home sales

Smart Real Estate News & Commentary by Chris McLaughlin September 24, 2010

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Home surge will be short lived

Home sales in August increased 7.6% after plummeting in July, but activity is still low and could fall even further, taking prices with it.  Most blame the expiration of the homebuyer tax credit for pulling sales that otherwise would have occurred through the end of 2010 forward, but Sam Khater, senior economist at the analytics firm CoreLogic, told HousingWire even more obstacles could keep buyers out of the market.  “The home sales market remains very weak coming into October,” Khater said. “In the short term, this reflects the homebuyer tax credit which shifted demand forward and whose impact will be felt for a few more months.

Over the longer-term, negative equity and high unemployment serve as the main obstacles to a more resilient home sales market.”  Paul Dales, an economist at Capital Economics, said even after the uptick in August sales, they are still at the second-lowest level seen in 14 years.  “Looking ahead, as the distortion from the tax credit continues to fade, home sales will rise further,” Dales said. “But when unemployment is so high, negative equity so widespread and the threat of further price falls becoming a reality, demand for housing will remain relatively weak.”  David Stevens, commissioner for the Federal Housing Agency, in testimony before Congress today said between 20% and 25% of homeowners in the U.S. are underwater.  Quinn Eddins, director of research at Radar Logic, said today that home prices would follow depleted demand to a new bottom either by the end of 2010 or the start of 2011. He doesn’t make too much of the “rebound” in home sales reported yesterday.

Gold hits new record

Gold soared to a record high early today, breaching the key $1,300-an-ounce level, amid persistent worries about the recovery.  After reaching a peak of $1,301.30 an ounce, Gold for December deliver — the most active contract — eased to $1,299.80 an ounce. Gold’s last intraday record high was reached on Sept. 22, when the metal hit $1,298 an ounce.  Analysts don’t see the gold rush ending anytime soon.  All the conditions are there to keep driving gold higher, said Gary Mead, commodities analyst for VM Group in London. A weak dollar, “stubbornly high” unemployment, massive U.S. government debt and “a perception that the federal government is willing to turn a blind eye to” its debt are among the biggest drivers.  “I see the possibility of this carrying on,” he said, declining to forecast how high he thinks the precious metal might go. 

But he did say a cap for prices would be directly linked to inflation and the possibility of some strong economic data somewhere on the horizon.  “I don’t see it rocketing to astronomic highs unless the dollar collapses further,” he said. “A lot of this could change very much if we have some good economic figures from the U.S., like manufacturing.”  Investors look to gold and other low-risk investments as safe bets during heightened uncertainty.  Gold hit its true peak on Jan. 21, 1980, when it rose to $825.50 an ounce. Adjusted for inflation in 1980 dollars, that translates to an all-time record of $2,184.08 an ounce, in 2010 dollars.

Olick – Fannie Mae wants you to buy

So it seems Fannie Mae is doing all it can to unload its massive quantities of REO inventory.  When I say massive, I mean the 129,310 single family bank-owned properties — or REOs, as they’re called — it held at the end of Q2, which is more than twice what it was carrying at the end of Q2 2009.  As I noted in a Tweet yesterday, every time home prices drop just 1%, the value of all government-sponsored enterprise (GSE) REOs fall by $287 million.  No surprise, then that Fannie would want to get rid of its REO as fast as possible, especially as we saw bank repossessions hit a new record in August and home prices are again weakening. How does Fannie do it? It’s renewing an expired program that gives buyers of its REOs ’3.5% of the final sales price that can be used toward closing cost assistance, including a home warranty.’  And if that’s not enough, Fannie is now getting those crash-weary real estate agents on its side as well. ‘Selling agents representing owner-occupants will receive a $1,500 bonus.’ Nice. The offer runs from Sept. 23, ‘and must close by December 31, 2010,’ so this is a pretty short deal. 

‘We continue to look for ways to stabilize neighborhoods and offer incentives to qualified buyers who will occupy these properties over the long-term and help support their communities,’ writes Terry Edwards, Executive VP of Fannie’s Credit Portfolio Management in the press release.  So let’s just do a little more math…in the first half of 2010 Fannie sold around 87,000 REOs.  If it sells half that, because it’s three months not six, then Fannie will be paying out a little over $65 million just to real estate agents, not to mention the assistance back to the buyers in the 3.5% back.  I’m thinking Fannie is really worried about rising REO inventory.

Small business bill passes

One week after the Senate passed a $42 billion bill aimed at helping small businesses, the House voted Thursday to send the bill to President Obama’s desk, where he will sign it Monday.  The Small Business Jobs Act authorizes the creation of a $30 billion fund run by the Treasury Department that would deliver ultra-cheap capital to banks with less than $10 billion in assets.  The idea is that community banks do the lion’s share of lending to small businesses, and pumping capital into them will get money in the hands of Main Street businesses.  Another provision aims to increase the flow of capital by providing $1.5 billion in grants to state lending programs that in turn support loans to small businesses.

The state programs have proven themselves to be efficient, targeted and effective, but with many states struggling to balance their budgets, the programs are going broke.  The bill would also provide a slew of tax breaks that will cost $12 billion over a decade, according to a preliminary estimate from the Joint Committee on Taxation. The breaks aim to encourage small businesses to purchase new equipment, to incentivize venture capital firms to invest in small businesses, and to motivate entrepreneurs to start their own business.  Another provision of the legislation increases the loan limits on government-backed loans. It also extends the popular loan sweeteners for Small Business Administration loans through the end of the year. There are quite a few tax breaks too.  “Unfortunately, this bill does nothing to help end the uncertainty that is crippling job creation and hurting small businesses,” said House Republican Leader John Boehner, R-Ohio. “Instead it puts taxpayers on the hook for even more bailouts.”

FHA falls below statutory minimums

The Government Accountability Office said economic and market conditions led to declines in the Federal Housing Administration’s mutual mortgage insurance fund “to a level below the statutory minimum” of 2%.  Testifying before the Senate Committee on Banking, Housing, and Urban Affairs, Mathew Scire, director of the GAO financial markets and community investment division said the ratio slipped to 0.51% for fiscal 2009.  The GAO also said the number of insurance claims and the losses associated with the claims exceeded projections reducing the fund’s economic value. Meanwhile, higher demand for FHA-insured mortgages increased the agency’s insurance-in-force. 

The FHA plans to closely monitor the performance of agency-insured mortgages written in 2009, which the GAO expects will “have a major influence on the fund’s financial condition because of its large size, but it is too early to tell whether it will perform to FHA’s expectations.”  The GAO recommends the Department of Housing and Urban Development require the FHA review contractor to use stochastic simulation of economic conditions to estimate the fund’s capital ratio and include the results in the FHA’s annual report to Congress on the status of the fund. The GAO also wants Congress to consider establishing a minimum timeframe for restoring the capital ratio of the fund to 2% while clarifying numerous provisions concerning the FHA’s administration of the Fund.

Durable good orders rise

The overall demand for durable goods fell 1.3% in August, the Commerce Department said Friday. But that was pulled down by a significant drop in orders for aircraft, and when excluding the volatile transportation sector, orders rose 2% — the best showing in five months.  The capital goods category excludes transportation and defense goods. It is seen as a good proxy for business and economists watch it closely.  Business spending on equipment and software has been growing at a 20% annual rate over the past three quarters.  Economists had worried that July’s decline in spending on capital goods was a sign that the sector was losing strength. August’s figures suggest manufacturing activity is growing, but economists remain concerned about its sustainability. “Though downshifting a tad, business capital spending remains one of the few consistent bright spots on the economic landscape,” said Sal Guatieri, senior economist at BMO Capital Markets.  Orders for machinery rose 3.9% in August after tumbling 9.6% in July.

Demand for computers and related products was up 12%. Orders for communications equipment rose 9.2% last month. Orders for primary metals rose 2.4%.  Durable goods are items expected to last at least three years, such as refrigerators, automobiles and washing machines.  The overall decline in August was the largest since a 2.6% decrease in August 2009 and the third overall decline in four months.  Demand for transportation goods fell 10.3% last month, after having been up 11.6% in July. The swing reflected a 40.2% plunge in orders for commercial airplanes, a volatile category which had surged 69% in July. Boeing Co. saw its orders climb to 103 planes in July and then drop to just seven planes in August.  Orders for motor vehicles and parts fell 4.4% in August after a 4.6% increase in July.

Now for our real estate education section…

Friday File – 15 Minute Resolution…Learn to Be BAD to the Bone!

This week’s short sale resolution might take you by surprise…after all, it’s not every day that someone advises you to act out. On the other hand, in an era defined by politically correct yet semi-corrupt officials, hard-working but half starved retirees and young but bewildered youth there is a need for something new. Something able to open doors to real opportunity. Something that delivers real results.

Chances are you already own it but simply don’t know it yet.

Curious? Here is the key…learn to be BAD to the bone!

Within each and every person lies the seed of success if they know how to get out of their comfort zone and stop making decisions based upon the ability to minimize fear rather than maximize profits. Let’s repeat that…stop making decisions based upon how well they minimize fear and start making decisions based upon how well they maximize profits.

It’s not hard once you are truly BAD to the bone….unfortunately, the majority of people are anything but BAD to the bone. Some are simply bad (a poor substitute and complete recipe for failure). Others are merely worried to the bone (they have spine but not enough stamina to pull it off). Still others are so far removed from reality they have no idea what we are even talking about (sign-up for a free webinar to find your footing…it’s fun, easy and free).

So, what does it take to become BAD to the bone?

B= Be. Learn how to BE what you want to Become. Learn from others who have done what you are trying to do. Network. Get a mentor. Educate yourself.

A = ACT. Absolutely nothing happens until you make it happen but that requires a plan of action and the willingness and ability to begin. Don’t wait until tomorrow – do it today. Each and every day you must commit to ACTING upon the reality of who you are becoming.

D = DO It! To borrow a well known phrase…Just Do it!

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
–

Smart Real Estate News & Commentary by Chris McLaughlin September 23, 2010

Forward this e-mail to your friends! 

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Home sales rose in August

Existing-home sales rose in August following a big correction in July, according to the National Association of Realtors (NAR).  Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 7.6 percent to a seasonally adjusted annual rate of 4.13 million in August from an upwardly revised 3.84 million in July, but remain 19.0 percent below the 5.10 million-unit pace in August 2009.  The national median existing-home price for all housing types was $178,600 in August, up 0.8 percent from a year ago. Distressed homes rose to 34 percent of sales in August from 32 percent in July; they were 31 percent in August 2009. 

Total housing inventory at the end of August slipped 0.6 percent to 3.98 million existing homes available for sale, which represents an 11.6-month supply at the current sales pace, down from a 12.5-month supply in July.  Single-family home sales rose 7.4 percent to a seasonally adjusted annual rate of 3.62 million in August from a level of 3.37 million in July, but are 19.2 percent lower than the 4.48 million level in August 2009. The median existing single-family home price was $179,300 in August, up 1.2 percent from a year ago.  Single-family median existing-home prices were higher in 10 out of 19 metropolitan statistical areas reported in August from a year ago (the price in one of 20 tracked markets was not available). Existing single-family home sales were down in all 20 metro areas from August 2009.  Existing condominium and co-op sales increased 8.5 percent to a seasonally adjusted annual rate of 510,000 in August from 470,000 in July, but are 17.1 percent below the 615,000-unit pace in August 2009. The median existing condo price⁵ was $174,000 in August, which is 2.8 percent below a year ago.  Regionally, existing-home sales in the Northeast rose 7.9 percent to an annual level of 680,000 in August but are 24.4 percent below August 2009. The median price in the Northeast was $260,300, up 7.6 percent from a year ago. 

Existing-home sales in the Midwest increased 5.0 percent in August to a pace of 840,000 but are 26.3 percent below a year ago. The median price in the Midwest was $149,600, up 0.4 percent from August 2009.  In the South, existing-home sales rose 5.2 percent to an annual level of 1.62 million in August but are 13.4 percent below August 2009. The median price in the South was $155,000, down 1.5 percent from a year ago.  Existing-home sales in the West jumped 13.8 percent to an annual pace of 990,000 in August but are 16.1 percent lower than August 2009. The median price in the West was $214,700, which is 2.5 percent below a year ago.

Olick – home prices worse than expected

“Prices lag sales. Say it again. Chant it if you will. On the way up and on the way down, that’s the way it works.  We were therefore expecting to see a big drop in home prices a few months after the expiration of the home buyer tax credit, not now. Well they’re here now. Today the FHFA, overseer of Fannie and Freddie, released its monthly home price report which chronicles the sale prices of homes with Fannie and Freddie loans.  Things had been improving last Spring, as other indices show as well, but not only did they take a dive in July, the June number was revised down, and the following quote in the report really says it all: ‘The unusually large revision mainly reflects the addition of new data from late June that show considerably weaker prices than earlier in the month.’ 

Patrick Newport over at IHS Global Insight thinks that the market is actually overcorrecting, just as prices overshot on the way up. He says houses are pretty fairly valued now, and yet prices are still dropping due to weak demand and a large volume of foreclosures. Think about it: We have a 12.5 month supply of homes on the market right now and about 7 million homes where folks aren’t current on their mortgages.  Some of you may note that the S&P/Case-Shiller home price indices show more positive results. That report is a three-month moving average, so you will see the effects of the tax credit in it far longer than other reports.  Tomorrow we will get the existing home sales numbers for August, and everyone is calling for a bump up in sales.  Remember, sales dropped 27 percent in July because of the expiration of the tax credit.  That’s the depths from which the numbers will move, so keep that in mind when the headlines scream (maybe) that sales ‘rebounded’ in August.”

No mortgage mods for the jobless

New guidelines, released by Fannie Mae Tuesday and scheduled to take effect November 1, will mean that unemployed homeowners cannot count jobless benefits as income when applying for mortgage modifications on loans backed by Fannie Mae.  “We don’t want to set up borrowers to fail, said Amy Bonitatibus, Fannie Mae spokeswoman.  Fannie Mae’s announcement broadens a ban already put in place from the Treasury Department. In July, the agency quit allowing unemployment insurance to be used as income when applying for the administration’s signature Home Affordable Modification Program, known as HAMP. Previously, borrowers had been allowed to do so.  Now, the unemployed who apply for HAMP are evaluated for forbearance plans, which can reduce or suspend their payments for at least three months. 

Fannie Mae’s new stance also prevents banks from using unemployment benefits in their own proprietary modification programs if the loan is backed by the mortgage finance company.  The unemployed account for most of the new delinquencies in the mortgage market, experts say. Many depended on using their jobless benefits to qualify them for modifications.  Non-HAMP bank modifications are growing in importance as the government initiative loses steam. Nearly 449,000 people have received permanent modifications under HAMP through August, up from nearly 422,000 a month earlier, according to federal data released Wednesday.  Another 46,700 people fell out of the HAMP program in August, bringing the total to roughly 664,000. Some 26,600 entered the effort in the trial phase. Some 202,500 borrowers are in the trial period as loan servicers evaluate their ability to keep up with the lowered payments.  Of those who fall out of the program, some 44.5% of them receive other types of modifications from their servicers. But a growing number of them, 13.4%, wind up in foreclosure.

Unemployment up

The number of first-time filers for unemployment benefits rose to 465,000 in the week ended Sept. 18, the Labor Department reported today.  The number was higher than economists’ forecasts of 450,000 for the week, according to consensus estimates by Briefing.com. It also marked an increase from the upwardly revised 453,000 initial claims filed in the previous week, which was shortened by Labor Day.  The four-week moving average of initial claims, calculated to smooth out volatility, totaled 463,250, down 3,250 from the previous week’s revised average of 466,500.  The number of people continuing to file unemployment claims for a second week or more fell to 4,489,000 during the week ended Sept. 11, the most recent data available.  That’s down 48,000 from an upwardly revised 4,537,000 the week before. Economists were expecting continuing claims to edge down to 4,450,000.  The four-week moving average for ongoing claims rose by 2,500 to 4,537,000.  Earlier this month, the government’s closely watched monthly jobs report showed that the economy cut payrolls by 54,000 jobs in August. The national unemployment rate stood at 9.6%.

Mortgage debt declined

According to the Mortgage Bankers Association’s (MBA) analysis of the Federal Reserve Board Flow of Funds data, the level of commercial/multifamily mortgage debt outstanding decreased in the second quarter, to $3.24 trillion.  The $3.24 trillion in commercial/multifamily mortgage debt outstanding recorded by the Federal Reserve was a decrease of $52 billion or 1.6 percent from the first quarter of 2010.  Multifamily mortgage debt outstanding declined to $843 billion, a decrease of $5.4 billion or 0.6 percent from the first quarter of 2010.  The Federal Reserve Flow of Funds data summarizes the holding of loans or, if the loans are securitized, the form of the security. For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (included under Life Insurance Companies in this data) and in CMBS, collateralized debt obligations (CDOs) and other asset backed securities (ABS) for which the security issuers and trustees hold the note. 

Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.46 trillion, or 45 percent of the total.  Many of the commercial mortgage loans reported by commercial banks however, are actually “commercial and industrial” loans to which a piece of commercial property has been pledged as collateral.  An MBA Research PolicyNote found that among the top 10 commercial real estate bank lenders, 48 percent of their aggregate balance of commercial (non-multifamily) real estate loans were related to owner-occupied properties.

Healthcare tidal wave starts

The first big wave of new rules under the federal health care law goes into effect today, leaving many insurers scrambling to get ahead of the changes.  Insurers are cutting jobs to lower overhead costs, investing in big technology upgrades and training employees to field the expected influx of customer inquiries.  Despite the talk among some Republicans of repealing all or part of the law, insurers say they cannot afford to put off the changes. Many said they were fundamentally altering their business models to cope.  “It is really the Manhattan Project because of the scale and the scope,” said Karen Ignagni, chief executive of America’s Health Insurance Plans, a trade group.  Under the new law, insurers that offer child-only policies must start covering all children, even the seriously ill, beginning on Thursday. Insurers must also begin offering free preventive services, and for the first time, their premiums must start passing muster with federal and state regulators by the end of the year. 

Companies are choosing to avoid some of the rules by no longer offering certain policies.  Some for example, have announced that they would stop selling new child-only policies, at least in some states. Ahead of the regulatory review, some also raised premiums this year.  Adjusting to the new terrain could push some insurers out of business, health care analysts say. In a setback to the bottom line, for example, insurers will no longer be able to pick and choose enrollees to avoid covering people who are likely to run up high medical bills, and many of the markets where they operate will become much less profitable.  “A lot of health plans will struggle and fail,” said Jeff Fusile, a health care partner at PricewaterhouseCoopers.  But isn’t that really what the Democrats want?  Once they drive the insurance companies out of business, the federal government can step in and take over.

Now for our real estate education section…

Methods for Making Money in Even the Most Volatile Markets

“The times are tough now, just getting tougher. This old world is rough, it’s just getting rougher…”.

It’s been over 25 years since the lyrics of this popular song by Bruce Springsteen hit the airwaves but it applies just as much today as it did then…perhaps even more so given the volatile nature of the market. Unfortunately, the majority of investors continue to do the same thing they did back then – while hoping for different results this time around. Here’s a bit of a hint…it won’t work. Yes, things ARE different this time around but not for the best. Savvy investors must change their plan of attack if they hope to make any type of real return in the current economic environment. Today we are going to cover the top 5 methods for making money even in the most volatile markets.

Step #1 — In volatile markets, it’s better to be safe than sorry. Playing it safe does NOT mean foregoing real profits…quite the contrary. It actually means you must work smarter rather than harder when investing. The days of simply putting 10% aside from your paycheck are long gone. Treasury Bonds and other “safe” investments are more risky than they may appear after taking the real rate of inflation and ultra-low yields into account. Playing it safe means staying in-charge by taking an active interest in your investments like those allowed by working short sale deals.

Step #2 — Remain flexible but highly selective. A few years ago it was easy to make a profit from real estate…just buy and hold until the price went up. Heck, you could even lose money each month and still make a tremendous profit after one year. Today it’s still easy to find deals including properties capable of cash flowing like never before but don’t take anyone’s recommendations or claims about performance at face value. Do your homework to confirm the calculations and understand the total cost before taking the plunge. There are plenty of options available so take your time to select the best possible profit return.

Step #3 — Grab gains and cut losses. Stop trying to time the market and instead, lock-in profits as soon as possible then move on to the next deal. Likewise, eliminate non-performing assets from your portfolio and reinvest in other areas to preserve wealth and protect the total returns of your portfolio.

Step #4 — Continue to plan for volatility. Experts agree, the market is likely to remain in a state of flux for several years to come so adjust your investment strategy accordingly. Don’t rely upon inflation or deflationary pressures alone to make a profit. Likewise, investments that are heavily contingent upon specific market conditions may turn sour so have an alternative plan of action in place. Put together a flexible plan of action that allows you to maximize profits in any situation.

Step #5 — Plan to attend a free webinar to learn how others just like you are making more money than you can imagine despite (or because of) the current economic crisis. Find out why markets will stay turbulent for some time to come but also how you can harness market volatility to maximize your profit potential.

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
–

Real Estate News & Commentary by Chris McLaughlin, June 2, 2009

http://www.shortsalesrichesturbocharged.com

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Pending US Home Sales Surge

Pending US home sales skyrocketed to their highest number in 7 years, a sure sign that the bottom is forming and that bargain seekers have arrived. The National Association of Realtors reported that its seasonally adjusted index of sales contracts signed (the Pending Home Sales Index) jumped 6.7% to 90.3, well ahead of analysts’ expectations. Lawrence Yun, NAR chief economist, said buyers have responded to favorable market conditions. “Housing affordability conditions have been at historic highs, but now the $8,000 first-time buyer tax credit is beginning to impact the market,” he said. “Since first-time buyers must finalize their purchase by November 30 to get the credit, we expect greater activity in the months ahead, and that should spark more sales by repeat buyers.”

Proposal to downgrade commercial mortgage-backed securities

Credit rating agencies play an important role by standing in judgment on credit quality of securities. When the housing sector got into a bubble, rating agencies were criticized for their failure to alert investors. Some commented that rating agencies were too lenient in their ratings. Now it looks as though rating agencies are going to the other extreme. Standard and Poor (S&P), a leading rating agency, announced last week that it was planning to change its rating methodology for rating commercial mortgage-backed securities (CMBS). The change in methodology would lead to downgrades of a large number of recent CMBS issues. S&P has requested industry participants to submit their feedback on the proposed methodology by June 9. Industry participants feel that the changes are “subjective” and “excessively arbitrary.”

Steve Jernigan, a director at NewOak Capital, an advisory firm, said, “They’ve spent 18 months getting raked over the coals for being too lenient, and now they appear to be oversteering.” The Federal Reserve recently included triple-A rated CMBS in the government’s Term Asset-Backed Securities Loan Facility, and this led to a credit market rally. According to Darrell Wheeler, an analyst with Citigroup, S&P’s proposal “will initially punish pricing of the various senior triple-A ratings with no evidence that additional credit support is justified.” In the event of downgrades by S&P, the CMBS market could be badly hit.

Are home builders in for better times?

Leading home builders such as Hovnanian Enterprises Inc. and Toll Brother Inc. will be announcing their financial results this week. We will know if the government’s initiative to strengthen the housing market has had any positive impact on the sector. The housing sector has been hit by an oversupply of homes and credit crisis in the recent past. Toll Brothers last reported a profit about two years ago, and Hovnanian has been reporting losses since the last 10 quarters. Analysts are hopeful that both the companies will report lower loss numbers in the second quarter of this year.

Last month, Toll Brothers reported a 37% drop in orders from the earlier year and its revenue dropped 51% to $398.3 million for the quarter ended April 30. Still, home builders seem to feel optimistic about the near-term prospects. Robert Toll, the chief executive officer of Toll Brothers, said, “With interest rates at an historic low, home price affordability at an historic high and consumer confidence starting to improve, we believe that more buyers are beginning to enter the housing market.” Hovnanian expects that the government’s efforts, including an $8,000 tax credit for first-time home buyers, will help boost demand.

Prudential turns down TARP funding

Prudential Financial Inc., a large insurance and financial services firm, joins the list of firms that have refused funding under the Troubled Asset Relief Program (TARP). Insurance firms, after getting hit by investment losses, lobbied aggressively to be included in the federal aid program which was initially offered to banks. Last month the government approved inclusion of 6 large insurance firms including Prudential in TARP. Two firms – Ameriprise Financial Inc. and Allstate Corp., have already declined to take funds under TARP. There are two reasons behind firms not wanting to participate in the program. Firstly, TARP funds come with strings such as restrictions on executive compensation. Many of the banks have expressed their desire to repay TARP funds at the earliest. Secondly, when the program was introduced last fall, banks and other firms could not raise money from the market due to credit crisis and hence were forced take money from the government. Since March this year, markets have risen significantly and there is a new found interest for securities issued by financial services firms. Prudential plans to raise $1.25 billion by way of a common stock offering.

Bailed out banks go slow on lending

According to a Treasury Department’s report on the 500 financial institutions that received funding under the Capital Purchase Program, the amount of loans outstanding fell 0.8% in March to $5.24 trillion from $5.28 trillion in February. Consumer loans outstanding, including residential mortgages, declined 0.5% in March to $2.88 trillion while commercial loans outstanding fell 1.2% to $2.35 trillion. The government, through the Treasury Department’s Capital Purchase Program, has invested about $200 billion in more than 500 financial institutions, in order to inject liquidity into the system. Some analysts believe that banks will be doing a disservice to the economy if they do not use tax payers’ money to extend credit. Banks have maintained, however, that while they are open to lending, the demand for loans has fallen. Companies have cut-back on expansion plans and individuals are going easy on mortgages and personal expenditures. Unless the economy picks up, appetite for loans may not see any improvement in the near-future.

Budget problems of American cities

According to a report released by the Philadelphia Research Initiative, an arm of the Pew Charitable Trust, 12 of the biggest cities in the U.S. have budget deficits. Falling property taxes, drop in consumer spending, and decrease in income taxes due to unemployment, have negatively impacted city revenues. Last November, Chicago passed a budget to close a $469 million shortfall. In the first four months of 2009, the city saw a gap of $96 million, and by the end of this year, the city expects the shortfall to grow to $300 million. Cities are cutting services, freezing hiring, and proposing unpaid holidays to municipal employees, in order to cut costs. On the revenue front, it is not easy for cities to levy taxes whenever they wish. Some cities such as Boston do not have the authority to raise taxes, cities such as New York require state approval to impose sales taxes, and cities such as Columbus require a public vote for imposing taxes. Once the economic recovery begins, there is typically an 18-24-month lag before cities feel the impact. Deficits are not going anywhere in the near-future.

Now on to our real estate investor educational section…

The Future of PPIP and Short Sales

With the recent expansion of incentives designed to increase short sale closures, many would be real estate investors may have come to the conclusion the current administration is investor friendly. However, exactly how friendly and in what format may still come as a surprise.

The PPIP or Public Private Investment Program is one of the more recent plans proposed by the Obama administration as a way for banks to sell toxic assets and other securities to private investors. The idea was to eliminate much of the risk associated with the purchase of these assets through a government sponsored initiative that would use up to $100 Billion dollars in federally funded (taxpayer supplied) funds in conjunction with up to $400 billion more from private investors and FDIC financing. The program was supposed to begin within weeks as of the date of this writing.

So, what is the problem? In a nutshell, banks now want to buy the troubled assets themselves! Yes, you are reading this right…the banks that have been trying for months to sell foreclosed homes and rid themselves of non-performing mortgages and other securities now want to turn around and buy them using even more taxpayer bail-out dollars….and why not? With the government footing the bill for well over 90 percent (plus) of the loan, it’s a win-win for large institutional investors. On the one hand, the banks get federal funds to ‘bail them out’. On the other hand, they get even more funds to repurchase those same assets – for a fraction of the cost – and then profit on them.

Sheila Bair, Chairman of the FDIC, has come out with an official statement that essentially states banks will not be allowed to purchase their own impaired assets…but to date, no mention has been made of banks purchasing non-performing assets from other banks. So, what is to stop Citigroup from purchasing assets from Bank of American and vice versa rather than simply purchase their own? In the long run, it will matter little to the American public that foots the bill for one of the largest transfers of wealth in the history of the nation.

Now ask yourself, if banks are trying to get in on the action of buying “toxic assets” – why aren’t you? The PPIP is targeted to major institutional investors (including banks) which only make money if those same assets are expected to go up in value over the coming years. Now may be a good time to consider the recent admonishment by Marc Faber who believes the United States is heading for Zimbabwe type hyper-inflation…

‘“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.”

Marc Faber knows it. The banks know it. The federal government knows it…inflation is the name of the game for the coming economy and real estate is one of the only measures the average person can take to protect themselves against the ravages of inflation. You can bank on it!

See you at the top!

Chris McLaughlin

http://www.shortsalesrichesturbocharged.com

PS:

It’s LIVE! The Launch of the Year is coming to an end … find

out tonight what all the fuss is about at 8:30 PM ET, 5:30

PM PST tonight:

https://www2.gotomeeting.com/register/803844298

Copyright Loss Mitigation Institute 2009.
All Rights Reserved.

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 and Supervising Broker of one of Florida’s
largest Real Estate firms, running 4 different
offices, supporting nearly 450 agents, uniquely
positioning him to help thousands of investors
make money in the biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
* On twitter: http://twitter.com/mclaughlinchris
* On facebook:
http://www.facebook.com/addfriend.php?id=709199143

Mid-Day Market News & Commentary by Chris McLaughlin, December 23, 2008
http://www.shortsalesriches.com/welcome.html

——
Yes, Virginia … there is a Santa Claus!  And he loves to represent buyers in foreclosure and make a ton of money.  So check out this amazing youtube video…Santa definitely showed up in Tennessee this year, early!  You have to see this!!

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

and then make sure you register for our upcoming Recession Proof Investing webinar!  There are 17 slots available, first come first serve:

https://www2.gotomeeting.com/register/732240980

——

The National Association of Realtors reported that existing home sales dropped 8.6% to 4.49 million in November, from a revised rate of 4.91 million in October.  This represents a 10.6% decline below the 5.02 million in November 2007.  Lawrence Yun, NAR chief economist, expected the decline. “The quickly deteriorating conditions in the job market, stock market, and consumer confidence in October and November have knocked down home sales to another level. We hope the home sales impact from the stock market crash turns out to be short-lived, as was the case in 1987 and 2001,” he said.

“It is, therefore, imperative to provide incentives for homebuyers to get back into the market. It also depends on how effectively Congress and the new administration can help facilitate the short sales process and unclog the mortgage pipeline – impediments remain for some buyers with good credit,” Yun said.

The Associated Press reported late yesterday that Representative Barney Frank, the Chair of the House Financial Services Committee, wants the final $300 billion installment released before President-elect Obama takes office.  Frank is looking to stiffen disclosure related to lending for banks that received TARP money that seem to be hoarding the money now.  In addition, Frank wants to allocate about $24 billion to back FDIC Chair Shelia Blair’s plan to encourage more lenders to modify loans.  And finally, Frank is supporting using government money, along with Fannie Mae and Freddie Mac, to buy down long term 30-year mortgage rates to 4.5% or below, an effort widely seen as stimulating housing demand.

Frank’s buy-down effort is certainly good news for most real estate investors and Realtors.  And if comes on the heels on a shocking statistic about the failed government-backed loan modification called “Hope for Homeowners.”  This ridiculous program, which I’ve spent many an e-mail lambasting in the past, was supposed to help at least 400,000 homeowners.  Guess how many have bothered to even apply when it was launched on October 1^st?

312.

No, that’s not a typo.

Three hundred and twelve.

What a joke!  At some point the government is going to figure out that the key to solving the foreclosure crisis doesn’t rest solely with the supply side of the equation – they MUST stimulate demand with goodies like tax credits, accelerated depreciation, low interest rates, and government-backed loans.  Once you have demand, then guess what happens?   Prices begin to not only stabilize … but move up!  And when prices move up, less people go into foreclosure, and less people walk away from homes that are under equity.

Ok, enough of my soapbox.  You get the picture!  The Hope for Homeowners Program is truly hopeless.  Let’s hope they start focusing on where the focus needs to be: encouraging new buyers of homes and investment properties!

Setting Up for a New Year: Maintenance and Repair Index

This year make it a priority to set-up your books and other financial record-keeping to run smoothly and on auto-pilot. One useful measure is the maintenance and repair index. This shows how much maintenance and repair was required for each direct hour of labor invested.  It is an excellent alternative measure for short sale investors or real estate agents who need to track productive hours in relation to a given property. As every real estate investor knows, the 80-20 rule applies to real estate just as it does any other business situation; roughly 80 percent of your profit will come from 20 percent of your clients or holdings while 80 percent of your problems will come from only 20 percent of your holdings. Reducing those time-consuming properties and increasing those profitable properties is the key to building wealth.

How to Measure

Computing the Maintenance and Repair index is easy;

Maintenance and repair hours/Total direct labor hours = MRI

Example

Let’s assume you have two properties called A and B.

Maintenance and repairs for property A = 20. Total direct labor hours = 100. Total MRI = 20.

Maintenance and repairs for property B = 60. Total direct labor hours = 94. Total MRI = 60.

Obviously property B requires extensively more time for upkeep, maintenance and repairs. By calculating the MRI then assigning a dollar value to invested hourly time required, you can assure a reasonable return on time and opportunity cost while avoiding or eliminating poor performers.

How to Use

At least once per year, every short sale investor and real estate agent should take stock in their best and worst performers then cut the bottom 10 percent. Yes, it can be frightening to eliminate clients or inventory during tough economic times but the reality is you need to work smarter – not harder –when times are tough. Think of it this way, you only have x hours in any given day so they must be the most product possible. Clients or holdings that require unusual amounts of time, energy or maintenance actually detract from your full potential by causing you to miss other more profitable endeavors.  By continually maximizing your efficiency and reducing expenses –both in terms of time and money – you will be better positioned to take advantage of new opportunities as they arise.

 

See you at the top!

 

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

P.S.:   Don’t miss our webinar tonight, Tuesday, at 9 PM EST!  We’re holding this Recession Proof Real Estate Investing webinar once again on a weekend to accommodate all those who are unable to join us at night!  Click here, there are only 17 spots available:

https://www2.gotomeeting.com/register/732240980