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Senate unhappy with the progress of foreclosure prevention program

Chris McLaughlin — Mon, 20 Jul 2009 18:47:00 +0000

Senate unhappy with the progress of foreclosure prevention program

Real Estate News & Commentary by Chris McLaughlin, July 20, 2009

http://www.shortsalesriches.com

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Senate unhappy with foreclosure prevention program

Senators, cutting across party lines, expressed dissatisfaction at the lack of effectiveness of the government program to stem the rising tide of foreclosures, at a Banking Committee hearing. “If you can’t tell us what you’re headed to — what you’re goal is in terms of the number of properties you’re going to deal with each month — we’ll be flailing around with this two years from now,” Senator Mike Johanns (R., Neb.) said. “It will be regarded as a failed program — a costly failed program.” Senate Banking Chairman Christopher Dodd (D., Conn.), said: “I’m hoping that, with the stakes this high, somebody can explain to me why nothing has changed.” The Obama administration officials defended the program. Treasury’s Assistant Secretary for Financial Stability Herbert Allison said: “We are encouraged by the level of improvement we’ve achieved in the last ten weeks.” Allison said that the rising unemployment is worsening the situation. William Apgar, Housing and Urban Development Senior Advisor, said that the administration is mulling ways of helping the unemployed, including increasing unemployment benefits, in order to tackle foreclosure. “All options are under review because we have to get a program that works,” said Apgar.

Experience may not count in mortgage industry

According to research conducted by Mark Garmaise, an associate professor of finance at the Anderson School of Management, experience of mortgage brokers positively correlates with the extent of foreclosures on the loans they make. An analysis of about 23,000 mortgage loans processed by 2,905 brokers from 2004 to 2008, shows that the fifth loan made by a broker is 8% less likely to result in foreclosure than the tenth loan. Experienced brokers typically do more mortgages than less experienced ones. This means that they have less time to adequately evaluate the riskiness of individual mortgage. In addition, lenders make exceptions to underwriting guidelines for mortgages that come from more experienced brokers.

According to Garmaise, distance plays a role in determining the effectiveness of mortgage evaluation. For example, for brokers who are located 150 miles from a lender’s headquarters, their tenth loan was 1% more likely to default than their fifth. Garmaise says that lenders may lack the financial resources to monitor distant brokers as closely as those who are nearby. Do these findings mean that experience is of no use in mortgage business? Not quite. Garmaise says that borrowers with poor credit scores may want to look at better-established brokers. “It’s pretty clear these guys are the ones that get loans approved,” said Garmaise. Alan Rosenbaum, the chief executive of the Guardhill Financial Corporation, says that the study makes sense and exhorts borrowers to seek brokers with good reputation rather than just experience.

Stimulus funds not reaching “economically distressed”

The Obama administration introduced the stimulus plan with the idea of helping people who are “economically distressed”- people in places where unemployment is higher than the national average by 1% or where per capita income is 80% or less than the national average. According to an analysis of stimulus spending by the Transport Department, carried out by the Associated Press, only about 47% of the total $16 billion allocation on transportation projects is directed towards counties that are economically distressed.

In Texas, about $1.2 billion has been allocated to more than 200 projects. Just 44% has been directed at counties considered economically distressed. “If economically distressed areas get the money, it’s just by coincidence,” said Jim Dunnam, a Democratic member of the Texas House of Representatives. In Louisiana, 7% of the funding announced so far is going to economically distressed areas. Cathy St. Denis, spokeswoman for the Federal Highways Departments, says the department is monitoring the use of funds but cannot do much about targeting of funds. “The final decision is up to the states,” said St. Denis.

Bank failures this year: 57 and counting

Regulators last week shut 4 banks – 2 in California and 1 each in Georgia and South Dakota – taking the number of bank failures to 57 this year. Temecula Valley Bank with $1.5 billion in assets and deposits of about $1.3 billion, Vineyard Bank, National Association with assets of $1.9 billion and $1.6 billion in deposits, First Piedmont Bank with $115 million in assets and $109 million in deposits, and BankFirst with $275 million in assets and $254 million in deposits were the failed banks.

The Federal Deposit Insurance Corporation (FDIC) estimates that the cost to the deposit insurance fund from the 4 banks failures will be $990 million. The FDIC officials say that delinquencies in commercial real estate loans remain a concern. If the economy does not turnaround, a number of high-risk loans held by banks could get into default. The number of banks in the “problem banks” list of the FDIC stood at 305 in the first quarter of this year. This was the highest since 1994 when the savings and loan crisis broke out. The FDIC expects its insurance fund to take a hit of $70 billion through 2013 on account of bank failures.

NABE survey says recession is easing but not yet over

The quarterly industry survey conducted by the National Association for Business Economics (NABE), has found that demand is stabilizing, but a small majority of survey participants said their firms are yet to see the bottom. The net demand index dropped to -5 in the second quarter of this year, from the first quarter’s -14. In the fourth quarter of last year, it registered -28. Sectorally, financial services showed the strongest demand, with an index reading of +15. The transportation, utilities, information and communications sector had the lowest reading at -90. The survey, which was conducted among 102 respondents, found that profitability remained weak in the second quarter. However, the rate at which profits are declining is slowing.

Sara Johnson, managing director of global macroeconomics for IHS Global Insight, said the survey “provides new evidence that the U.S. recession is abating, but few signs of an immediate recovery. Industry demand was still declining in the second quarter of 2009, but the breadth of decline had narrowed considerably since late 2008, raising prospects for stabilization in the second half of the year.” Only 6% of the firms what participated in the survey added jobs last quarter while 36% of the respondents said their companies cut jobs. Respondents expect jobless rate to come down towards the end of this year.

Now on to our real estate investor education section…

Value Matching – Selling What Matters Most

There is a new trend hitting America that every real estate professional and short sale investor should use to their advantage; getting back to basics. You’ve seen the credit card commercials with feel good family values that claim conspicuous consumption is dead or the big box stores touting stay-cation’s rather than expensive European getaways….but how can you make it work for real estate?

It’s simple once you understand the basics about value matching. Keep reading to learn more:

Don’t Pigeonhole. Value matching is not about putting labels on people; in fact, that is a sure-fire way to fail. Instead, it is about learning what values are important to your target population then meeting their needs by providing the best “fit” possible. Real estate is one of the most important investments most people will make during their lifetime. Aside from the large dollar amount, it is often a critical decision which will define the future of their family and social standing for years to come.
Listen. Value matching requires the ability to listen in order to understand the needs, hopes and desires of the buyer (or seller). It’s imperative to find out what matters most to each client then sell those factors – forget about the typical trappings of success (unless that is indeed what matters most to your client) and instead focus on what they value most. The typical family will fall into several distinct categories including:

Family – Young married couples searching for safe, affordable family oriented neighborhoods. Schools, cost, local amenities like parks and safety take top priority.
Empty Nester’s – Convenience typically trumps everything else. Low maintenance yards, access to hospitals/grocery/shopping/golf and good neighbors get their attention.
Sanctuary – Freedom, privacy and safety is of utmost concern for some; don’t be too quick to put a label since these come in all shapes and sizes. From high net worth individuals seeking solitude to good-ole-boys that want to practice commando moves in their back yard, those seeking safety and privacy will pay a premium for the right property.

Build Relationships – The future will require the ability to build meaningful relationships even for temporary transactions like those of real estate. Trust has become a bigger issue than ever as people feel uncertain about whether or not they are getting a good deal or will encounter trouble later down the road. Word of mouth marketing has always been a real estate agents best friend but now, investors are recognizing the benefits as well.
Position as a Problem Solver – Become more than a sale person or investor by positioning yourself as a problem solver with solutions to people’s most urgent housing related needs. People have an inherent need to feel unique and a growing grudge about paying for simple ’paper shuffling’. On the other hand, everyone is grateful when someone solves their most pressing problem…even if the cost is higher. Remember, its part of the value you bring to the table during any transaction.

See you at the top!
Chris McLaughlin

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com
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

450 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

Existing-home sales rise for the second straight month

Chris McLaughlin — Wed, 24 Jun 2009 00:04:57 +0000

Real Estate News & Commentary by Chris McLaughlin, June 23, 2009
http://www.shortsalesriches.com

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Existing-home sales rise for the second straight month

According to the National Association of Realtors (NAR), sale of existing-homes rose to a seasonally adjusted annual rate of 4.77 million units in May, denoting a rise of 2.4% over the April figure. This is the second straight month of increase in sale of existing-homes, due to a plentiful supply of homes and availability of attractive mortgage rates. According to NAR, this is the first back-to-back rise since August and September 2005. “While sales may not have yet reached an absolute bottom, clearly a bottoming process is underway,” said Wachovia, a financial services firm. The total number of existing-homes available, at the end of May, stood at 3.80 million units; this represents a 9.6-month supply at the current sales pace, down from a 10.1-month supply in April, according to NAR. Lawrence Yun, NAR chief economist, expressed concerns about “faulty valuations that keep buyers from getting a loan.” Yun said: “Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales. In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment.” Yun warned of a “delay in housing market recovery” and a “further rise in foreclosures” if the appraisal problems are not quickly corrected.” Regionally, existing-home sales in May rose 3.9% in the Northeast, 9% in the Midwest, remained unchanged in the South, and dropped 0.95% in the West.

The state of the nation’s housing

Despite the current slump, the long-term prospects for the housing industry are not bleak, according to the “The State of the Nation’s Housing 2009″ report, released by Harvard University’s Joint Center for Housing Studies (JCHS). The report details factors such as unemployment and the credit crisis leading to problems in the sector. Home equity is positively correlated with consumer spending, and plunging home values have pulled down consumer spending and economic growth in the last couple of years. Analysts say that the current recession provides a painful but a much needed correction to the housing market. But is there a silver lining anywhere? The so-called echo boomers, who are the children of baby boomers, will be a big source of housing demand in the next year and beyond, according to the report. “Echo boomers are larger than the baby boomer population. Couple that with immigration and you have the seeds, the possibility of a housing recovery,” said Nicolas Retsinas, director of JCHS. The report states that minorities will drive 73% of household growth in 2010–20, with Hispanics leading the way at 36%. Given the lower average incomes and wealth of minorities, the increase in minority households “could add significantly to the nation’s already widespread housing affordability challenges,” according to the report.

Government ownership of Fannie and Freddie is bad

James Lockhart, Chairman of the Oversight Board of the Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, says that the government should not be running Fannie Mae and Freddie Mac. The two firms have been losing money since the current credit crisis started, and the government has invested $85 billion in equity of the 2 companies. In addition, the Treasury and the Federal Reserve have bought over $700 billion of mortgage securities from both the firms. Despite the government support, the turnaround of the two companies is not yet in sight. According to Lockhart, it will take another year or two before the bottom lines of Fannie and Freddie rebound. Lockhart believes that there is a moral hazard in the government owning the mortgage firms. “What I have seen is that government insurance programs are high-risk,” said Lockhart. “It is often difficult in a political environment to calculate or charge an actuarially fair price.” If the government is offering cheap insurance, banks will have an incentive to make loans they shouldn’t. And that will lead to an increase in losses for the 2 firms down the road. Some lawmakers say that the 2 firms should be broken up into smaller firms. Congressman Paul Kanjorski says, “I think it would be bad for the mortgage market to get rid of them completely. But if they were smaller, perhaps next time we won’t be in the situation where these firms are too big to fail.”

Number of bank failures this year: 40 and counting

Last week, regulators closed three banks, bringing the number of bank failures to 40 so far this year. Cooperative Bank of Wilmington, North Carolina, with $970 million in assets and $774 million in deposits; Southern Community Bank of Fayetteville, Georgia, with $377 million in assets and $307 million in deposits, and First National Bank of Anthony, with $156.9 million in assets and $142.5 million in deposits were closed last week. The Federal Deposit Insurance Corporation (FDIC), which insures up to $250,000 per account at member institutions, will take a hit of over $363 million on account of the 3 failures. Amid the recession and a rise in delinquent loans, the pace of bank failures has been rising, from 3 in 2007 to 25 in 2008, to 40 this year. Last year, Washington Mutual became the largest bank to fail in the U.S. history. FDIC’s list of “problem” banks had 305 firms at the end of the first quarter this year. It looks as though there are more failures to come in 2009.

Laid off from Wall Street? The CIA could be your next employer

The Central Intelligence Agency (CIA) has embarked on a recruitment drive to hire finance and economics professionals, as the number and sophistication of frauds rise. “Economics, finance and business professionals, if the quest for the bottom line is just not enough for you, the Central Intelligence Agency has a mission like no other,” says an advertisement from the agency. The agency will conduct rigorous background and medical checks, and a lie-detector test on the recruits. Salaries range from $60,000 for fresh graduates to $160,000 for experienced professionals, in addition to generous benefits. Ron Patrick, a spokesman for recruitment and retention at the CIA, said: “Our economic analysts are looking at counter terrorism; they’re looking at counter proliferation issues, crime issues, and drug issues.” According to Patrick, the response has been good so far. The agency has received several hundred resumes from a variety of applicants including fresh graduates and laid-off bankers. “Typically the people that come to the CIA want to serve the government, they want to serve their countries. It’s a different mindset perhaps than serving a company or serving profit as a bottom line,” said Patrick.

Now on to our real estate investor education section…

What’s Up with Title Insurance on Short Sale Flips in Florida?

According to recent reports, the Attorney’s Title Fund (a major underwriter in Florida) has recently notified attorneys to exercise caution when underwriting short sale flips created with options or similar contracts… but what are the facts behind the situation? Does this represent an end to short sale profits? Of course not. It may require certain modifications and further disclosures, or perhaps it means you use a different title insurance underwriter. Let’s take a look at the stipulations outlined by The Fund on their website (http://www.thefund.com/portal/news/index.jsp?id=1011632#item).

No violations of restrictions listed in the payoff letter or closing instructions….so don’t knowingly commit fraud or ignore specified contractual obligations. This is common sense!
No misrepresentations related to the value or ownership of the property to any party…again, the bank must be told that you are the seller and that you intend to resell the property. Again, nothing new here.
All disbursements must be made in conformation of HUD-1 settlement statements…again, abide by what is in writing.
Simultaneous closings are to be treated as individual transaction independent of one another. (That’s what we teach at Short Sales Riches…you NEVER use C’s money to pay off A! Each transaction must be separate and distinct).
If any of the above situations are not met, prior approval must be provided before insuring the transaction.

In a nutshell, The Fund has taken the position that short sale deals using option contracts should comply with the actual terms and conditions of the contract. Of course, that is hardly earth shattering news and is simple common sense in most cases. It highlights the importance of having a solid paper trail behind your every move…not only does it protect your investment but it’s a solid CYA measure. But, what happens if you find yourself facing a short sale gone bad due to an insurance related issue? Start by taking these steps:

Provide copies of all paperwork. Make sure your bases are covered by using tried and tested techniques that use proper disclosure.
Always have a spare. Think of it like that extra key you have floating around just in case you need it. The same applies to every professional relationship; no matter how happy you are with your current broker, banker or insurance underwriter take the time to have a secondary resource lined up “just in case.”
Comparison shop. The plain fact of the matter is this…short sales make sense. That is why the Federal Government recently updated legislation to make it easier for short sales transactions to take place and provided financial incentives to encourage brokers, bankers and others to participate. Where there is demand someone will step in to fill the gap even if your own insurance agency decides not to participate.
Follow the program and the advice of your legal counsel. All too often people take short cuts instead of doing what attorneys have advised them to do. In this case, our program clearly indicates that you MUST inform the lender that you intend to resell the property for a profit, and you MUST use cash to fund the A to B transaction and NOT the cash from C’s end lender. The transactions must be separate and distinct. But all too often someone watches a webinar and thinks they don’t need to invest in the system and that they can figure it out on their own. Not a bright idea….and it just leads to negative media attention that’s not focused on the good short sale reselling is doing in getting our market moving again. ‘Nuf said.

———

See you at the top!
Chris McLaughlin

http://www.shortsalesriches.com

PS:

“2 Careers That Boom in a Recession!”
I’ll tell you about one of these for fr*ee
in my no-charge, no-cost, no-obligation
webinar right here live Tuesday at
8:30 PM ET, 5:30 PM PST:

https://www2.gotomeeting.com/register/443058482

Why would I do that for no charge? Because
I want a chance to tell you about the other
high-income opportunity, too.

And I can’t do it in an email.

But if you’re finally ready to blast out of
this economic mess, then get a move on… I’d
hate for you to miss out, because we always fill
up a day or so early. See if there’re any spots left:

https://www2.gotomeeting.com/register/443058482

http://www.shortsalesriches.com

http://www.shortsalescoach.com

http://www.sixfigurebpo.com

http://www.reomillionaireclub.com

*************************************************
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.

running 4 different offices, supporting nearly

450 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
* Add me on Twitter: http://twitter.com/mclaughlinchris
* Add me on Facebook: http://www.facebook.com/mclaughlinchris