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New Monthly National Housing Scorecard Announced

The Department of Housing and Urban Development (HUD) and the Treasury Department will announce the creation of a new monthly national housing scorecard. The initiative will combine housing market indicators along with the progress of the administration’s homeowner assistance programs, including efforts by the Federal Housing Administration and the Making Home Affordable programs.  Last week, senators passed an amendment to the American Jobs and Closing Tax Loopholes Act of 2010 that would extend the June 30 deadline to close on a house sale to Sept. 30 for first-time and existing homebuyers to be eligible for the homebuyer tax credit. The legislation also includes spending on extended unemployment benefits and spending on educational initiatives. New commercial mortgage-backed security (CMBS) issuance was one of the most popular topics discussed during last week’s Commercial Real Estate (CRE) Finance Council’s June convention, according to analysis published by Barclays Capital (BarCap). A number of speakers agreed that the new origination and securitization volume year-to-date is lighter than what was initially expected, BarCap said, adding on the origination side, loan supply remains low, as borrowers’ demand for conduit-style loans is not as high as initially expected and as the availability of properties not encumbered by debt and suitable for conduit securitization remains somewhat limited. 

Another concern at the conference was the future of warehousing, as the accumulation of loans for further securitization is still challenging for the conduit platforms, the report continued. On the residential side of the market, it appears residential rental yields are returning to “normal” levels, according to weekly commentary published by JPMorgan. Rental yields bottomed in 2007, but are now back to pre-housing bubble levels, JP Morgan analysts wrote. The impact of this is that as foreclosures force more homeowners to become renters — JPMorgan puts that number at more than 2m during the next three years — the market needs real estate investors.  For the second week in a row, the Federal Deposit Insurance Corp. (FDIC) reported only one bank failure over the weekend. The Nevada Financial Institutions Division closed Reno-based Nevada Security Bank.

Is the recovery stalling out? 

Economists are more nervous about the chances of another recession. And the Federal Reserve seems to have, “some ammunition left, but it’s not going to pack a lot of punch,” according to Mark Zandi, chief economist with Moody’s Economy.com. As financial problems in Europe led to a sell-off in U.S. stocks in the past six weeks, weaker-than-expected readings on job growth and retail sales have added to concerns that the recovery is stalling out. “Whenever the next recession comes, it is very important that policymakers have had the opportunity to reload their gun to fight the downturn,” said Lakshman Achuthan, managing director of Economic Cycle Research Institute. “Today it’s not clear that there’s a lot more policymakers can do.”

The typical first step to spur a faltering economy is for the Fed to cut the cost of borrowing money in order to encourage spending. But the federal funds rate, its key interest rate used as a benchmark for a wide range of consumer and business borrowing, is already near 0%. Fed policymakers are widely expected to leave rates near zero at the conclusion of their two-day meeting on Wednesday.  Longer-term rates set by the market, such as Treasury yields and mortgage rates, are also nearing historic lows. So the Fed can’t make money much cheaper.  Achuthan said he is worried that neither the Fed nor Congress have the resources and political will necessary to stimulate the economy if that’s needed.  And despite the growing worries about the economy, Fed officials have to be careful not to raise too many alarms. Too much attention to problems that have arisen since the Fed’s last meeting on May 9 could be more dangerous than ignoring the growing threats, according to experts.

Diana Olick – New Hurdle to Housing: No Flood Insurance

Who knew you needed flood insurance in Bergen County, NJ – located on a 100 year flood plain – to get a mortgage? Andrea Mantia, a producer on CNBC’s Street Signs, called to tell me she is supposed to close on a home, but her lender is denying the mortgage without flood insurance. She can’t get flood insurance, because “apparently, all insurers get flood coverage via the government/FEMA. Now that Congress has let it lapse, NO insurers are offering new policies,” she says. “It’s putting a lot of closings in doubt.” 1400 homes per day in the United States require flood insurance and cannot go to closing without it. That according to the Texas Association of Realtors.

The National Flood Insurance Program hasn’t issued a new policy since May 31st, when the most recent extension ran out. Mantia tells me it gets updated every five years, but since it ran out in 2009, Congress has just been issuing temporary extensions. The latest extension is mired in the jobs bill, which is itself still mired in the Senate. “State Farm has had it with the government,” she says. “They just announced it will not write any new flood policies, even if Congress gets their act together.” I found this part of a post put up yesterday by Relocation.com: It’s unlikely that State Farm would begin to write flood insurance policies again, even if the NFIP were extended for a longer amount of time.  Phil Supple, a spokesperson for the insurance company, told Insurance Journal that “the flood program distracts and pull[s] resources away from other needs of the company.” State Farm announced on June 3rd that it would stop administering the government policies entirely this fall, but now it can’t anyway because there’s no money. I wonder about all those folks trying to close on homes that they bought with the home buyer tax credit. They have to close by June 30th. The summer market wasn’t going so well as it is. Just more grief for buyers, sellers, and this very tenuous housing recovery.

Minorities hit hard by foreclosure crisis

About 2.5 million homeowners have lost their homes to foreclosure in the housing crisis so far, and black and Latino borrowers have been disproportionately affected, according to a new report released by a nonprofit research group. The study by the Center for Responsible Lending was based on an analysis of government and industry data on millions of loans issued between 2005 and 2008 – the height of the housing boom. It found that whites made up the majority of foreclosures completed between 2007 and 2009, about 56 percent, but that minority communities were affected more. 

The disparity holds even when comparing “high-income” borrowers, the report found. High-income black borrowers were 80 percent more likely to lose their homes to foreclosure than their white counterparts, while high-income Latino borrowers were 90 percent more likely.  Traditionally, minority communities have fewer financial resources to fall back on during a crisis, making foreclosure a more likely outcome, housing experts have said. The report comes as government foreclosure prevention efforts falter and banks have begun to make their way through a backlog of seriously delinquent homeowners and repossess homes at a higher rate.  Economists expect distressed properties to be a drag on the housing market for years, particularly if high unemployment levels persist.

DSNews.com – Lenders Reclaim $10 Billion of Commercial Property: Report

Distressed commercial real estate is being reclaimed by lenders at a rapid pace, but relatively few assets are being marketed and re-sold. According to the research firm Real Capital Analytics, lenders acquired some $10 billion of commercial property during the first five months of this year – via foreclosure or negotiated settlement. But they disposed of just $2.6 billion of commercial REO during the same period. The company’s analysts estimate that commercial REO inventory resulting from this cycle now exceeds $28 billion. Real Capital said in its report, “There is a large amount of capital that is eager to acquire these assets from the lenders, at appropriately discounted prices, but lenders do not have pressure to sell their REO immediately, and most are content to wait for conditions to improve further before selling.” 

While a good number of equity funds are seeing problems with their earlier investments and losing assets to foreclosure, Real Capital says a new vintage of equity funds have raised significant capital for opportunistic acquisitions. But one of the uncertainties in the market is how patient that capital will be if distressed opportunities remain scarce, the company says.

Now on to our real estate education section…

Mortgage Interest Tax Deduction On the Cutting Block…Again

Much to the relief of many homeowners, Congress rejected the White House proposal to reduce the home mortgage deduction when it came up for vote last year. Unfortunately, the need to raise taxes in any way possible has put this popular program on this year’s budget agenda.

With nearly $210 Billion at stake, the rhetoric from Washington has a decidedly negative overtone, recently referring to them as “tax entitlements” in an effort to compare these age old strategies to a form of welfare for the rich. Unfortunately, these are not tax breaks enjoyed merely by the rich but rather long held forms of financial planning often worked into the budgets of average middle class American households.

Democrats on the financial commission are currently reevaluating a plethora of permanent tax breaks including the mortgage deduction and corporate deferral, arguing they should be part of the financial reform package and treated just like other entitlement programs such as Medicare, Social Security,  Medicaid and discretionary spending packages.

Current proposals for the tax deduction include a tiered approach which would first reduce deduction rates for itemized expenses on those that earn more than $250,000 annually and eliminate or severely reduce mortgage interest tax deductions in general. Critics of the popular mortgage interest tax deductions claim this will further hurt an already weak real estate market by eliminating one of the remaining incentives for people that wish to own a home rather than rent.

Others go so far as to say this will force borderline homeowners to default on their current mortgages…especially those that are struggling to maintain their homes during the current downturn in the economy. Still others believe it is just “bad form” to change the rules of the game after others have locked in long term expenses…and anticipated tax deductions.

Advocates of the bill claim it favors the wealthy and that low to middle income Americans’ rarely benefit from the tax deduction anyway while still others claim it is a tax on the poor that benefit the rich. One thing is certain; Washington is searching everywhere for much needed ways to raise cash…quickly.

When formerly “untouchable” tax deductions are suddenly on the table for two years in a row, it’s time to sit up and take notice.  Not only is the home mortgage deduction up for grabs but according to industry insiders, “everything must be on the table” including Social Security and Medicare. The anticipated outrage from SS and Medicare/Medicaid recipients is likely to create such backlash that the mortgage interest issue is likely to get lost in the shuffle…or worse, used as a bargaining chip for those attempting to calm the clamoring masses. Will any of these measures be enough? According to experts…probably not.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
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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 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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Freddie Sees House Prices Down Slightly in Q110

Home prices declined 1.1% in Q110 compared to the same quarter one year ago, according to purchase-only edition of Freddie Mac’s Conventional Mortgage Home Price Index(CMHPI). Compared to Q409, prices are down 2.1%. The purchase-only CMHPI includes property values based on home purchases with a conventional mortgage purchased by Freddie Mac or Fannie Mae by April 30, 2010. The 2.1% decline compares to the 3.2% price decline in the Standard & Poor’s (S&P)/Case-Shiller HPI and the 3% decline in the Federal Housing Finance Agency (FHFA) HPI. “House price measures tend to show a lot of seasonality, with values lower during the slow home-selling months of autumn and winter and higher during the greater-activity months of spring and summer,” said Freddie Mac vice president and chief economist Frank Nothaft. Freddie Mac also produces a CMHPI that includes data from both home purchase transactions and mortgage refinancings basing refinancing values on appraisals. In that index, prices declined 1.5% in Q110 compared to Q109 and were also down 6.7% in Q110 compared to Q409. In three of the nine divisions, prices were up in Q110 compared to the same quarter of 2005. Prices are higher now in the West South Central (16.6%), Middle Atlantic (10.1%) and East South Central (8.7%) divisions than five years ago.

Growth Slower Than Thought as Business Spending Slows

The U.S. economy grew at a slower pace than previously estimated in the first quarter as businesses investment slackened, while hard-hit state and local governments curbed spending at the steepest rate since 1981, a government report showed on Thursday. Gross domestic product expanded at a 3.0 percent annual rate, the Commerce Department said, instead of the 3.2 percent pace it reported last month. Economists are monitoring the U.S. recovery closely to see how well the economy can endure the debt troubles that threaten to slow Europe’s growth. Output in the first three months of the year was revised down as business spending rose at only a 3.1 percent rate instead of the 4.1 percent initially reported last month. Spending grew at a 5.3 percent pace in the fourth quarter. Business spending on software and equipment increased at a 12.7 percent rather than the 13.4 percent rate reported last month. State and local government spending contracted at a 3.9 percent rate, the largest decline since the second quarter of 1981. Consumer spending, which normally accounts for 70 percent of U.S. economic activity, added 2.42 percentage points to GDP last quarter, the largest contribution since the first quarter of 2007.

Diana Olick – Are Home Builders on a Cliff?

“The New Home Sales report today was nothing short of exceptional.The number beat all expectations and beat them by a lot. The home buyer tax credit clearly favored the builders over existing home sellers, as the jump in new construction sales seem far higher. So are the builders back? Not so fast. Before everyone goes calling me a big bad bear, barely 7 minutes after the report was released, the analyst reaction came flooding in. “As seen with the purchase component of the weekly MBA data, the May data will show a sharp decline,” writes Peter Boockvar of Miller Tabak. “We know a hangover is coming, but we don’t know what happens after.” In fact, mortgage purchase applications are at a thirteen year low, falling off precisely post tax credit. Purchase applications are now barely 27 percent of all mortgage applications, with refis surging on low interest rates. Anecdotally, we’re hearing that buyer traffic in new models also slowed dramatically. And even lumber is proving a leading indicator. “We have seen spot lumber prices drop 25 percent since the end of April,” notes Buck Horne of Raymond James. Lumber saw a big run-up in price, 46 percent from January through April, according to Random Lengths data. And at the Chicago Mercantile Exchange, lumber futures have trended sharply lower since late April “on worries that expiration of the tax credit would slow home sales,” according to Reuters. On the other hand, Toll Brothers reported strong order growth of 41 percent year over year. Toll’s high end homes wouldn’t be affected much by the tax credit, so perhaps that’s real organic demand.”

Money runs out for small business loan breaks

It is the Federal Government’s National Small Business Week, but there is little money left for Small Business Administration programs — again. The SBA warned lenders Wednesday that it is opening up its Recovery Loan Queue for the fourth time. For more than a year, the SBA has used money first allocated in last year’s Recovery Act to temporarily reduce fees for borrowers and increase the guarantees banks receive on loans made through the agency’s lending programs. But the funding for them ran out in November. Since then, the agency lives on temporary extensions to keep the loan sweeteners in place.  Every time the money runs out, the SBA opens up its Recovery Loan Queue to track applicants hoping to collect the last few remaining dollars.

The latest authorization for the loan incentives expires at the end of this month, and the money for them is likely to be exhausted even sooner. When the funding pool starts to go dry, lenders scramble. Seacoast Commerce Bank, a community bank in Chula Vista, Calif., had pushed five SBA-backed loans through by midday Wednesday. “It certainly puts a lot of strain on the whole process,” said David Bartram, an executive vice president in the bank’s SBA division. Losing the SBA’s fee waiver can make a loan thousands of dollars more expensive for the borrower — and there are some loans banks are only willing to make if they can get the higher SBA guarantee. Without it, those loans become too risky. “Nothing gets through Congress easily these days, even bipartisan legislation,” said Lynn Ozer, executive vice president of government lending at Susquehanna Bank. SBA lending is one of the few bright spots in an otherwise barren credit landscape, but it’s still a small part. A recent government report estimated that SBA programs account for just 4% of all small business lending.

Commercial Real Estate Vacancies to Peak Early 2011

Vacancy rates continue to rise in most commercial sectors and are not expected to level out in most markets until the end of this year or early 2011, according to the National Association of Realtors®.Lawrence Yun, NAR chief economist, said there is one bright spot in commercial real estate. “The multifamily sector can expect increased demand as the economy creates jobs and new households are formed, likely in the second half of this year,” he said. “However, the office, warehouse and retail sectors continue to experience the delayed effects of the recession. These sectors should see gradual improvement after jobs pick up and create additional demand for space, meaning a broader improvement in commercial real estate is likely in 2011.” The Society of Industrial and Office Realtors®, in its SIOR Commercial Real Estate Index, an attitudinal survey of nearly 700 local market experts, confirms that significant fallout from the recession remains. Looking at the overall market, commercial vacancy rates appear to be approaching a plateau, according to NAR’s latest Commercial Real Estate Outlook. The NAR forecast for four major commercial sectors analyzes quarterly data in the office, industrial, retail and multifamily markets. Historic data were provided by CBRE Econometric Advisors.

US Democrats Try Scaled Down Tax Bill

Congressional Democrats cut the cost of a package of spending and tax hikes by nearly a third on Wednesday and delayed action for one more day as they raced to ensure passage before safety-net programs expire next week. With some centrist lawmakers balking at the cost of the original package, House Democratic leaders scaled back unemployment benefits and doctor payments, according to a summary released late Wednesday. A flaw in Medicare’s payment system pays doctors at outdated rates, which would amount to a 21 percent pay cut unless Congress patches it with a periodic payment update. If the legislation stalls, unemployment aid and health benefits will run out for hundreds of thousands of Americans starting next week.

The revised bill would postpone pending cuts to doctors in the Medicare program for 1-1/2 years, down from 3-1/2 years in the original bill. That would push the bill’s total cost down to a level less likely to alarm centrist lawmakers like Democratic Senator Kent Conrad who are reluctant to add to a budget deficit expected to approach last year’s record $1.4 trillion figure. One of the most controversial aspects of the bill would increase taxes on fund managers in private equity and other firms to at least 35 percent from the current 15 percent. The legislation also tightens tax rules for multinational companies and oil companies in particular. Senate Republican leader Mitch McConnell said the cost wiped out savings estimated from the healthcare overhaul that passed earlier this year. “This is fiscal recklessness,” McConnell said. “And that’s why even some Democrats are starting to revolt.” Lobbyists on both sides fanned out across the Capitol on Wednesday and warned that jobs would be at stake if the legislation went through — or did not. 

Industry Risk Management Practices That Contributed to Housing Crisis: MBA Survey

Multiple factors including poor data, incomplete performance metrics, and, short-term focus and unrealistic optimism among senior business managers contributed to the collapse in the US housing and mortgage markets, according to a study released today by the Mortgage Bankers Association (MBA). The study entitled, “Anatomy of Risk Management Practices in the Mortgage Industry” which was conducted by Professor Cliff Rossi,a Tyser Teaching Fellow and Managing Director of the Center for Financial Policy at the University of Maryland. of the University of Maryland, and sponsored by MBA’s Research Institute for Housing America (RIHA). “As home prices increased, lenders were pressured to offer innovative products that could help borrowers afford a home.

The resulting increase and expansion of risk layering and change in borrower behavior, left risk managers unable to offer reliable risk estimates,” said Professor Rossi. “According to some empirical analysis, when market conditions changed, mortgage performance models proved unstable, with loans originated in 2006 defaulting at four times the rate of what a model prior to 2004 would have predicted. Moving forward, it will be essential for the industry to develop early warning measures of the level of risk in new originations and less reliance on imprecise historical performance of new loan products.” Key findings from the study talks about, increase in risk layering created a gap in understanding the long-term risk profile of new product combinations, in the wake of changes in subprime loan underwriting criteria. were challenged by limited and changing information and could not build a case for concentration risk limits. With little information in borrower and counterparty behaviour, models using macroeconomic conditions as key inputs to explain mortgage default and prepayment were biased toward lower loss estimates.

Lehman’s Bankruptcy Estate Sues J.P. Morgan

Lehman Brothers Holdings Inc.’s estate sued J.P. Morgan Chase & Co., alleging J.P. Morgan illegally siphoned billions of dollars from Lehman in the days before the troubled investment bank filed for the largest bankruptcy in U.S. history. The lawsuit alleges that J.P. Morgan Chief Executive James Dimon and other top executives used inside knowledge to take advantage of Lehman as its financial state worsened. J.P. Morgan, the suit alleged, coerced Lehman to turn over $8.6 billion in collateral in September 2008, triggering a liquidity squeeze that contributed to Lehman’s collapse.

The estate is hoping to recoup billions in collateral the bank demanded, and billions in other damages. The lawsuit, long expected, contains among the most-significant allegations to date about the interplay between Lehman and its onetime Wall Street brethren. J.P. Morgan served as Lehman’s main “clearing bank,” meaning it acted as a middleman between Lehman and its lenders and investors. In this capacity, it knew more than most market players about Lehman’s financial condition, which was growing more dire in the summer and fall of 2008. A bankruptcy-court examiner found in a recent report that Lehman could pursue a legal claim against J.P. Morgan for making “excessive collateral requests,” though he labeled it “not a strong claim.” The examiner said Lehman could have a legal claim to claw back $6.9 billion of the $8.6 billion pledged to J.P. Morgan.

Now on to our real estate education section…

Commercial Close-Up…Do Mobile Home Parks Make Sense?

While many short sale investors have dealt with isolated mobile home sales, few have ventured into the commercial mobile home market. It’s certainly not for the novice but it does provide an attractive alternative for those investors interested in transitioning from residential real estate into a commercial segment. Find out if mobile homes make sense for your personal portfolio with these quick considerations.

1. Mobiles Homes as a Commercial Investment. Mobile home parks come in all shapes and sizes ranging from small “mom and pop” type parks to major resort type properties making them a viable option for investors at all levels.

2. Make Money a Multitude of Ways. Mobile home parks can generate cash in so many ways it can make the average investors head spin with ideas. Buy a park with existing mobile homes then sell either the lot or the mobile home (or both), lease the land, lease the mobile home, add or enhance income streams via coin operated laundry and other assets plus much more.

3. Tax Advantages. Mobile home parks are treated very favorably for IRS purposes; 15 year depreciation schedules (compared to 27.5 years for single family residential) with a 70 percent land improvement ratio.

4. Low Maintenance. Earlier this week we discussed the advantages of triple net leases but mobile home parks may be a more affordable option for beginners in the commercial arena. Reduce cost and maintenance by “hiring” site management in exchange for free lot rent.

5. Density. The rate of return can be phenomenal; for example, an average five to ten acre mobile home park usually has roughly 40 spaces with an average lot rent of $300 to $400 per month excluding ancillary income sources such as laundry or recreational facilities (ie, wi-fi, part-time RV park rentals, etc.). Secondary sales of mobile homes as well as unit rentals are other common ways to increase total ROI in addition to standard appreciation and cash flow.

7.  High Desirability. Tough economic times are increasing the demand for affordable housing options. Mobile homes are an especially attractive alternative to low income earners and others on a fixed budget.

8. Multiplier Effect. A small increase in lot rental rates can create major earnings due to the multiplier effect; for example, increasing the lot rate by just $25 per month on even a small park with only 40 lots still results in an additional $1,000 per month profit.

See you at the top!

Chris McLaughlin
**************

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 

http://www.smartrealestatenews.com (subscribe to this newsletter)

*************************************************
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 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
–

*** Follow Chris on Twitter–> http://www.twitter.com/mclaughlinchris

*** Join Chris’ Facebook Fan Page–> http://www.mclaughlinchris.com

***********

Apartment prices fall 3%, vacancies up 8%

The national apartment vacancy rate rose to 8% in the last three months of 2009, according to Reis Inc., a commercial real estate information provider. That is the highest level Reis has ever reported.  The vacancy rate barely inched up from the third quarter — just 7.9% to 8% — but it rose significantly from a year ago, when it stood at 6.7%. Even more dramatic, vacancies spiked 45% from the third quarter of 2006, when they had bottomed out at 5.5%.  According to Reis economist Ryan Severino the main culprit is the recession.  Not only do people lose their jobs during downturns, many others are afraid of being laid off. And they all feel pressure to reduce their housing costs.  “Household formation rates slow down during recessions,” said Severino. “They may move in with their families or rent larger apartments and partner up with friends. They partner with others much more then they do during more prosperous times.”  Occupancy rates did climb during the quarter, with nearly 10,000 more apartments being rented than had been three months earlier, according to the report. But vacancy rates still managed to climb because 28,000 newly constructed units hit the market. A total of 120,000 new apartments came online during 2009, the most since 2003. 

Americans borrowing less

Americans borrowed less for a 10th consecutive month in November with total credit and borrowing on credit cards falling by the largest amounts on records going back nearly seven decades.  The Federal Reserve said Friday that total borrowing dropped by $17.5 billion in November, a much bigger decline than the $5 billion decrease economists had expected.  November’s $17.5 billion drop in total credit was the biggest amount in dollars terms since records began in 1943. That represents an 8.5 percent fall from the October borrowing level. That was the biggest percentage drop since total credit declined 9 percent in May 1980.  The borrowing category that includes credit cards fell by $13.7 billion, an all-time record decline in dollar terms. The drop was 18.5 percent from November, the biggest decline in percentage terms since a 29.6 percent plunge in December 1974.  The Fed’s credit report excludes home loans and home equity mortgages, only covering borrowing that is not secured by real estate.  The drop in overall credit for 10 straight months was a record in terms of consecutive declines, surpassing the old mark of seven straight declines set in 1943 and again in 1991.  Americans are borrowing less for a number of reasons. They remain fearful about their job prospects and they are also trying to replenish depleted investments.

DSNews.com – Future of Mortgage Purchase Program?

According to minutes released this week of the Federal Reserve Board’s closed-door December meeting, Fed policymakers have already begun debating whether the program should be extended, to ensure the already-fragile housing recovery maintains its course, but the decision has left a dividing line down the central bank boardroom.  The Federal Reserve has said it will end its purchases of mortgage-backed securities (MBS) from Fannie Mae, Freddie Mac, and Ginnie Mae on March 31, but the decision wasn’t unanimous. Over the past year, the U.S. central bank has purchased nearly 75 percent of the mortgages that Fannie, Freddie, and Ginnie have securitized. It currently holds just over $900 billion of these MBS bonds, and says by the time the program ends it will have bought a total of $1.25 trillion.

On Wednesday, federal banking regulators, including the Federal Reserve, issued an advisory to the nation’s financial institutions, warning them to ensure procedures and practices are in place to minimize their risks from loans and an increase in financing costs when interest rates do rise.  The government has already moved to reassure the market that the Fed’s withdrawal of its support won’t have as big a sting as some fear. In late December, the Treasury pledged “unlimited support” to Fannie Mae and Freddie Mac, and lifted the mandate that the two companies begin selling off large chunks of the securities they hold.  But some investors aren’t convinced. Ronald Temple, portfolio manager at Lazard Asset Management, told the Wall Street Journal that if the Fed stops buying mortgage bonds, we should expect mortgage rates to rise by at least a full percentage point. He says that combined with high unemployment and still large numbers of foreclosures could push home prices down as much as 20 percent.

Redefault Rates ‘Tragic’, Says Amherst 

According to Amherst Securities Group, default and prepayment rates on non-agency, private-label mortgage-backed securities (MBS) were constant in November. However, re-performance rates, where payments return to less than two months delinquent, were down and re-default rates “tragic” in November, according to market commentary provided by the firm.  The Amherst report, based on November payment data covering 98% of loans backing private-label MBS, said cash flow velocity continued to decline.  Based on performance data, Amherst projects that always-performing loans fell to $905bn in November from $930bn in October, as first-time defaults came in at $16bn, from $16.8bn in October.

Prepayments of $8.3bn were unchanged from the previous month.  Re-performing loans totaled $117.3bn in November, down from $118.1bn in October. Loans totaling $12.8bn became re-performing in November by getting back within two payments delinquent, down from $13.4bn in October. Total non-performing loans were $484.8bn in November, from $486.1bn in October.  Re-defaults after modification were $12.8bn, or 10.9%, up from 10.5% last month.  Laurie Goodman of Amherst has said the fundamentals of certain modification programs put them at a disposition for unsuccessful modification. The Treasury Department’s Home Affordable Modification Program (HAMP), for example, is “destined to fail” as it does not address negative equity.

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Price Impact on ROI

One of the most commonly used valuation models for single family homes and short sales includes the Return on Investment or ROI. Despite the ease associated with using this calculation, the ROI is a robust measure of investment value that is both quick and convenient. However, it is also subject to a high level of volatility based upon the price of the property and type of funding in place. In fact, ROI is so dramatically influenced by funding mechanisms it is frequently considered a cornerstone by investment advisors. Let’s take a look at a few hypothetical short sale situations to demonstrate the impact of price on the ROI as well as how it can be used to your advantage.

Cash is still king and it speaks louder than ever especially with tightening lending standards and other banking irregularities; however, one area where cash doesn’t hold up quite as well as the use of leverage is in the calculation of ROI or return on investment. Let’s assume a short sale investor opts to purchase a property in cash for $100,000. If the property generated a one year rental return of $10,000 the total ROI is a fairly straightforward 10% or perhaps the property was flipped for a $20,000 profit and thereby the ROI was a handsome 20%. Both are completely realistic examples and certainly above and beyond what stocks, bonds or other inferior investments are currently able to deliver but the total return is a bit misleading. This can be due to the cost of borrowing the money in the first place (ie, what interest rate is being paid on the funds borrowed or the “spread” of the borrowed interest rate versus the total ROI received). For example, if the short sale buyer took out a home equity loan or borrowed against a 401-k plan, the interest rate may be a very reasonable 3 to 4 percent versus a total return of 10% – leading to a “spread” or ROI of 6-7 percent.

On the other hand, some properties are truly purchased completely for cash so the entire ROI is theirs to keep…but is this always the best situation? Maybe-maybe not. There are a multitude of reasons to purchase a property for cash – not the least of which is the inability to obtain full financing on a distressed property, the ease and convenience of closing and the cost savings of not having to obtain PMI or other add-ons. However, there are very strong reasons to finance a property or use the maximum amount of leverage possible to maximize ROI. Going back to the former example, let’s assume you financed a property for 80% of the value…$80,000 of the total price of $100,000. You used $20,000 out of pocket and received the same $10,000 annual rental or flipped for a quick $20,000. Instead of a respectable 10% to 20% return, you will now realize an eye-popping 50% to 100% return on your investment!

Now let’s take this one step farther…how important is price when it comes to ROI? The final answer is “it depends”. Certainly buying right is a critical consideration in any short sale deal however, when using leverage, price becomes much less important due to the extreme rates of return generated. In the above examples, every $1,000 addition in cost reflects a significant gain or loss in the final cash ROI but in the leveraged position, paying an additional $1,000 for a property results in a paltry difference in the final ROI. Short sale investors should fully understand how to maximize ROI depending upon the price and funding source to be utilized for the deal. By doing so it is often feasible to pay more for a property while still maximizing the full profit potential of your portfolio.

See you at the top!

Chris McLaughlin

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

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 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
–

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

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

Land Flipping Finale … Tonight at 8:30 PM ET, 5:30 PM PST:

There was so much excitement about the new strategy in flipping land that we’re holding an encore tomorrow night at 8:30 PM ET, 5:30 PM PST.  There’s also a three pay option as well to help with your cash flow needs.

Here’s the link to RSVP:

https://www2.gotomeeting.com/register/530226171

 *****************

WSJ sees foreclosure tidal wave

In a lead story, the Wall Street Journal (WSJ) paints a dismal picture of the housing market in 2010.  Uncertainty over the extension of a home-buyer tax credit sent new-home starts in October crashing down a full 10.6% from September, and starts of single-family houses fell 6.8%.   That’s the lowest level since April, the Commerce Department said. This news suggests that foreclosures are not only going to keep rolling in, but that they may actually increase.  Richard Dugas,  chief executive of Pulte Homes Inc., the nation’s largest home builder, warned investors: “As we look out to 2010, we are expecting difficult conditions to continue.”  Wednesday’s data prompted some economists to revise their fourth-quarter forecasts down slightly. Macroeconomic Advisers moved its GDP estimate down to 3% from 3.2% and Nomura Securities predicts 3.4% growth, down from 3.6%. The data adds to the suggestion “that the recovery is a little bit rickety,” said Zach Pandl, an economist from Nomura.  Given that 3.4% of U.S. households — or about 1.9 million homeowners — are 120 days or more overdue on their payments, and that millions of homes are expected to go through foreclosure over the next few years, adding to supply, it’s a fair bet that foreclosure problem won’t be gone anytime soon. 

Unemployment claims flat 

The Labor Department announced that initial claims for state unemployment benefits were flat at a seasonally adjusted 505,000 in the week ended Nov. 14 – about the same as analysts polled by Reuters had forecast.  Applications have dropped significantly from March’s lofty levels, but remain above the 400,000 mark that analysts say would signal payrolls growth.  The four-week moving average for new claims fell 6,500 to 514,000 last week – declining for the 11th straight week.  The number of workers still collecting benefits after an initial week of aid dropped 39,000 to 5.61 million in the week ended Nov. 7, the lowest since March, and in line with market expectations for 5.60 million.  continuing claims have fallen from a peak of 6.9 million in June and the drop is likely the combination of fewer new applications for unemployment aid and many jobless workers exhausting their benefits.  The four-week moving average of continuing claims declined 83,500 to 5.71 million. The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, was steady at 4.3 percent in the week ended Nov. 7.

Surprise!  Administration’s job claims “flawed”

This can hardly come as a surprise after the recent fiascos of non-existent congressional districts and wildly inaccurate job estimates, but a new report from the Government Accountability Office (GAO) concludes that the Obama administration’s recent claims about the number of jobs saved or created by stimulus spending are flawed.  The White House touted the Recovery Board’s report that claimed approximately 640,329 jobs had been created or saved through contracts, grants and loans in the stimulus package, and while the GAO has not issued corrective numbers, it found a slew of new holes in the data:  3,978 recipients reported jobs created or saved without actually receiving ANY Recovery Act funds, and 9,247 reports showed the receipt of money but NO JOBS were created or saved. In addition, there have been over 100 allegations of fraud surrounding Recovery Act funds, and more than half are still at various investigative phases.  In the final analysis, the GAO concludes it has been a “lessons learned process”, and there should be changes to how jobs created and saved are defined, while continuing to work with recipients to accurately report the impact of Recover Act funds.  Heck, it would be more accurate to just make up numbers.

Housing slump or not next year? 

The National Association of realtors (NAR) expects house prices to rise 4 percent in 2010 with sales hitting 5.7 million units, slightly above the 2007 rate, and that about 15 percent of sales will be the result of the tax credit, which requires a contract by the end of April and closing by the end of June.  It’s only fair to present the other side of the argument:  “Most of it [the tax credit] is simply shifting sales from one period to another,” says Global Insight economist Patrick Newport. “It doesn’t get rid of the fundamental problem; there’s still a glut of houses.”  David Crowe, chief economist at the National Association of Home Builders agrees: “We expect a little stall in 2010…I agree, you do advance demand, so you steal it for the future.”  The builders’ group forecasts sales peaking at 5.60 million units in the first quarter and bottoming at 4.50 million in the third quarter, for a 2010 average of 5.15 million. That’s marginally above the 2008 rate of 4.91 million. Most economists see the jobless rate—now 10.3 percent—peaking around 11 percent sometime in early to mid 2010 and then creeping down to around 10 percent by the end of the year, and that certainly drags on both sales and prices too.  However, any change in employment, even sentiment, will help sales in general, while a snapback in new household creation will mean the traditional supply of new buyers.  Historically low interest rates—which may creep up a full percent over the next 14 months—will still be low enough to keep home affordability high.

More healthcare taxes on the way

Meanwhile, back in never-neverland, while the economy is hobbling along and banks are burning, the government is still fiddling with healthcare.  U.S. Senate Democratic leader Harry Reid released a 2,074-page bill, which quickly set off what promises to be a lengthy and bitter debate over President Barack Obama’s top domestic priority.  Democrats said the Congressional Budget Office pegged the plan’s 10-year cost at $849 billion — below Obama’s $900 billion goal (well that’s a relief – oh, wait, I missed the “Democrats said” part).  The actual analysis from the Congressional Budget Office had not been released by mid-evening on Wednesday, but at least the Senate bill is less expensive than a more than $1 trillion healthcare measure passed on Nov. 7 in the House of Representatives. 

Republicans criticized tax increases included in the bill to help pay for the expanded insurance coverage, including a new tax on elective cosmetic surgery they dubbed a “botox tax.” The bill would also raise the Medicare payroll tax on high-income workers, which is used to finance the government health program for the elderly, and impose a tax on high-cost “Cadillac” insurance plans.  “This bill has been behind closed doors for weeks. Now, it’s America’s turn, and this will not be a short debate,” Republican Senate leader Mitch McConnell said. “Higher premiums, tax increases and Medicare cuts to pay for more government — the American people know that is not reform.”  If the Senate passes a bill, any differences with the House version would have to be reconciled before a final bill can be voted on again in both houses and sent to Obama to sign.

HAMP not working

Only a tiny percentage of troubled homeowners have received permanent modifications under President Obama’s Home Affordable Modification Program (HAMP), raising concerns about the effectiveness of the $75 billion effort.  Fewer than 5% of the trial modifications on loans owned or guaranteed by Freddie Mac were converted to long-term adjustments as of Sept. 30.  More broadly, the figures are even lower. As of Sept. 1, only 1.26% of all trial adjustments were made permanent after three months, reported the Congressional Oversight Panel, which monitors the government’s use of bailout funds.  The preliminary data, which has not been widely reported, underscores the next big problem facing the government’s effort: Officials have leaned on banks to offer more homeowners trial modifications, but the real test will be whether homeowners will receive lasting help. 

“No one is really sure why the conversion rate is so low,” said Mike Zoller, assistant economist at Moody’s Economy.com. “We’re concerned these loans will eventually become foreclosures.”  Guy Cecela, publisher of Inside Mortgage Finance, a trade publication, says, “Everyone is going to be shocked at the low conversion rates from trial modifications to permanent modifications.”  The president’s program “won’t result in a significant number of loans being modified and won’t put a significant dent in foreclosure rates.”

Now on to our real estate investing educational arena …

Finding Cash to Get Started in Foreclosure Investing

One of the most common complaints voiced by those that have never tried a short sale is that they don’t have the funds needed to get going. The reality is that short sales and REOs are within the reach of most average investors – far more so than other funds that can bring a fortune into your life. Here are just a few ways to find the cash to get started in short sales investing:

1. Banks. This is the most common way but of course, it often requires at least a little out of pocket to get going. Keep reading to learn more ideas of where that might come from…

2. Hard Money Lenders. This is a viable option especially for those that intend to re-sell or flip a property quickly. It’s often worth the higher than average interest rates to turn a quick profit the finance your own from that point forward.

3. Line of Credit or Credit Cards. Personal lines of credit or “signature loans” are a super convenient method of obtaining cash for closing costs or repairs. Likewise, credit cards can be quite helpful – just remember to use responsibly.

4. Savings Account. Remember those? Plenty of people still have them and right now, the interest is dismal. Put that money to better use by investing in a short sale. Once the property is re-sold you can stash the cash away for safe-keeping or even add to it.

5. Bonds. Much like savings accounts, these under-performing assets are downright depressing. Consider the opportunity cost then put that money to work.

6. Insurance Loans. If you have whole life insurance it is often possible to borrow from your policy for a fraction of the cost associated with other credit terms. It’s a great way to make your money work for you without reducing liquidity requirements.

7. 401-k. Another popular option for generating quick cash at a relatively low cost.

8.  Home Equity Loans. Although more difficult to obtain than in the past, those with good credit are still able to tap into equity. Other options include reverse mortgage loans or loans made with other secure collateral.

9. Friends and Family. While doing business with friends and family can be risky business, borrowing from them need not be if you write up the proper contract. It is often a win-win since you obtain needed funds and they get better than average returns on their money.

10. Join a Professional Group. The “big boys” of investments have used syndicates for a long time but small investors rarely have been able to generate the same types of returns. Today, there are a multitude of options for those seeking the temporary use of funds from others.

See you at the top!

Chris McLaughlin
**************

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 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
    * Add me on Facebook: http://www.facebook.com/mclaughlinchris
    * Join my Fan Page: http://www.mclaughlinchris.com
–