economy

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Home ownership lowest in a decade

According to US Census Bureau data, the homeownership rate dipped in Q409, bringing the rate of homeowners at its lowest point since the second quarter of the year 2000.  The Q409 rate of 67.2% is down slightly from Q309’s rate of 67.6%, and is also down from Q408, when the homeownership rate was 67.5%.  Seasonally adjusted, the Q409 rate was 67.3%, down from the seasonally adjusted rate of 67.4% in Q309 and 67.6% in Q408. The seasonally adjusted homeownership rate is also at its lowest level since Q200.  Regionally, The biggest drop was in the South, where the rate declined to 69.1% from 69.7% in Q309 and 69.8% in Q408. The West declined to 62.3% from 62.7% in both Q309 and Q408. Homeownership in the Midwest decreased to 71.3% from 71.6% in Q309 and 71.4% in Q408. In the Northeast, homeownership declined to 63.9% from 64% in both Q309 and Q408.

Housing prices to drop 5% more?

In normal times, people won’t pay much less to lease a house than to own it. After all, if you’re paying rent instead of a mortgage and taxes, you still get to enjoy the same rec room, chef’s kitchen, and casita for visiting grandparents. So the surest sign of a frenzy appears when owning becomes far more expensive than renting. That’s precisely what happened during the last bubble.  And the surest sign that prices have fully adjusted arrives when the ratio of what people pay in rent versus what owners spend on the same property returns to its historic average.  “If you look at the trend in rents to see where housing prices are headed, you’re looking at the right measure,” says Yale economist Robert Shiller.  In recent reports, Deutsche Bank (DB) demonstrates how steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease. That’s a golden mean that America hasn’t seen in almost a decade. The DB research also offers convincing evidence that the wrenching adjustment in housing prices is finished for much of the nation, with a bit more pain to come in selected areas. 

On average, DB found that families across America were spending about 87% as much to rent as to own in 1999. Hence, they were traditionally willing to pay a premium as homeowners, though not a big one.  But by mid-2006, with the craze in full swing, the figure fell below 60%. At that point, Americans were spending an incredible 66% more to own than to rent. It was far worse in the bubble markets: In Las Vegas, Phoenix and Miami, homeowners were paying twice as much as renters, and in San Francisco and Orange Country, owners’ monthly payments were triple those of their neighbors with leases instead of mortgages from 1999 to 2007, apartment rents increased only 32%, but home prices jumped more than three times as fast, around 105%.  DB reckoned that housing prices are more or less reasonable when the ratio returns to its 1999 level. Why 1999? Because the ratio was relatively stable throughout the 1990s, and it was the year the steep rise in prices began in earnest.. At the end of the third quarter of 2009, the overall number stood at 83%, meaning renting was just a tad more attractive than owning.  Given that analysis, it’s likely that prices will fall another 5% or so nationwide. The drop could even be slightly greater. One reason: Rents, the force that govern housing prices, are still falling.  In 2009, apartment rents dropped 2.3%, and the fall continues. And enormous adjustments are needed in still-exorbitant markets such as New York and Baltimore. Thankfully, the improving economy and decline in the rate of job losses means that rents should soon stabilize and could even start increasing by the end of 2010.

Let big banks fail

White House advisor Paul Volcker said yesterday that large financial institutions that engage in speculative activities for profit should be allowed to fail if they get in trouble.  “If a big non-bank institution gets in trouble and threatens the whole system, there ought to be some authority that can step in, take over that organization and liquidate it or merge it — not save it,” Volcker said on CNN.  “It’s called euthanasia, not a rescue.” As Congress debates financial reform in the wake of the worst financial crisis since the 1930s, Volcker has argued for fencing off investment firms primarily engaged in market speculation from commercial, deposit-taking banks.  The former Federal Reserve Chairman, most famous for raising interest rates sharply in the early 1980s to quell double-digit inflation, said the central bank and other regulators were amiss in preventing the crisis.  “I don’t think there’s any question the Federal Reserve and other regulators were not on top of the housing picture,” Volcker said.

DSNews.com – Short sales in Las Vegas

Las Vegas has the highest foreclosure rate of any metro in the country, but lenders there have become more willing to accept short sales as an alternative to foreclosure. The Greater Las Vegas Association of Realtors (GLVAR) reports that 21.1 percent of all existing-home sales in the area last month were short sales.  The association’s short sale figures represent a 2 percent increase from the previous month. Rick Shelton, GLVAR president, called the increase in short sales “one of the more promising trends” for the month, particularly because it was coupled with a decline in sales involving foreclosed homes.  Shelton said bank-owned homes accounted for a decreasing percentage of all local home sales, dropping from 60.1 percent in December to 57.4 percent of all sales in January.  Overall, GLVAR’s local housing statistics showed that 2010 started looking very much like the end of 2009, with local home prices staying about the same and home sales increasing from the previous year.  During January, GLVAR reported the median price of single-family homes sold in Southern Nevada was $134,925, down 0.8 percent from $136,000 in December. The median price for condos and townhomes increased 5.7 percent, from $65,300 in December to $69,000 in January.  According to the GLVAR, the total number of local homes, condominiums, and townhomes sold in January was 3,266, down from 4,196 total sales in December 2009, but up from 2,664 in January 2009. Shelton said this decline in total sales from December to January was expected since it occurs nearly every year in Southern Nevada during these months.  The percentage of local homes purchased with cash during January was 45.5 percent, up from 40.4 percent the previous month and the highest such percentage ever tracked by GLVAR.

Consumer sentiment down

A Reuters/University of Michigan Surveys of Consumers said its preliminary index of consumer sentiment for February was 73.7, down from 74.4 in late January but up from 56.3 a year ago.  The reading fell short of analysts’ median expectation of a reading of 75.0, according to a recent Reuters poll.  The survey’s gauge of current economic conditions was 84.1 in early February, the highest since March 2008. It was up from 81.1 in late January and above the 81.4 predicted by analysts polled by Reuters.  But the survey’s barometer of consumer expectations dipped to 66.9, down from 70.1 in late January and short of the 70.9 forecast by analysts.  “Few consumers anticipated any significant declines in the jobless rate any time soon, and the majority expected recurrent economic weaknesses over the next several years,” Richard Curtin, director of the surveys, said in a statement.  “The cumulative financial strain during the past few years, coupled with the fact that the majority still expect no gains in their incomes, work hours or home values in the year ahead, has meant that consumers have remained extremely cautious spenders,” Curtin said.  The index of consumers’ 12-month economic outlook fell to 79 from 84 in late January.  The survey’s 1-year inflation expectation index eased to 2.7 in early February from 2.8 in late January. The five-to-10-year inflation measure eased to 2.8 from 2.9 late last month.

WSJ – US Debt to keep growing no matter what

The crushing weight of US debt threatens to overwhelm everything the federal government does, even in the short-term, best-case financial scenario — a full recovery and a return to pre-recession employment levels.  The government already has made so many promises to so many expanding “mandatory” programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained.  Take Social Security, Medicare and other benefits. Add in interest payments on a national debt that now exceeds $12.3 trillion. It all will gobble up 80 percent of all federal revenues by 2020, government economists project. 

The US debt crisis also raises the question of how long the world’s leading power can remain its largest borrower.  Moody’s Investors Service recently warned that Washington’s credit rating could be in jeopardy if the nation’s finances didn’t improve.  Proposed belt-tightening steps by President Barack Obama, including a freeze on some nondefense, nonentitlement spending, would make only a small dent in the mountain of debt.  The budget he submitted to Congress this month proposes record spending of $3.8 trillion for 2011. Taxes in next year’s budget will support only $2.5 trillion of that spending, leaving $1.3 trillion to be borrowed.  The president’s budget doesn’t take into account future liabilities from the growth of entitlement benefits and is based on projected economic growth that depends on a solid recovery. It assumes Congress will pass all of Obama’s initiatives, including spending cuts and tax increases previously rejected by Congress.

Now on to our real estate investing educational section…

Ready for Round Two?

Despite the optimistic rhetoric spouted by Washington, the actual state of the union is somewhat more subdued; in fact, experts believe we are simply experiencing the eye of the storm as we prepare to “hit the wall”. The newest numbers by RealtyTrac seem to contradict signs of recovery and instead point toward “Round two” of the short sale tsunami.

To recap the major findings of the latest RealtyTrac report:

• The number of U.S. families facing foreclosure surged 15% as compared to one year ago.
• One of every 409 U.S. homes is now facing default.
• More than 87,000 homes were repossessed in January 2010 alone…a 31% increase over January of 2009.
• RealtyTrac estimates the number of pending foreclosures to surge by nearly 40% reaching a record-breaking high of 3.5 million as compared to the (former record) of 2.8 million in 2009.
• Home values plunged by 17% in December 2009.
• Fannie Mae reports delinquency rates among homeowners with conventional mortgages has now more than doubled from 2.1% at the end of 2008 to 5.3% by the close of 2009…no small concern when you remember that Fannie/Freddie are now underwriting up to 95% of mortgages in many areas.

Face it – the worst is on its way. Much like a hurricane that wrecks the greatest destruction on the backside of the storm, those that think they have already seen the worst are likely to be in for a big shock. So…what are you doing to prepare for round two? Running for cover like most investors or revving up the engines to take advantage of once in a lifetime buying opportunities? Toss in rising inflation, escalating energy prices, increased unemployment rates and it doesn’t take a rocket scientist to see there will be more people than ever moving out of over-priced, under-water McMansions in search of affordable housing opportunities.

If this wasn’t dire enough, the days of federal underwriting via Freddie/Fannie are limited; remember, most of their financing comes via the bond market, Ginnie Mae or other related agencies…eventually interest rates will rise and further drive-up the cost of homes. In addition to higher interest rates and larger down payments, credit worthiness will become a critical issue to banks once FHA has exhausted the funding pool used to underwrite current loans. Given that 24% of FHA backed loans written in 2007 are now in default and 20% for those generated in 2008…the day of reckoning may be sooner than anticipated.

See you at the top!

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

Copyright Loss Mitigation Institute LLC 2009.

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…
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About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month
   * Long-time authority on real estate investing
      and rapid reselling of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     400 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!
    * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building
    * Follow me on Twitter: http://twitter.com/mclaughlinchris
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
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Pending home sales level off

According to the National Association of Realtors, pending home sales have leveled from a market swing driven by response to the home buyer tax credit.  The Pending Home Sales Index increased 1.0 percent to 96.6 from 95.6 in November, and remains 10.9 percent above December 2008 when it was 87.1. In November, the monthly index had fallen by 16.4 percent from surging activity in preceding months.  Lawrence Yun, NAR chief economist, said it’s important to recognize how the tax credit is skewing market data. “There are easily understood swings in contract activity as buyers respond to a tax credit that was expiring and was then extended and expanded,” he said. “These swings are masking the underlying trend, which is a broad improvement over year-ago levels.

December activity was the fifth highest monthly tally in two years.”  The PHSI in the Northeast rose 2.3 percent to 76.1 in December and is 14.9 percent higher than December 2008. In the Midwest the index increased 5.2 percent to 86.9 and is 8.7 percent above a year ago. Pending home sales in the South rose 2.2 percent to an index of 98.4, and are 5.5 percent higher than December 2008. In the West the index fell 3.8 percent to 119.9 but is 18.6 percent above a year ago.  Yun projects the extended and expanded tax credit will encourage 2.4 million households to take the credit in 2010. “While new-home sales will remain low due to a lack of construction, existing-home sales are projected to rise to around 5.6 million in 2010,” Yun said. Last year there were 5.16 million existing-home sales.  He added that one of the greatest benefits of rising sales will be firming home prices. 

Son of TARP

Touted last week in Obama’s State of the Union address, the plan is the latest incarnation of a proposal the president first floated in October. President Obama will call on Congress Tuesday to recycle $30 billion of the remaining Troubled Asset Relief Program (TARP) funds into a new government lending program offering super-cheap capital to community banks that boost their small business lending this year. The initiative targets banks with assets of under $10 billion, which collectively account for more than half of the nation’s small business lending, according to White House estimates. Those banks would be able to borrow money from the Treasury at a dividend rate as low as 1% if they use the cash to make more small business loans this year than they did in 2009.  The first draft of Obama’s plan, announced three months ago, involved lending TARP money to community banks to use for local business loans. But community bankers reacted warily to the plan — they had little interest in taking capital from a program that has drawn so much criticism.

TARP’s extensive regulatory requirements were also a turn-off.  Obama’s new proposal asks Congress to divert TARP funds into an entirely new lending program. The administration hopes that scrapping the TARP taint will make the offering more attractive to bankers.  Banks with less than $1 billion in assets would be able to receive capital infusions of up to 5% of their assets, and banks with assets of $1 billion to $10 billion would be eligible to access investments totaling 3% of assets. More than 8,000 of the country’s 8,400 banks would be eligible to participate under these terms, according to government estimates.  The dividend rate for the capital would start at 5% and decrease by 1% for every 2.5% increase in small business lending the bank shows compared to a 2009 baseline. The dividend rate could drop as low as 1% for a community bank that increases its small business lending balance by 10%. That rate would stay frozen for five years, allowing the bank to pay the Treasury back gradually.  Maybe it will work and maybe it won’t, but if I were a Bank President I’d want nothing to do with a president who encouraged banks to borrow from him and then regulated and taxed them to death while attacking them for “greed.”

U.S. manufacturing up

U.S. manufacturing expanded in January at its fastest pace since 2004 but consumers increased their spending only slightly in December, worried by job prospects and the state of the economy.  The Institute for Supply management said its index of national factory activity rose to a reading of 58.4 from 54.9 in December, handily beating economists’ median forecast of a rise to 55.5.  A reading above 50 indicates growth in the sector. The prices paid component was at its highest since August 2008.  Economists said gains were driven by businesses replenishing inventories, which fell sharply during the recession.  “It is telling me that the first half of 2010 is going to be supported by the restocking,” said Stephen Gallagher, chief U.S. economist at Societe Generale in New York.  “We have a 3 percent to 3.5 percent growth range for the first half of 2010 and based on these numbers we might be underestimating the growth.”  The U.S. economy grew at a 5.7 percent annual pace in the fourth quarter, its fastest clip in six years, driven by a sharp slowdown in the rate at which businesses reduced stocks of unsold goods, the government said on Friday.  But while the ISM employment component hit its highest level in nearly three years, some economists said the month-on-month gain was fairly modest.  “All of the employment numbers are showing that the huge losses in jobs are well behind us but we are not gaining in jobs either,” said Jay Mueller, senior portfolio manager at Wells Capital Management in Milwaukee.

Time for a government exit?

The Obama administration’s bailout plans and stimulus packages are working to keep the economy from collapsing, but they are also creating an environment in which private investors in the securitization sector are reluctant to come back en masse. During a panel at the American Securitization Forum 2010 in Washington, titled “Restoring the Private Securitization Market and Unwinding Government Support Programs,” moderator Karen Weaver, global head of securitization research at Deutsche Bank asked: “Do you think the [securitization] market is ready for the [government's] exit?”  Ish McLaughlin, a managing director at Citigroup, said the investor base appears smarter and more understanding of the securitization landscape, though the investor base is significantly deteriorated. “80 percent of volume is bought by 20 percent of the investor base,” he said. “It’s too narrow a base to build a house on. And, if you can’t get your hands around the product now, you probably aren’t going to get you hands around it.”

Paul Colonna, president of fixed income at General Electric Investment Corporation added that the homebuyer tax credit helped stimulate the market, but it is no longer needed as long as banks get recapitalized in order to begin offering credit in a meaningful way.  “We have to start thinking about what the exit looks like. We’ll see rates rise, but at the end I don’t think rates are the problem,” Colonna said. “Loan mods are a big issue, you won’t see investors back in the market until we see what will happen with this.”  McLaughlin added that the money is there for creating a private market securitization market.  When private-label RMBS does come back to market, it will have to stand up under significant review. The industry is undergoing a sweeping reform of due diligence in order to increase transparency in the securitization process.

MBA – Commercial Loan Maturity Volumes

The Mortgage Bankers Association (MBA) today released the results of its 2009 Commercial Real Estate/Multifamily Survey of Loan Maturity Volumes. The survey indicates that the volume of commercial and multifamily mortgage debt maturing in 2010 and 2011 is relatively low.  Of the $1.45 trillion balance of outstanding mortgages held by non-bank investors, only 13 percent of the total ($183.9 billion) will mature in 2010 and 7 percent ($99.8 billion) in 2011.  “Commercial and multifamily mortgages tend to be long-term loans, often for ten years or more,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research.  “The fact that a disproportionate share of commercial and multifamily mortgages were made in 2005, 2006 and 2007 means that for most investor groups, only a fraction of the balance will be maturing in the next couple of years.” 

Commercial/multifamily mortgage maturities vary significantly by investor group.  Just 2 percent ($4 billion) of the outstanding balance of multifamily mortgages held or guaranteed by Fannie Mae, Freddie Mac, FHA and Ginnie Mae will mature in 2010.  Life insurance companies will see 7 percent ($17.5 billion) of their outstanding mortgage balances mature in 2010.  Among loans held in CMBS, 12 percent will come due in 2010, including 7 percent of the $650 billion of loans in fixed-rate conduit CMBS and 72 percent of the $54 billion of loans in floating rate and large-borrower CMBS.  Thirty-two percent ($69 billion) of commercial mortgages held by credit companies and other investors will mature in 2010.  MBA’s 2009 survey collected information directly from servicers on the maturity years of more than $1.5 trillion in outstanding mortgages, including $1.45 trillion of non-bank commercial/multifamily holdings.

Follow Up: FHA Waives 90 Day Flipping Rule

With a glut of foreclosures plaguing the nation, the Federal Housing Authority (FHA) is temporarily removing restrictions on investors who buy and sell homes within 90 days.  “FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” FHA Commissioner David Stevens wrote in a statement last month. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”  The FHA is only lifting the ban for one year and there are rules.  You can’t flip the property for more than a 20 percent profit without getting two appraisals in most cases and the transaction must be at “arms-length” so friends don’t get together to drive up the home value and then snag some unknowing buyer.  The FHA program, like the Fannie Mae 3.5% rebate that we talked about here yesterday, are designed to get rid of the glut of foreclosures on the market, but some people are wary of them.  Diana Olick says, ” Look, I get it.  The United States saw roughly 2.8 million foreclosure filings in 2009, and many of those properties are still sitting on the banks and on Fannie and Freddie’s collective books. As continued foreclosures push inventories higher, they push home prices lower. 

Now on to our real estate investing educational section…

Devil Made Me Do It

They say the devil is in the details but nowhere is that old adage more true than when discussing real estate. In fact, some would argue if you haven’t encountered a few situations that could only be explained by “the devil made me do it” then you simply aren’t making enough offers. From time to time everyone is prone to make a few mistakes but learning a lesson from others is the first way to cut losses and move forward. The following are some of the most common short sale mistakes and mishaps.

 Playing dumb. Novice short sale investors sometimes are under the mistaken impression that buyers and sellers prefer to deal with less experienced – and therefore less intimidating – people. While that may be superficially true, the reality is a bit more complex. Buyers and sellers simply do not want to feel like they are being taken advantage of; when given the choice, they still prefer a knowledgeable (but trustworthy) professional. Avoid playing dumb. Plain and simple, it tends to backfire just when you least expect it. Remember, playing dumb comes in a variety of shapes and sizes to match any short sale deal; from conveniently leaving out pertinent details to “forgetting” to share certain facts or figures. Bottom line – build a relationship and put it into writing.

Getting greedy. Chances are you know someone who has tried this at some time or another; certainly every real estate agent has encountered a situation where the sellers attempts to accept two or more offers simultaneously. Unfortunately, short sale investors frequently find sellers that think accepting more than one offer increases the odds of a quick closing without ever realizing it works in exactly the opposite manner.

Axe the Ex. Never assume property gained from a divorce or other familiar situation is totally free and clear simply from what the seller says. The title company often requires the ex to sign away any rights to the property before the sale will go through. While there are ways around it, the process can be costly and time consuming. Make sure the paperwork is in place prior to finalizing the deal to avoid delays.  Closely related to the issue of divorce is the terminology regarding “tenants in common” versus “joint tenants” for properties in probate.  Joint tenancy provide for the right of survivorship whereas tenants is common requires a court to transfer ownership.

Added Insurance. Although most short sale properties are sold “as is”, investors can put an ace in the hole by adding an additional layer or protection for future buyers simply by purchasing a home warranty. These inexpensive add-on’s typically cost $350-$450 per year to cover most major appliances, plumping and even central air conditioning. It’s a small investment that more than pays for itself in today’s tough economic times. Buyers like the idea of not having to shell out additional funds in the event something goes wrong and short sale investors benefit from a strong differentiator that costs very little.

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
–

Forward this e-mail to your friends!  Then they can subscribe directly at the following link:  http://www.realestaterichesnews.com/news

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What: FreedomSoft Demo — Last Chance After the Server Meltdown

Date: Saturday, January 23, 2009

When: 3:00 PM ET, NOON PST

Where: https://www2.gotomeeting.com/register/513562771

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Does the US government own Fannie and Freddie?

So far, the White House has resisted calls by Republicans to bring Fannie’s and Freddie’s obligations onto the government’s books, a move that could boost the federal deficit by tens of billions of dollars. At a time when the deficit is already at a postwar high, that could create added urgency for Congress and the administration to address the companies’ future.  The Congressional Budget Office has reiterated its support for bringing the companies onto the federal budget—and onto the government books—which would effectively mean accounting for their operations in the federal budget as if they were federal agencies.  “Recent events clearly indicate a strengthening of the federal government’s commitment to the obligations of Fannie Mae and Freddie Mac,” the CBO said in a report.

 The CBO pegged the government’s total costs of bailing out the two companies at $291 billion and said the government’s takeover could cost an additional $99 billion in the coming decade. White House officials have said it wasn’t necessary to bring Fannie and Freddie onto the government books until the administration decided what to do in the long term with them, but some Republicans say the arrangement has become more than temporary. “These are organisms that have now become a direct arm of the U.S. government and I assume that people who are now buying these securities are looking at them that way,” said Sen. Bob Corker (R., Tenn.), in an interview. He asked Treasury Secretary Tim Geithner in a letter earlier this month to explain the rationale behind the “effective nationalization” of the companies, a move that he said “should absolutely be reflected on the balance sheet of the U.S. Treasury.”  While such a move would raise the federal deficit sharply, critics of the companies argue it would reflect Fannie’s and Freddie’s actual risks to taxpayers. “It should have been done years ago,” says David Kotok, chairman of Cumberland Advisors, a Vineland, N.J., money-management firm.

Home prices rebound

National housing prices dropped 32% from the peak in Q206 to trough in Q109 and rebounded 6.3% by the end of 2009, according to a Standard & Poor’s (S&P)/Case-Shiller home price index annual report.  S&P chief economist David Wyss projects housing sales and starts to drop over the winter, but to remain well above their early 2009 lows, and to recover in the spring. Wyss projects 750,000 total housing starts in 2010, followed by an additional 1.18 million housing starts in 2011. He also projects national house prices to decline 8% over the winter months.  The S&P/Case-Shiller 10-city and 20-city composites peaked in June and July 2006, respectively and both troughed in April 2009.

The 10-city composite fell 33.5% and appreciated 5.6% through the end of 2009, while the 20-city composite fell 32.6% and appreciated 5.3% by year’s end.  The composite indices are still reporting year-over-year price declines. The 10-city and 20-city composites reported annual declines of 6.4% and 7.3%, respectively. In January 2009, 10-city composite declined 19.4% and the 20-city declined 19% year-over-year.  While the national peak occurred in the summer of 2006, but regionally, the downturn in home prices began in late 2005 when home prices peaked in the Boston, Detroit, and San Diego markets, the report said. By January 2007, national home prices began their current three-year decline and hit a new record low in the indices 22-year history. Home prices are now at their autumn 2003 level.

Populism doesn’t mix with Wall Street

President Barack Obama spooked the market yesterday after asking Congress for limits on how large big banks can be and to end some of the risky trading large financial companies have used in recent quarters to boost profits.  The blue-chip Dow sank 213 points, or 2%, the broader S&P 500 lost 1.9% and the Nasdaq composite fell 1.1%.  They are headed for another decline today, as investors remain jittery about President Obama’s new bank plan.  U.S. Treasury Secretary Timothy Geithner says that proposed measures to limit bank risk-taking have been in preparation for weeks and were not driven by political considerations. 

A White House official said the measures had “a unanimous recommendation” from Geithner and other advisers.  Geithner said the reason for unveiling the proposals now was to offer “a little more clarity” about what the administration expects from bankers going forward and reacted sharply when asked if it was considered good politics in view of public anger at bank bailouts and pay levels.  “That’s not what’s behind this,” he insisted. “We’ve provided these recommendations to him two weeks ago. The timing is driven by the fact that we’re at this moment in this very important cause we’re fighting, which is to get financial reform through this next stage of the process in the Senate.”  Two weeks huh?  Isn’t that about the time Obama started railing publicly at the banks and demanding back money that has already been paid?  I know – the bonuses – but is attacking American finance in the middle of a massive economic downturn really the best way to get us back on our feet?

Money-wasting to stop?

Given how controversial the first stimulus package remains, passing a new jobs bill, or “second stimulus,” was never going to be easy, but the election of Scott Brown in Massachusetts and the Democrats’ loss of a filibuster-proof super-majority in the Senate throws hurdles onto an already rocky path toward a new stimulus bill.   Republicans have especially targeted the first stimulus package as a prime example of the kind of big government spending they aim to end.  “There is a reason the nation was focused on this race,” said Senate Minority Leader Mitch McConnell, R-Ky. “The American people have made it abundantly clear that they are more interested in shrinking unemployment than expanding government. They are tired of bailouts.”  “Small business tax breaks are great,” said Brian Darling, director of Senate relations at the conservative Heritage Foundation. “But when they’re basically being used just to get some Republican support and the balance of the proposal is just federal spending, this sounds very similar to the first stimulus plan.”  Douglas Holtz-Eakin, a former Congressional Budget Office director, said that the Massachusetts win should send a signal to Democrats to start from scratch on the jobs bill and start working with Republicans. He said Republicans would prefer a bill that focuses more on bigger and more effective tax cuts, like blanket breaks on payroll taxes and capital dividend taxes.

Olick – real estate a solid investment

Diana Olick makes a good point.  In going over the stats from last year, she says:  “There are some interesting tallies in the 2009 report: Home prices began bouncing back moderately, up 6.3 percent on the National Index from its trough in Q2 2006. At a cursory glance it seems to just show that, with the exception of Detroit, the cities that saw the biggest boom also saw the biggest bust. We knew that. But if you look closer, you can see that while losses abound across the board, most cities are still ahead of where they were in 2000, despite the epic crash.  Overall, over this historic decade in housing, the top twenty markets gained more than they lost in value.  According to the National Association of Realtors, in 2005 and 2006 together (peak years), 13.4 million existing homes were purchased. According to the Commerce Department, 2.2 million newly constructed homes were bought in those two years as well, bringing the total to a little over 15.5 million.  According to the US Census, in 2007 there were about 128 million total housing units, so a little more than 12 percent of homes changed hands. Now 35 million of those units are rental, which could still be bought and sold, but even taking that away, it’s only around 16 percent. I give you that my math and methodology are far from exact, but suffice it to say that an awful lot of people stayed in their homes from 2000 to 2009, and so should still be ahead.  So what am I getting at here? Not that you don’t already know this, but the overall housing market is still a very solid investment, even in the worst of times. It’s just greed that gets us all into trouble.

Fitch: U.S. Retail Credit Card Defaults Hit Near-Record Levels

U.S. consumers defaulted on store-branded credit cards at near-record levels during the holiday shopping season, with 2010 likely to bring more of the same trend, according to Fitch Ratings.  Fitch’s December Retail Credit Card Index results show that more than one in every eight dollars of receivables was written off as uncollectable during the November collection period on an annualized basis. Taken with the recent delinquency trends and Fitch’s expectation for unemployment, Fitch expects retail card chargeoffs to remain elevated throughout first half-2010.  “We do not foresee any meaningful improvement in the retail card credit quality in the coming months,” said Managing Director Michael Dean. “U.S. consumers remain under stress on a number of fronts, most notably on the employment front, and retail card chargeoffs will continue to reflect those pressures.”  Despite the elevated chargeoff and delinquency measures, Fitch expects retail card ABS ratings to remain stable throughout 2010. Excess spread remains robust, which coupled with loss coverage multiples and other structural protections will shield investors from potential downgrades or early amortization scenarios.

Now on to our real estate investing educational section…

Friday File – Ethical Question of the Week…To Tell or Not to Tell

To tell or not to tell – that is the question confronting many short sale investors  and agents when faced with the prospect of a buyer that walked away from the deal. Should you inform the lender if you no longer have a firm offer on the table? After all, there are other legitimate offers in the pipeline…all of which need immediate attention and approval; failure to inform the lender that a buyer has walked away can impede the progress needed to process other offers. On the other hand, keeping quiet can assist the short sale agent or investor in speeding up a relatively slow process in order to assure the next attempt is as streamlined as possible. Not only that, it’s sometimes possible to find a substitute buyer in time for closing and keep the sellers pre-qualification status in check.

Closely related is the somewhat controversial practice of submitting “starter” offers in order to get the ball rolling or having the agent actual act as the buyer. Both situations have the advantage of time on their side but at the expense of potentially clogging up valuable resources from the lenders perspective. Agents are equally apt to argue that stalling techniques and other less than up-front dealings are especially apt to hurt the one person most in need – the distressed homeowners. Agents representing the best interest of clients often feel a moral obligation to assist homeowners in negotiating a short sale up to the legal limit – especially when failure to do so will result in financial ruin for the entire family.

Whether one agrees or disagrees with either perspective there are a few things that should remain clear:

1. It’s essential to maintain good faith by disclosing material facts in any transaction.

2. Understand the process put into place by each lender in order to reduce the need for desperate measures and enhance communication.

3. Keep your clients best interest in mind – within the legal limits.

4. Remember the time-limit on BPO’s…most are only good for 90 days.

5. Some banks are happy to accept a substitute buyer if the terms of the original contract remain the same however, in some situations it may cause a lender to reschedule an impending foreclosure.

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.realestaterichesnews.com/news (subscribe to this newsletter)

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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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Novel new ideas

State attorneys general and banking regulators have been working on a plan for more than two years to stem the foreclosure tide and in a plan released yesterday urged the Obama administration and loan servicing firms to step up their efforts.  Among their recommendations:  1) Servicers should cut the loan balances of homeowners, in addition to reducing interest rates and extending the terms of the loan. This is especially true in places where property values have plummeted. Reducing principal will make it less likely that homeowners will default on their modified loans;  2) address ARM loans before they fall into foreclosure;  3) Treasury Department officials should reduce the amount of paperwork borrowers are required to file and speed up the debut of a central portal where homeowners can submit the forms. The portal is currently set to launch at the end of March; 4) States should expand their housing counseling and mediation programs, which require homeowners and servicers to meet before the completion of the foreclosure process; 5) Treasury officials should amend the president’s program so that the entire foreclosure process is halted when a borrower applies for the president’s program. Currently, only the sale is stopped; 6) Treasury officials and servicers should do more to assist the unemployed so they do not fall into foreclosure.  Two years to come up with the idea that everyone should “do more?”

First-time job claims at a two month high

Labor Department reports that there were 482,000 initial job claims filed in the week ended Jan. 16, up 36,000 from a revised 446,000 the previous week.  Economists surveyed by Briefing.com had expected new claims to fall to 440,000.  The 4-week moving average of initial claims was 448,250, up 7,000 from the previous week’s revised average of 441,250.  4,599,000 people filed continuing claims in the week ended Jan. 9, the most recent data available. That’s down 18,000 from the preceding week’s revised 4,617,000 claims.  The 4-week moving average for ongoing claims fell by 109,750 to 4,750,500 from the previous week’s revised 4,860,250.  Unemployment claims in 5 states dropped more than 1,000 for the week ended Jan. 9, the most recent data available. Claims in Oregon fell the most, by 5,784.  A total of 30 states said the claims rose by more than 1,000. Claims in California jumped the most, by 16,160, which the state attributed to the return to a five day workweek and layoffs in the construction and service industries.

HAMP still seen as a failure

Bloomberg reports that leading lenders, including Bank of America and Wells Fargo, currently hold a combined $1.05 trillion in home-equity debt, a figure so enormous it threatens to again disrupt housing stability and lead to 3 million foreclosures this year, after contributing to the 2.8 million in 2009.  However, the U.S. Treasury Department was unsuccessful in recent negotiations with the country’s largest financial institutions to procure contracts requiring participation in a second mortgage modification program to reduce the number of housing foreclosures this year.  According to Meg Reilly, a Treasury Department spokeswoman, the banks pursuing negotiations seem “committed” to joining a second mortgage modification program, though progress is slow.  In a statement, Barclays Capital representatives wrote, “The Home Affordable Modification Program (HAMP) is running into issues of too few permanent modifications, and re-default performance is expected to be poor.”  Last week the Treasury said that out of about 4 million eligible homeowners, only about 66,000 have been permanently helped by HAMP since it launched last February, the Christian Science Monitor reports.

Big banks brace for another shot

Former Federal Reserve chief Paul  Volcker, an economic adviser to Obama, is set to join the president today in announcing measures to narrow the “size and scope” of banks and their investment activities, according to a senior administration official.  Obama is expected to propose higher capital requirements for some financial products like derivatives, preventing commercial banks from trading for their accounts and limiting or preventing bank investments and ownership in hedge funds, sources said.  The proposals are mostly aimed at the nation’s largest banks.  “The political climate for the mega banks is getting worse by the day,” said Concept Capital Washington Research Group analyst Jaret Seiberg, in a report to clients. “For the mega banks, this is a horrible political position and it is a situation that leads to onerous legislation.” The new measures come right on the heels of an administration proposal to impose a special tax on big banks over the next decade to help recoup funds provided for the bailout. The Obama administration’s new offensive is a continuation of his populist grandstanding over performance bonuses at a time the nation is still suffering from double-digit unemployment.  Details are sketchy, but the news conference is likely to introduce “broad guidance with the specifics to be worked out later with Congress,” according to the industry source.

Highway robbery in Maryland

The Maryland real estate industry is up in arms about an Anne Arundel County decision to collect taxes on certain types of home sales based not on what the buyers paid, but on what the sellers owed on their mortgages as the deal was struck. What’s at issue are short sales, which are homes that change hands for less – sometimes far less – than the balance due on the loans. The county policy may be unique in the country, according to the American Land Title Association, which represents companies involved with home sale settlements. 
“Buyers and sellers are already being squeezed, and this is just an extra tax that nobody saw coming and nobody is prepared to pay,” said Charles Kasky, vice president of legal affairs at the state Realtors association. “It can be thousands of dollars additional in the transaction.”  Anne Arundel County said it is charging its recordation tax of $3.50 for every $500 on the sales price plus any forgiven debt. If the lender has indicated that it will go after the seller for the remainder owed, then the county will tax just the contract price, as it does with regular home sales. Richard Drain, the Anne Arundel County controller, said it isn’t a new policy and the county is simply following state law. 
But the Maryland Association of Realtors said the county began requiring the extra money last week without warning, putting some settled deals in limbo as title companies and agents scrambled to figure out how much was owed and who would be paying. Other counties aren’t collecting transfer and recordation taxes on forgiven debt, the Maryland Association of Realtors said.

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.realestaterichesnews.com/news (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
–