Smart Real Estate News & Commentary by Chris McLaughlin July 13, 2010
Forward this e-mail to your friends!
Then they can subscribe directly at the following link:
http://www.smartrealestatenews.com/
*** Follow Chris on Twitter–> http://www.twitter.com/mclaughlinchris
*** Join Chris’ Facebook Fan Page–> http://www.mclaughlinchris.com
**********************************************************
Going … Going … GONE!
The LA Investor Summit is SOLD OUT!
If you would like to put your name on our waiting list please do so ASAP:
http://www.LAInvestorEvent.com
**********************************************************
Wells Fargo leaves a gap in financing
The closure of much of the Wells Fargo Financial consumer finance operations, which we reported on a few days ago, will result in a gap of funding that may never be fully replaced, according to a weekly credit outlook today by Moody’s Investors Service. “The contraction of the traditional consumer finance industry leaves a hole that will not be filled by regulated banks with tighter underwriting standards,” said Curt Beaudouin, a senior analyst at the firm in commentary. “A withdrawal of this form consumer lending is credit negative and suggests the prospect of slower economic growth and a stubbornly gradual decline in unemployment.” The housing and subprime mortgage crises also eliminated residential mortgages — particularly cash-out refinancing — and the ample supply of wholesale funding. Wells’ closure of the Wells Fargo Financial branch network is just the latest move in an industry-wide contraction of consumer finance.
And the gap it leaves, particularly in non-prime mortgage lending, may never be filled. Beaudouin did, however, note several means of meeting the consumer lending demand left by Wells’ restructuring. Traditional banking operations — like Wells’ newly expanded community banking network — will likely look to fill the gap. Retailers will similarly look to fill the gap by offering “creative financing” and other promotions like discounts on retail chain credit cards. Finally, the void left by the decline of traditional consumer lenders potentially leaves room for new non-bank participants, although Beaudouin noted funding will continue to constrain operations.
Small business loans drying up
According to bank financial reports submitted to the Federal Financial Institutions Examination Council, loans to small businesses dropped from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010. Ben Bernanke, chairman of the Federal Reserve, says there are several factors behind the contraction in small businesses lending. He cited weaker demand from Main Street businesses worried about taking on more debt during tough times, “deterioration in the financial condition of small businesses during the economic downturn,” and a lack of supply of available credit.
Throughout dozens of similar forums, a couple of issues came up repeatedly. In particular, banks noted they are stuck between a rock and a hard place. On the one hand, banks are being told to increase their small businesses lending, while on the other hand bank regulators are telling banks to tighten lending standards. For small business owners, the collapse in the real estate market has also created another roadblock to obtaining a loan, since many depend on the value of their real estate as collateral for loans. Additionally, many manufacturers also rely on the value of their equipment as collateral for loans — and those values have fallen off sometimes more than real estate.
More mortgage bureaucracy in LA
The city of Los Angeles passed a city ordinance last week allowing for fines up to $100,000 to lenders and servicers of properties under foreclosure for failing to adequately preserve properties. RealtyTrac, an online marketplace of foreclosure properties, reports new foreclosure filings in Los Angeles grew by nearly 3,000 properties in May. The state of California is listed as the highest ranked state for foreclosures, on the firm’s website. However, data compiled by RealtyTrac finds that of the 72,030 properties in default, 15,946 are in real-estate owned status – meaning ownership is now transferred back to the lender. The average sales price for a LA home in foreclosure is $400,000. “The LA ordinance is an example where lenders, servicers now have one more piece of paper to push around in what is becoming a compliance nightmare,” says Dustin Hobbs, spokesman for the California Mortgage Bankers Association.
“The city is essentially asking firms to take responsibly for homes that they technically don’t own yet.” The passage of a California state law last year, Senate Bill 1137, slows down the foreclosure process by adding an additional 30 day window to satisfy “due diligence requirements” and “in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” One servicer said Monday that the additional time means the risk of damage to the property will increase as borrowers grow more disenchanted with the status of the property.
Businesses hire workers because of tax breaks?
According to the Treasury Department, businesses have added 4.5 million workers under a new program that provides tax breaks for hiring unemployed workers. The bill, which was passed in March, exempts businesses that hire people who have been unemployed for at least 60 days from paying the 6.2% social Security payroll tax through December. Employers get an additional $1,000 credit if new workers stay on the job a full year.
The administration released the report, which looked at the period from February through mid-May, in hopes, it says, of raising awareness about the credit – and of course not because it sounds good before November’s congressional election. Unsurprisingly, the report does not estimate how many of those jobs would have been added without the tax break, since businesses run by anyone who has mastered 2nd grade math are not going to hire people just to get a fraction of their wages back through a tax break. Alan Krueger, the Treasury Department’s chief economist, says, “”I would be cautious about attributing [additional hiring] to the HIRE Act.” Indeed.
DSNews.com – Mortgage firms close
During the first half of 2010, the number of mortgage-related firms to close or fail jumped by more than a quarter from the same time last year, according to industry data released week. The increase was driven by financial institution failures as the number of non-bank lenders to close has dwindled. Based on information tracked by the online industry resource Mortgage.com, the period between January 1 and June 30 of this year saw 109 mortgage-related failures and closings. The figure represents a 27% increase from the 86 closings reported during the first half of 2009.
Bank and credit union failures have both doubled when compared to the first six months of last year, with the number of banks to go under tallying 86 over the last two quarters and credit union collapses at 11. Non-bank closings, on the other hand, fell by more than two-thirds during the same period to 12. An analysis by MortgageDaily.com of bank failures and regulatory orders suggests this year’s bank failures will end up between 175 and 200. FDIC Chairman Sheila Barr has indicated that bank closings will likely pick up pace and peak during the latter half of this year.
NFIB – Business optimism down
The National Federal of Independent Businesses’ (NFIB) says that the small business optimism index fell by 3.2 points in June, dipping to 89, after posting several months of gains. The report is based on 805 responses to a random survey of NFIB members. “70% of the decline this month resulted from a deterioration in the outlook for business conditions and real sales gains,” the NFIB survey concluded. The survey showed that only 10% of firms plan new hiring, down 4 points from May, and about 8% of firms plan to reduce their workforce, up one point from the previous month. Small businesses account for a major share of jobs in the U.S. economy. The number of business owners planning to make capital expenditures over the next few months fell a point to 19%, 3 points above the 35-year record low, the NFIB said. “This indicates that the ‘inventory’ stimulus in this cycle is likely fading,” the report concluded.
Now for our real estate education section…
When to Seek Outside Investors
Novice short sale investors typically rely upon traditional mortgage products to fund their short sales; combined with personal loans, hard money lending and savings this strategy is more than sufficient to build a strong portfolio. However, there comes a time when outside investors may be the wisest choice. Learn when to seek outside investors and when to go it alone with these quick tips:
1. Seek outside investors when your growth strategy requires capital beyond your ability to self-fund. Sounds simple enough but a surprising number of short sale investors continue to struggle with traditional mortgage loans and slow self-funding mechanisms rather than turn to outside investors. This is primarily due to the following fallacies:
The belief that finding investors is hard work and will take longer than planned. The reality is a large number of people are searching for ways to obtain better than average returns without the headache and hassle of timing the market or dealing directly with real estate. Show them the money and you will be surprised at the number of investors able and willing to fund your next purchase.
The belief that you will be at the beck and call of the investor. While it’s only natural that an investor take an active interest in how their funds are performing, the reality is they do not want to be bothered with the minutia and mundane tasks involved in the investment. Most investors simply want a return with the least amount of time and effort required. The last thing they want to do is micro-manage every detail of your daily life.
2. Seek outside investors when the level of input equals or exceeds the anticipated output. What this means is that the deal needs to be big enough to attract the interest of an investor that is seeking higher than average rates of return.
3. Seek outside investors when the investors experience or contacts can accelerate your growth. This is the essence of “smart money” and a critical component to growing from a small-time investor to a major player. In fact, this is such an essential criteria that many novice investors deliberately seek out deals just to attract the interest of highly qualified investors with good contacts or experience. Remember, “dumb money” only brings money to the table whereas “smart money” bring experience, contacts and otherwise fills a much needed void in your long term investment strategy.
Think of short sale investing like any other small business start-up; who you bring to the management team and/or board of directors is just as important (perhaps even more important) than the actual product or service. With the right people, nearly any endeavor can become a raging success. To learn more about finding and working with outside investors as well as other information you can use to grow your real estate portfolio, attend one of our free webinars.
See you at the top!
Chris McLaughlin
**************
Copyright Loss Mitigation Institute LLC 2010.
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)
*************************************************
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
-
