bailout

Real Estate News & Commentary by Chris McLaughlin, October 1, 2009

http://www.shortsalesriches.com

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

************

Investors – tired of losing your short sales and REO

flips to 30 day seasoning rules… or the deal dying

on the vine when it takes too long to close?

And, you’re locked out of an important group of buyers -

FHA – because you have to own the property for 90 days

before you can resell it!

Now we have a solution to all these problems, which have

left too many investors high and dry.  And the Encore begins

at 8:30 PM ET, 5:30 PM PST tonight!

https://www2.gotomeeting.com/register/971387978
************

50% of modified loans in default

The Obama administration’s plan to tackle the foreclosure crisis got off to a slow start, but as of last month, about 360,000 borrowers, or 12 percent of those eligible, have signed up for three-month trial modifications.  However, the federal Office of the Comptroller of the Currency and the Office of Thrift Supervision (where did all these “Offices” come from?)  says that more than 50 percent of homeowners with loans modified in the first half of last year had missed at least two months of payments a year later.  The results were better among those who saw their payments drop substantially, with only one in three borrowers whose monthly payments were reduced by 20 percent or more falling behind again within a year.  The modifications are supposed to be extended for five years if the homeowners make their payments on time, but there’s no current data on redefaults within the plan.  The report covers 34 million loans, representing more than 60 percent of primary home mortgages and, consistent with other reports, it showed borrowers are continuing to fall behind as job losses mount.  More than 11 percent of borrowers covered by the report had missed at least one payment as of June 30, up from 10 percent in April.

Job losses up this week

The Labor Department’s weekly report claims there were 551,000 initial jobless claims filed in the week ended Sept. 26, up 17,000 from an upwardly revised 534,000 the previous week.  The 4-week moving average of initial claims was 548,000, down 6,250 from the previous week’s revised average of 554,250.  Ian Shepherdson of High Frequency Economics wrote in a research note that “a correction was overdue” after three consecutive declines in initial claims.  “Progress is slow,” Shepherdson said.  “There is still no sign of a near-term stabilization in employment.”  Meanwhile, 6,090,000 people filed continuing claims in the week ended Sept. 19, the most recent data available.  That was down 70,000 from the preceding week’s ongoing claims.  The initial claims number identifies those filing for their first week of unemployment benefits.  Continuing claims reflect people filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks.  Neither of the statistics include people who have moved to state or federal extensions, nor people whose benefits have expired.

MBA supports Consumer Financial Protection Agency

In Testimony on President Obama’s proposed Consumer Financial Protection Agency, the Mortgage Bankers Association (MBA) endorsed an approach that incorporates parts of the committee’s proposals buttressed by pieces of MBA’s Mortgage Improvement and Regulatory Act (MIRA).  MIRA would assign regulation of non-depository mortgage lenders and mortgage brokers and implementation of a uniform mortgage lending standard to a federal prudential regulator.  MBA stressed the need for one rigorous, uniform national lending standard to eliminate the patchwork of confusing and costly state laws that do not provide consistent protection to consumers nationwide.   Federal Reserve Chairman Ben Bernanke, for his part, failed to endorse the agency in a news conference in which he endorsed just about everything else in the Obama administration’s plan to overhaul the regulatory system.

Pending home sales boom

As expected because of the looming expiration of the tax credit, the August Pending Home Sales Index from the National Association of Realtors (NAR) surged in the seventh straight month-over-month improvement in the indicator, but even so, it outdid expectations considerably.  A panel of analysts surveyed by Briefing.com had forecast a 1% rise, and the actual was a leap of 6.4%.  Pending sales are considered a forward indicator of housing market health since contract signings precede actual closings, which typically occur two to three months later.  August contract signings show up in October and November NAR statistics as existing home sales.  “No doubt many first-time buyers are rushing to beat the deadline for the $8,000 tax credit, which expires at the end of next month,” said Lawrence Yun, NAR’s chief economist.  One problem in extrapolating future closings from contract signings, however, is that there are continuing problems obtaining mortgages that may scuttle many deals, according to Yun.  “The rise in pending home sales shows buyers are returning to the market and signing contracts, but deals are not necessarily closing because of long delays related to short sales, and issues regarding complex new appraisal rules.”

Manufacturing down

Sure enough, the trend the Chicago Purchasing Managers Index warned about yesterday came true today when the Institute for Supply Management (ISM) reported that manufacturing activity fell to 52.6 in September from 52.9 in August, short of expectations.  According to a Briefing.com consensus survey, economists had expected a jump to 54 from August’s 52.9.  The monthly report is a national survey of ISM members, who are purchasing managers in the manufacturing field.  The data track new orders, production, employment, supplier deliveries, inventories, customers’ inventories, the backlog of orders, prices, new export orders, imports, and buying policies.  Index readings above 50 indicate growth, while levels below 50 signal contraction.  Readings below 41.2 are associated with a recession in the broader economy.  Most telling, the key new orders component fell by 4.1 percentage points in September, to 60.8.  New orders are a gauge of manufacturing activity in the near future.  “It appears the fundamentals for continuing recovery are still at work,” said ISM chairman Norbert Ore, in a prepared statement.

Now on to our real estate educational section…
Deflation & Short Sales – A Timeline into the Future

Economists and investors alike have been engaged in a hot debate regarding inflation versus deflation; on one side of the ring are heavy hitters like legendary Marc Faber, Peter Schiff and Kiyosaki (inflationists) while the deflationists cite the works of “Mish” Shedlock and Henry Dent. The question is of more than passing interest to every short sale investor; invest wrong and it could easily wipe-out a lifetime of earnings.

In order to summarize the major considerations of deflation versus inflation it is necessary to take a few steps back and objectively evaluate the scenario. First, real estate is a hard asset which tends to do well during periods of rapidly rising inflation however, unlike gold or other commodities, real estate does require maintenance in order to retain its value. On the other hand, when purchased at a solid “value”, real estate is able to use leverage and create a return on every dollar invested.

Few investors or economists would quibble with the fact that assets prices have currently experienced a dramatic downturn; real estate is down 25-50 percent from former highs; certainly enough to make many people give a serious look at deflationary concerns. Before writing short sale real estate off as a bad investment due to deflationary pressures, it is a good idea to consider how long the deflationary period is expected to endure. Here are a few things to keep in mind:

1. Dollars are not safe. Foreign investors have recently made public remarks over their growing reluctance to continue buying American dollars and are reducing the quantity and velocity of purchases. As demand for dollars continues to wane, expect a flight to safety away from fiat currency and into hard assets or other alternative investments. Weak dollars translate into higher prices for all commodities and hard assets over the long term.
2. Business is suffering. As tighter lending standards combined with rising unemployment and reduced consumer demand is putting a squeeze on small business owners as discretionary spending continues to dwindle. Experts anticipate this trend is likely to continue into the foreseeable future as manufacturer reduce capacity and inventory…eventually leading to shortages and increased prices rather than continued declines.
3. Continued Printing. Uncle Sam has printed more dollars in the past year than at any time in the history of the nation. The age old relationship between supply and demand deems the more there is of something the less valuable it is – in this case, there is a lot of fiat currency floating around with very little restraint anticipated in the near future. The situation is so dire that Marc Faber recently suggested the collapse of the American economic system within 5-10 years at the same time the BRIC nations are calling for alternative index currency.

What does this mean for the average investor or short sale buyer? Simple, expect tighter lending standards to make it more difficult for households to buy a mortgage in the future, expect rising cost of materials and increased government regulations to further increase the cost of building new homes and expect the cost of all assets/investments to rise as the value of the fiat currency plummets. 

The time to buy is now – people are in a “back to basics” mentality where home, family and security take precedent over flashy cars, whirlwind vacations or luxury goods. Give consumers what they need at a price you can afford – it’s a simple method tried and tested to yield impressive results over time. Find out how easy and affordable it can be to get started with short sales in your spare time by tuning in to one of the free online webinars.

See you at the top!

 

Chris McLaughlin

http://www.shortsalesriches.com  

P.S. : YOU MUST SEE THIS!  The move celebrated real estate

 investing movie of the year:

 http://www.housewarsmovie.com

**************
Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

*************************************************
Finally, a blog for Real Estate professionals
that want up-to-the-minute news, & how it impacts
us and our market…
http://www.shortsalesriches.com/blog

*************************************************

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

Mid-Day Market News & Commentary by Chris McLaughlin, December 19, 2008
http://www.shortsalesriches.com/welcome.html

——
Have you been missing our amazing Recession Proof Investing webinars because you haven’t found the time?  Make time to see the most amazing webinar ever created, the one that people are raving about…because it is giving hope to those affected by this crazy economy.  And that hope has turned into real cash for so many.  See it all today, there are only 17 spots left:

https://www2.gotomeeting.com/register/371290260

 ——

President George Bush decided to throw out a lifeline to the automakers, a possible retreat from his “orderly bankruptcy” comments yesterday.  Bush noted that with the country in a severe recession, “Allowing the auto companies to collapse is not a responsible course of action.”  Bush has approved $17.4 billion in rescue loans, part of which comes from the $700 billion TARP,  with the government having an option of becoming a stockholder in the automakers.

Now on to real estate investing education …

Do You Hear What I Hear?

During this most festive of holiday season, the sound of “cha-ching” normally rings just as loudly as that of the carolers and party-goers but this year is different. In fact, instead of singing and the sound of cash registers ringing the average short sale investor is more likely to hear wailing and gnashing of teeth from investors both near and far as the Federal Reserve reports that Americans have lost $2.8 Trillion in Net Worth…since last quarter!

Meanwhile, charge-off and delinquency rates for residential real estate loans have reached 1.45 for all banks and a whopping 1.66 for the 100 largest banks. Delinquency rates for residential real estate have now surpassed 5.08 for Q3 of 2008; the highest rate for residential real estate in over 25 years. With the economic news at home sounding so lackluster, it might lead some to seek returns in the foreign exchange markets. So, should potential short sale investors sink funds into global money market accounts or continue to pursue opportunities here at home in the current “buyers market” for real estate?

If the news domestically is hard to hear then consider the global perspective; entire nations are going bankrupt. Iceland, Hungary, the Ukraine, Pakistan and others are either facing bankruptcy or in the midst of a massive bail-out by the International Monetary Fund (IMF). Lest you think “it can’t happen here” consider this; Argentina went bankrupt as recently as 2001 as did Russia in 1998. Once an economic powerhouse, Germany has gone bankrupt twice in the recent past including 1923 and 1945. With interest rates in excess of 20 percent, Argentina is attempting to inspire investors to take a chance on investing in their nation; to date, there has been an apathetic response at best.

According to Stephen Jen, a currency specialist with Morgan Stanely, a 1 percent drop in growth could reduce the flow of capital to “threshold countries (those in a financially precarious situation) by more than half! Should this transpire, the IMF would not have enough reserves to “bail-out” each individual nation resulting in Argentina style cycle of events including frozen bank accounts, withdrawal caps, hyperinflation and social unrest. Dare to guess which nation “guarantees” the IMF slush fund should it run dry? Yep-the good ole USA. So much for “Plan B”. As these threshold nations face economic disaster, the trading partners and surrounding nations would be exposed to further strain…setting the stage for a global economic meltdown.

Experts such as Nouriel Roubini are already calling for the most severe global crisis since the Great Depression while others like Ron Paul are openly questioning the Federal Reserve about contingency plans in the event of global economic collapse. Plain and simple; fiat currency around the world is risky business even with the prospect of double digit returns. On the other hand, real estate has historically fared well even during dollar devaluation.

Five Favorite Facebook Tips to Build Your Short Sale Empire

Whether you are a novice real estate agent or veteran short sale investor you probably realize the power and influence the Internet holds in building your success. With over 80 percent of buyers beginning their search online, the Internet is a vital tool that few can afford to ignore. However, when it comes to the use of social media applications, far fewer people understand how to put these powerful resources to use for more than just socializing. The fact is, with a little tweaking and adjusting, Facebook and other social media sites have the potential to provide powerful – and free- tools to help with your day to day business or investing needs.

Contrary to popular opinion, Facebook isn’t just fourteens; here are some of the best business applications you can use to build your short sale empire:

1.     Demographic Research. This little known Facebook nugget is a fun twist to standard demographic research. Find the Facebook “Insight Corner” to locate advertising information and find out how many people reside in a specific zip code or other identified demographic data.

2.     Syndicate Yourself. Set up a Facebook page then import the RSS feed from your blog to the notes application and distribute to all your friends and associates.

3.     Send Video Messages. Showcase homes, send out a video blast of recent news or simply make a personalized greeting. It’s a simple, personalized and cost effective way to make a big impression with a small budget.

4.     Collaborate. Combine Facebook with Google documents to collaborate in a secure environment. Share everything from text to excel spreadsheets with ease while tracking changes, making comments and sharing information.

5.     Picture It! Use the mobile application to upload photographs from your cell phone automatically.  It’s a great way to capture information on prospective short sale properties on the spur of the moment or simply share information with others in real time.

See you at the top!

 

Chris McLaughlin

http://www.shortsalesriches.com/blog

P.S.:   Don’t miss our webinar tomorrow, Saturday, at 2 PM EST!  We’re holding this Recession Proof Real Estate Investing webinar once again on a weekend to accommodate all those who are unable to join us at night!  Click here, there are only 17 spots left:

https://www2.gotomeeting.com/register/371290260

Mid-Day Market News & Commentary by Chris McLaughlin, December 18, 2008
http://www.shortsalesriches.com/welcome.html

——
This is a simply amazing story … you just have to see it:

http://www.youtube.com/watch?v=XTvvi311YDg

 ——

Mortgage rates continued to fall today as the Federal Reserve furthers its action plan to help stimulate demand for homes.  Freddie Mac announced that mortgage rates that are hovering around 5.19% this week for a 30 year fixed mortgage haven’t been this low since 1979.  Today rates were at 5.0%.  Earlier this week the Fed cut the federal funds rate to a range of 0 to .25%. 

The Big 3 Automakers aren’t going to add President George Bush to their holiday cards after his comments today.  The outgoing President noted that the White House is considering an “orderly bankruptcy” instead of a bailout.  In a speech at the American Enterprise Institute, the President noted that “Under normal circumstances, no question bankruptcy court is the best way to work through credit and debt and restructuring…These aren’t normal circumstances. That’s the problem.”

Spend or Save Your Way to Wealth

As uncertain economic times continue the media is awash with reports about consumers cutting back and beginning to save for the first time in years. While it may initially seem like a common sense approach to an uncertain financial future, like usual the masses might just have this one wrong. Consider these frightening facts:

Stocks are down roughly 50 percent – worldwide. Mutual funds & Hedge funds are expected to follow a similar downward trajectory.

The largest American brand-name companies are down 50% to 80%. Small business owners and suppliers are beginning to experience shrinking lines of credit and the loss of major accounts; even farmers are reporting an inability to borrow money for fertilizers and crops.

Middle-class Americans have watched in stunned disbelief as their 401(k) sink by half while the value of their homes drop by an average of 20 to 30 percent…which actually looks great in comparison!

Commodities are no better: gold is down by 20 to 30 percent of its former high while silver has dropped by 40 percent. Investors are losing money in every asset class including cash! Even oil is down by roughly 70 percent and still dropping.

So, where does it all end? Not even the experts know for sure but one thing is certain; saving is one of the last ways to preserve your wealth during this downturn. With Treasury yields approaching negative returns, paper I.O.U’s capable of going to zero and rumblings about “quantitative easing” and the devaluation of the dollar saving might still turn out to be one of most risky things you can do with your money. On the other hand, most investors are simply stumped when it comes to trying to figure out where to stash their cash…as evidenced by the recent stampede to Treasury bonds. Why does real estate remain an unappreciated investment? Because most people heard it on the media and lack the ability to crunch the numbers for themselves.

Short sale investors will do well to stick to the fundamentals; tangible assets that provide for food, safety and shelter. Combined with the use of leverage, tangible assets like real estate retain value even while other investments drop to zero. They will automatically adjust to the new rate of value exchange despite whatever “quantitative easy” or dollar devaluation takes place in the future and unlike other commodities, real estate is able to earn a return in the meantime.

New PPI Numbers Released: What it Means for Short Sale Investors

The Bureau of Labor Statistics (BLS) released the December Producer Price Index earlier this week which showed a change of negative 2.2 percent over the prior month. The PPI is not something many short sale investors keep track of but as a leading indicator, it can provide useful insight into future trends likely to be taking place in the economy as a whole…and the real estate sector itself…six to nine months into the future.

As a general rule of thumb, increasing PPI can indicate future increase in the price of consumer goods and services at a later date while reduced or dropping PPI numbers may indicate lower cost goods or services. However, an important distinction should be made; while increasing PPI numbers are almost always followed by increased consumer prices (inflation), lowered numbers do not always reflect lower prices. This is due in part to the cost of producing goods or supplying services; once profit margins drop below a given point it actually costs more money to make or provides the goods or services than what is brought in…lay-offs, discontinuation of product lines and other shortages are likely to take place instead of further reductions. This creates a unique situation for short sale investors; not only have housing starts dropped dramatically in recent months but even a precursory glance at certain sub-sections indicates startling trends:

·        Softwood lumber products fell -2.6 percent

·        Crude goods dropped -12.5 percent

·        General freight and long distance trucking down by -2.7 percent

·        Industrial commodities down by -5.4 percent

To summarize:

1.     Rising PPI = Inflation Pressures expected to reach consumers in three to six months until prices reach a level the consumer refuses. Meanwhile, excess demand increases competition as new entrants to market compete for profits against early entrants. Long term outcome is stabilization and/or fall in prices as currently taking place in the real estate market. Notice, although real estate is a large industry with its own tracking mechanism, it is in fact, comprised of a multitude of smaller segments which can be tracked (ie, lumber, oil, labor etc).

2.     Falling PPI = Reduced consumer prices then either increased consumer prices or shortages as production falls below consumption levels due to decreased profitability of supplying goods and services. The long term outcome is a rise in prices as demand outpaces supply and/or production.  Many sectors such as lumber, mining, fuel, manufacturing and other raw materials which require extensive lead times for production create upward price pressure for months or even years after the demand rises leading to inflationary pressures for the long term. Many economic analysts expect the long term outlook for tangible assets and commodities to eventually rise as the price and production of raw materials fall.

See you at the top!

 

Chris McLaughlin

http://www.shortsalesriches.com/blog

P.S.:

This is hilarious.  I mean this is beyond funny!  Meet Nathan’s BPO agent … and our customer service representative, Starlet.  Is there a reason why Realtors at the NAR convention just walk past a guy who’s making $115k a month selling short sales, yet seem to want to talk to his BPO agent every time?  What could it be?  Find out here … you’ll die laughing!!

http://www.youtube.com/watch?v=FkqFHQ2g-TE

After you’ve watched it go here and learn how to make serious money in a recession:

http://www.webinarwizards.com/custom/index.cfm?id=170027

Mid-Day Market News & Commentary by Chris McLaughlin, December 10, 2008
http://www.shortsalesriches.com/welcome.html

——
Investors who truly leverage the power of Internet and “Web 2.O” strategies BEFORE everyone else jumps on the bandwagon will have an opportunity to set themselves up for a lifetime.  I’m not talking about you being able to do a few more deals this year… I’m talking about a complete lifestyle change.  We promise to blow your mind!  Tonight at 9 PM!  Implement “Web 2.0″ strategies in a way that will have a profound impact on your business.  Just register here today:

https://www1.gotomeeting.com/register/264492432

—–

Ouch!   The Government Accountability Office, along with the Congressional Oversight Panel for Economic Stabilization, blasted the Treasury Department’s management of the $700 billion TARP program.  The 38 page document noted that “Treasury cannot simply trust that the financial institutions will act in the desired ways; it must verify.” The report further commented that the Treasury had “administrated the TARP without seeking to monitor the use of funds provided to specific financial institutions.”

And other eyes were on Capitol Hill today as the Big 3 Automakers got a lot closer to sealing a $15 billion bailout package.  The package will lead to the creation of a “Car Czar” to oversee the loan grant, in order to avoid the “take the money and hoard it” approach that many banks have taken after receiving their bailout.  But several Senate Republicans were outraged, with Sen. David Vittner of Louisiana called the approach “ass backwards” and promising to filibuster it.

More money is headed out the window to the morons at AIG, the folks who partied it up at the St. Regis and seem to have no ability to control their spending.  The Wall Street Journal reported that the insurance conglomerate owes other Wall Street firms about $10 billion for because of speculative investments that didn’t pan out.

Now on to real estate investing information …

Gross Income Multiplier

Short sale investors are a different set; they take action when others are too cowardly to act. They remain informed while others rely upon others for information and perhaps most telling of all…they crunch numbers. Last week we examined how to calculate the Cap rate of a property in order to determine the price of an income producing property. Although the Cap rate is a favorite among many bankers and brokers alike, another widely used formula is the Gross Income Multiplier.

How to Calculate

To calculate the Gross Income Multiplier you will need to divide the asking price or market value of the property by the current gross rental income (or potential rental). For example, let’s assume a home is listed for $150,000 with an annual rental income of $10,000. The Gross Income Multiplier would = 15. The higher the better. To provide some perspective, it may be useful to draw examples from other industries and areas. For example, if you were purchasing a publishing concern then you (and the banker) would expect to see earnings worth 5 to 10 times the pre-tax earnings on an annualized basis whereas insurance agencies sell for 150 percent of annual commissions.

When to Use

Using the GIM provides an excellent method to compare the asking price with industry norms or as a potential negotiation tool when making an offer for a short sale property.  It is a good idea to use conservative numbers when calculating the GIM since it does not take extraneous expenses or future tax and insurance rate hikes into account. Repairs, utilities and other considerations may wreck havoc on even the most robust calculations so it isn’t a good idea to use the GIM when dealing with older properties or those in need of extensive renovations and/or repairs.

A Quick Word about Hedonic Pricing Models

No discussion of GIM would be complete without a quick word about hedonic pricing models. Like the government itself, builders and brokers alike will often try to maximize value by including the full “value” of hedonic measures. While that is a valid method during robust economic times, during downturns in the economy those same granite countertops, luxury pools and other customized features tend to lose value – or worse – may actually be considered a liability by some buyers.  Short sale buyers would do well to base GIM calculations on conservative building alternatives or sharply discount hedonic estimates especially during tough economic times.

Caution is Advised

There is a reason the GIM is favored by corporate raiders and strategists; as a general “rule of thumb” price estimate it often results in an aggressive method for determining valuations especially when dealing with more “favorable” properties that require minimal maintenance, upkeep or repairs. Short sale investors may find this a more desirable alternative than the Cap rate formula for some properties; just keep the limitations and risks in mind or you may find yourself on the losing end of a tough negotiation strategy.

More on Thursday!

 

See you at the top!

 

Chris McLaughlin
http://www.shortsalesriches.com/blog

P.S.:   Investors who truly leverage the power of Internet and “Web 2.O” strategies BEFORE everyone else jumps on the bandwagon will have an opportunity to set themselves up for a lifetime.  I’m not talking about you being able to do a few more deals this year… I’m talking about a complete lifestyle change.  We promise to blow your mind!  This Wednesday at 9 PM!  Implement “Web 2.0″ strategies in a way that will have a profound impact on your business.  Just register here today:

https://www1.gotomeeting.com/register/264492432

P.P.S.: Interested in making a bundle of cash without having to do any of the work?  If you can click the SEND button on your computer and introduce others to Short Sales Riches, you can earn thousands of dollars in one month!   One affiliate was paid over $12,000 last month alone!   All the information to sign up as an affiliate is right here:

http://www.shortsalesriches.com/affiliates