed in lieu, and short sales-as a share of total home sales is a driving contributor to the gain in house prices.”

Capital One reports rise in defaults

Capital One said the annualized net charge-off rate—debts the company believes it will never collect—for U.S. credit cards rose to 10.41% in January from 10.14% in December.  Accounts at least 30 days delinquent—an indicator of future loan losses—were up marginally to 5.80% from 5.78%.  Capital One is the third-largest U.S. issuer of Visa branded credit cards, and the fifth-largest issuer of MasterCard branded credit cards.  For U.S. auto loans, Capital One’s charge-off rate was 4.27% in January, down from 5.68%in December, and the delinquency rate fell to 9.61% from 10.03%.  In credit card international operations, including Canada and Britain, the charge-off rate fell to 9.03%from 9.58 percent, while the delinquency rate rose to 6.66% from 6.55%. Capital One routinely kicks off the monthly reporting of credit card charge-offs. JPMorgan Chase, Bank of America, Citigroup, American Express, and Discover Financial Services are expected to report the monthly performance of their credit card portfolios on Tuesday.

Freddie Mac – fixed rate mortgages more popular

Freddie Mac reported yesterday that 95% of refinance loans during the last quarter of last year were of the fixed-rate variety.  while traditional 30-year fixed-rate mortgages are still the most preferred product among refinancings, 15-year fixed-rate mortgages gained favor among borrowers who previously held 30-year fixed-rate mortgages, balloon mortgages and ARMs, the GSE said in a statement.  “The lowest fixed-rate interest rates in more than a generation, coupled with the comfort that a constant monthly principal and interest payment provides the homeowner, are important drivers in fixed-rate product choice,” said Frank Nothaft, vice president and chief economist for Freddie Mac.  “While homeowners are choosing the safety of fixed-rate mortgages in large numbers, at the same time many borrowers are now looking at paying down their mortgage balances faster by choosing a shorter mortgage term of 15 or 20 years instead of 30.”  Borrowers also chose to pay down principal during refinancing at a record clip in the fourth quarter. Freddie reported at the end of January that 33% of borrowers paid down their original principal by $1,000 or more during the process of refinancing their mortgage — the highest such “cash in” refinancing volume in the history of the GSE’s survey.  “When you can only earn a very low interest rate on your CD or money market accounts, and returns on other investments remain extremely uncertain, it can make sense to pay yourself 4.5 or 5% by eliminating some mortgage debt whether by making extra payments or going for a shorter loan term,” Nothaft said.

Now on to our real estate investing educational section…

Double Your Income in Real Estate

Sick and tired of “feel good” motivational books that promise the world but deliver little in terms of your net worth? Good. Perhaps you are ready to make real profits rather than listening to empty promises. Real estate has historically been one of the leading roads to wealth for average American’s seeking a better life but it also has more than its share of casualties lost along the way. Survey’s show the average real estate professional makes less than $50,000 a year…many as little as $15,000 annually….a comparable rate to just one or two quick short sales done right.

Is it really possible to double your income in real estate? Absolutely. The key to any type of sales related area is word of mouth marketing. Duh right…of course! But we aren’t talking about just any word of mouth marketing…no, we are talking about WORD OF MOUTH on steroids; developing the type of “A” list others would only dream about. Creating such demand for your services that the “B” list becomes a secondary source of referral income simply because you are too busy to handle it.

Before we get into the nuts and bolts of what it takes to double your income in real estate, let’s first define what this isn’t…

1. This isn’t a spiel about how “service is its own reward”. Let’s face it, if service were its own reward you could spend more time at the local volunteer center any day of the week. Hard work deserves a real reward – the type you can take to the bank.

2. This isn’t a long term process that promises to pay off in ten, twenty or thirty years. Chances are you have been taught time and time again that there are “no shortcuts in selling”. Bunk! Of course there are shortcuts in selling and they are used all the time by those that thrive rather than barely survive! The rest of the crew is kept in line by scavenging the bottom for the few that fall through the cracks. Move up the food chain and learn to play the game like the big boys.

3.  This isn’t about toxic attitudes or how to “win friends and influence people”; the system works just as well whether you are an untamed punk or stodgy old fart.

4. This isn’t about the history of real estate – knowing that never made anyone richer but it’s bored a lot of people along the way.

What this is about is generating an “A” list that would be the envy of every real estate agent in the nation. The type of list other spend an entire career to generate. Plain and simple it’s all about your sphere of influence – it’s a numbers game in the most literal manner. Numbers don’t lie but they are tough for the average agent to muster.

Y’know the rules; begin with friends and family then hit up church groups and social clubs…then wait for others to hopefully mention your name when the time comes for someone to buy or sell. That’s not a strategy – it’s an antiquated popularity contest. Fortunately the rules have been re-written thanks to technology and social networking that expands your reach far beyond anything possible during the days of “business cards”. True exponential growth isn’t just possible but actually probably when used properly. Find out more by registering for our webinar on Proven Social Media Riches this Wednesday:

https://www2.gotomeeting.com/register/698867362

See you at the top!

Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 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 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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