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Pending Home Sales Surge Continuing

Pending home sales have risen for three consecutive months, reflecting the broad impact of the home buyer tax credit and favorable housing affordability conditions, according to the National Association of Realtors®. The Pending Home Sales Index, a forward-looking indicator, rose 6.0 percent to 110.9 based on contracts signed in April, from an upwardly revised 104.6 in March, and is 22.4 percent higher than April 2009 when it was 90.6. That follows gains of 7.1 percent in March and 8.3 percent in February. The data reflects contracts and not closings, which usually occur with a lag time of one or two months. Lawrence Yun, NAR chief economist, said “The housing market has to get back on its own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs. A big concern surfacing recently is insufficient time to close the deal at the settlement table. However, the recent housing cycle has brought long delays related to the short sales approval process by banks, and from ongoing appraisal issues.”

According to him, homebuyers who responded to tax credits may encounter problems meeting the settlement deadline by June 30.  Because of these market challenges, NAR has asked Congress to provide flexibility on the deadline for closing.

Retailers Post Another Month of Disappointing Sales

Analysts have failed in estimating inadequate consumer spend and the impact it will have, on the economy. After a disappointing April, the results from retailers in May underscores how fragile the economy recovery is at this stage.  Analysts on average are expecting same-store sales to rise 2.6 percent in May from the prior year, according to Thomson Reuters. That compares with a decline of 4.8 percent in May 2009. Among the department stores, Nordstrom is expected to report the strongest year-over-year same-store sales growth, with sales expected to be up 4.8 percent, while Costco Wholesale was expected to report the strongest monthly increase among the discount chains, with sales expected to rise 7.3 percent, excluding gas sales, according to a Thomson Reuters survey.

However, the warehouse club store reported sales rose only 5 percent, excluding gas sales. Hot Topic was expected to post the biggest decline in same-store sales with an 8.3 percent drop, but its actual performance proved even worse. Same-store sales fell 9.0 percent.  Although the monthly sales reports will be closely watched for their insights into consumer spending, the reports aren’t the gauge they used to be as many retailers, including Wal-Mart Stores, the world’s largest retailer no longer report monthly sales results.

Diana Olick – BofA: Mortgage Walkaways Have Huge Incentive

“Bank of America rolled out their new “Principal Reduction Enhancement” program, which is an earned principal forgiveness plan for borrowers behind on their mortgages and whose loans are at least 20 percent underwater in value.  The plan is in conjunction with the government’s Home Affordable Modification Program, but the government’s principal reduction plan isn’t in place yet. What makes BofA’s plan so proactive is that it employs, “a principal reduction as the first step toward reaching HAMP’s affordable payment target of 31 percent of household income when modifying certain NHRP-eligible mortgages — ahead of lowering the interest rate and extending the term.” Why are they getting more aggressive on modifications? Because more borrowers are walking away. BofA’s credit loss mitigation executive, Jack Schakett, said the amount of strategic defaulters (those who can pay their loans but opt not to) are “more than we have ever experienced before.” He went on to say, “there is a huge incentive for customers to walk away because getting free rent and waiting out foreclosure can be very appealing to customers.”

Schakett says the foreclosure process is still taking 13 to 14 months (and by my estimates that’s an optimistic assessment), and so there’s over a year of free rent. While the banks are trying to improve the time, they’re just not there yet. 31 percent of foreclosures in March were deemed to be “strategic default” by researchers at University of Chicago and Northwestern University.  We also learn from those same researchers that the likelihood of walking away increases by 23 percent when homeowners learn that a neighbor got some principal forgiveness.  I’ll let you all argue that one.”

Fed’s Lockhart Says Rates May Rise With Unemployment Still High

Federal Reserve Bank of Atlanta President Dennis Lockhart said the central bank, to counter inflation, may eventually need to raise its target interest rate from near zero even with U.S. unemployment still high. “The policy rate may have to begin to rise even while unemployment is considerably higher than before the recession,” Lockhart said today in a speech in Atlanta. According to a Bloomberg News survey of economists, the U.S. economy strengthened in May amid the worsening in Europe’s debt crisis, as employment likely climbed during the month by more than 500,000 workers. The unemployment rate likely dropped to 9.8 percent from 9.9 percent, the survey found ahead of tomorrow’s government report.  “The time is approaching when it will be appropriate to consider recalibrating interest rate policy,” he said in remarks prepared for the Atlanta Technical College. “I do not believe that time has yet arrived.” “However, extraordinarily low policy rates will become inconsistent with maintaining price stability,” he said.

Policy makers are debating when to begin withdrawing record liquidity from the financial system as the economy emerges from the worst recession since the Great Depression. The Fed’s preferred inflation gauge — the core personal- consumption expenditures price index, which strips out food and energy — rose at an annual rate of 0.6 percent in the first quarter, the slowest pace since records began in 1959.

DSNews.com – Commercial Defaults Hit Record for Both Investors and Banks

Pressures continue to drive up commercial mortgage defaults. The economic downturn has choked off demand for retail and office space, with vacancy rates rising and prospects of new occupants limited by the duress of today’s job market. At the same time, commercial real estate (CRE) values have dropped more than 40 percent in some markets, pushing a growing number of property owners severely underwater. According to new data from Real Capital Analytics, the default rate for commercial real estate loans owned by the nation’s FDIC-insured banks increased from 3.83 percent in the fourth quarter of 2009 to 4.17 percent in the first quarter of 2010. Real Capital says this is the highest default rate reported since 1992, the first year for which data is available, when it was 4.55 percent.

Year-over-year, the default rate is up by 192 basis points. By contrast, at its cyclical low in the first half of 2006, the commercial mortgage default rate was 0.58 percent. As of the first quarter of this year, $45.5 billion of bank-held commercial mortgages were in default, according to Real Capital’s tally. A separate study released this week by Trepp LLC shows that the share of past due loans held by investors in commercial mortgage-backed securities (CMBS), including those already in foreclosure and REO, jumped 40 basis points in May to 8.42 percent – the highest in the history of the CMBS industry.  To put the delinquent CMBS universe into perspective, Trepp says that just six months ago, the delinquency rate was 5.65 percent. One year ago, it was 2.77 percent.

Now on to our real estate education section…

All About Commercial Risk

Commercial real estate has been making headlines as the next step for short sale investors but as many novice commercial investors are learning, there are substantial differences required to close the deal. First and foremost is the question of finance. Typically, commercial real estate has more stringent requirements and/or often requires substantially larger sums of money however, the basic process is still the same. The lender wants to reduce risk and remove a non-performing asset from their books.

Demonstrate the ability to pay the loan and you are halfway toward becoming a commercial investor. Critical is an understanding of the major risks associated with commercial loans from the lenders perspective. Use this as a quick checklist when putting together an offer or evaluating your own potential.

1. Credit Risk. Perhaps the most common type of risk, this simply indicates the ability of the borrower to meet the contractual obligations as outlined in the loan documents…aka, the ability to pay. However, because you are dealing with commercial loans, the credit risk can be impacted by several items including competitive market factors (ie, the inability of the property to lease as expected, increased or decreased demand etc), interest rate sensitivity, rollover of leases (long term leases may be stable but are also more prone to declining values), changes in regulatory environment including zoning and tax laws.

2. Interest Rate Risk. The majority of commercial real estate is financed on a floating rate basis so interest rate risk is a very real threat depending upon the timing of cash flows, yield curves and other economic conditions that may adversely impact the economic climate.

3. Liquidity Risk. Banks must meet obligations the same way that private individuals are required to do so; loss of liquidity means the bank is unable to extend credit or must call loans in order to raise capital. For an investor, liquidity risk is typically isolated to the ability of the bank to loan money in the future should you require it in order to roll-over or refinance a loan.

4. Compliance Risk. Once the domain of elusive economic theory, compliance risk has risen to disproportionate levels thanks in large part to the current crisis as well as outside influences. Examples are broad but range from potential liability of bad debts during the mortgage boom to the current oil spill at BP; a bank may be held responsible for assets held as collateral. High risk assets will be assessed a premium.

Short sale investors seeking entry into the exciting world of commercial real estate should review each property from the perspective of the lender; examine risk levels and potential threats through the eyes of the bank in order to maximize your prospect for success.

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
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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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Want a loan modification? Get your paperwork ready.

Your woes do not end with delinquency.  You now need to get better at your paper work too, if you want to avail the administration’s mortgage modification program. With effect from June 1, New Treasury Department guidelines require loan servicers to verify applicants’ income and financial hardship before placing them into trial modifications. This will make it much tougher to get temporary relief from unaffordable mortgage payments. But if you make it into a trial modification, you’re more likely to get long-term assistance, providing you send in your check on time.  Of the 1.2 million people who’ve started trial modifications, fewer than 300,000 have received permanent assistance. Another 278,000 have washed out of the program either because they didn’t send in timely payments, hand in the required documents or meet the eligibility criteria.

Paperwork has caused all sorts of problems for the president’s signature foreclosure rescue program. In order to get the effort off the ground quickly, administration officials allowed servicers to place people in trial modifications before verifying that they were indeed eligible for the program.  Many homeowners have been stuck in trial modifications for months and months while they wrestle with servicers over the documentation requirements. The financial institutions say that borrowers aren’t sending in the needed forms; homeowners contend the servicers are losing them.  Many loans didn’t require much documentation when they were originated, which makes gathering the paperwork during the modification process that much more difficult, said Paul Koches, executive vice president at Ocwen.  The pace of people entering trial modifications has already slowed as servicers have started requiring the paperwork in advance. Only 47,160 trials were started in April, down from more than 72,000 in February.  Among the documents Chase and other servicers require are hardship affidavits, two recent pay stubs, a bank statement, a tax return, proof of occupancy and a 4506T-EZ form.

Congress Has Hands Full With FinReg Compromise Bill

The upcoming conference to merge the House and Senate bills on sweeping financial reform, has the potential to be both fractious and divisive with a number of minefields to cross. Amendments–tacked on or ignored during earlier rounds—will be disposed of, adding to the existing frustration of Senate members in particular.  “There are too many issues to horse trade on,” says bank analyst Bert Ely. “What’s going to happen is that because the Senate bill was so poorly drafted—there was no committee markup…is that many portions of the bill will be substantially rewritten in resolving the differences.”  Meanwhile, additions will be made, even though the bills already run 1,400-1500 pages. 

Republican conference members are also already setting the table. Sen. Bob Corker of Tennessee—who negotiated with Dodd for weeks at the committee level and is a conference member—has already criticized the President for taking a non-partisan approach, while Sen. Judd Gregg has called the bill “a disaster.”  And, if all this weren’t enough, extraneous events and personal circumstances may play a sizable role in the negotiations and their outcome.  Potential minefields include, the Derivatives Regulation that covers personal fortune, politics and policy converge, the so-called Volcker rule—whose primary purpose is to limit the proprietary trading of big firms, Capital Requirements amendment by Maine Republican Susan Collins, that would essentially tighten capital requirements for banks and Consumer Agency Exemption by Sen. Sam Brownback of Kansas, who wants auto dealers exempted from new regulations that would protect consumers from abusive practices in the sale of financial products.

Diana Olick – Are Investors Souring on Housing?

“Last year, when the rest of the nation’s housing was still reeling from recession, California started to show signs of life. Sales increased and prices stabilized, despite the fact that it was one of the hardest hit states with one of the highest foreclosure rates. California’s savior was investors. They came in fast, cash in hand, and started snatching up distressed properties at a fast pace. That interest appears to be waning. While sales of existing homes shot up across most of the nation in April, they fell in the West, down 6.2 percent. “The sales are lower because of lack of inventory on lower-priced homes,” says Lawrence Yun of the National Association of Realtors. “The California market was one of the first markets to go down sharply but also the first market to rebound.” The inventory of low-priced homes is low because of big investor demand initially and because banks are being very careful with REO (bank owned) properties, releasing them slowly onto the market so as not to tank prices. But that’s not all of it. “We know the tax-credit has pushed low-priced houses up sharply and investors have backed away big-time in recent months, not wanting to compete with a bunch of first-timers and their Obama coupons,” says mortgage analyst Mark Hanson. “Perhaps this is the end of the demand cycle from first timers and investors who have had their fill.”

On the other hand, some of the numbers may be skewed due to the increasing prevalence of short sales, where the bank allows the home to be sold for less than the value of the mortgage. “The proportion of damaged foreclosed properties or so-called real estate owned (REO) sold during April plunged,” according to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions. “Damaged REO accounted for 15.4 percent of transactions in March, but only 12.8 percent in April. One reason for the drop in damaged REO may be increasing numbers of short sales.” Now that the tax credit is over, and foreclosures are moving through the bank pipelines more quickly, perhaps investors will come back in larger numbers. Prices are certainly low enough!”

Consumers Hold Their Wallets Tight

U.S. consumer spending was unexpectedly flat in April, a government report showed on Friday. The Commerce Department said spending was the weakest since September, when it fell 0.6 percent, after increasing by an unrevised 0.6 percent in March. Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of U.S. economic activity, to increase 0.3 percent last month. Spending adjusted for inflation was also flat in April after a 0.5 percent increase the prior month, the Commerce Department said. Personal income rose 0.4 percent, the report showed, after rising by the same margin in March. Markets had expected income to rise 0.5 percent last month. The saving rate rose to 3.6 percent from 3.1 percent in March. Savings rose to an annual rate of $398.5 billion. The report also showed the personal consumption expenditures price index, excluding food and energy, rising 1.2 percent in the 12 months to April, the smallest rise since September. The index, which is a key inflation gauge monitored by the Federal Reserve, increased 1.3 percent in March.

Mortgage Lenders Seek Relief on Bad Debt Repurchases

Mortgage lenders are seeking relief from Fannie Mae and Freddie Mac as the government-supported companies force them to buy back more soured debt, said John Courson, president of the industry’s largest trade group. The Mortgage Bankers Association has started to “aggressively” push the two companies and their regulator to ease up.  Fannie Mae and Freddie Mac, propped up by unlimited taxpayer capital, should acknowledge lenders are unfairly absorbing too many losses, with unemployment that reached a 27- year high among the causes of defaults unrelated to loan quality.  Last quarter, the companies forced lenders to repurchase $3.1 billion of loans, up 63 percent from a year earlier, after defaults surged to the highest since the Great Depression, according to regulatory filings. Bank of America Corp. and JPMorgan Chase & Co. are among banks that reported setting aside money to cover such demands.

Freddie Mac, based in McLean, Virginia, had $4.8 billion of repurchase requests pending as of March 31, up from $3.8 billion on Dec. 31. Washington-based Fannie Mae hasn’t made a similar disclosure.  The company is creating new upfront lender requirements to “promote improved loan delivery data that is complete, accurate, and fully reflective of the terms of the mortgage,” which should reduce future repurchase demands, said Janis Smith, a Fannie Mae spokeswoman. The so- called loan quality initiative takes effect June 1.  The U.S. government seized Fannie Mae and Freddie Mac, which own or guarantee almost $5 trillion of U.S. housing debt, in September 2008, and has guided their actions during their so called conservatorships. They’ve drawn $145 billion in aid from the Treasury Department. 

State Group Estimates 37% of California Foreclosures Involved Renters

The foreclosure crisis in California has taken a toll on not only homeowners, but a large number of tenants in the state. According to a new study from Tenants Together, California’s statewide organization for renters’ rights, at least 37 percent of residential units in foreclosure in the Golden State last year were rentals, directly affecting over 200,000 tenants – most of whom were displaced. Tenant Together’s research is based on California property records for every foreclosure in 2009, and the organization says its estimates are “conservative.” The report – California Tenants in the Foreclosure Crisis Report – concludes that while the largest percentage of renter-occupied foreclosed properties were single-family homes, the percentage of renter-occupied, multi-unit buildings is growing at a faster pace. The organization says this trend is likely to increase as more loan modification programs target owner-occupied properties, which are primarily single-family homes and condominiums, while multi-unit rental properties continue to fall by the wayside and into foreclosure.  Tenants Together says that the new federal law Protecting Tenants at Foreclosure Act comes short of providing long-term security for tenants and has been mired by implementation problems arising from banks’ non-compliance with the new law.  Among the various proposals, the report notes that ‘just cause for eviction’ laws are a particularly effective and cost-free way to stop the displacement of tenants whose lenders have been foreclosed on and provide greater stability to California communities.

Now on to our real estate education section…

Friday File – Assessing a Mobile Home Park

This week we have explored the commercial side of short sales with a special look at the use of mobile home parks as one easy entry into a frequently ignored alternative. For today’s Friday file we will show a quick and easy way to assess whether or not a mobile home park would enhance your portfolio. Not only are a large number of “mom and pop” parks wanting to retire but many larger properties are coming on the market thanks to REO and generalized foreclosures. Use these quick calculations to compare the cost and outcome:

1. Determine the Density. Expect an average density of roughly 4 to 10 units per acre. Long term residential areas tend to be less dense while part-time, resort and/or RV rental areas tend to be more dense.

2. Decide who will be responsible for utilities? If tenants will pay for the utilities, multiple the average monthly lot rent by 70. If the investor will pay for utilities, multiple the average monthly lot rent by 60. These are industry norms with a built-in “cushion”.

Tip: Average monthly lot rent for most mobile home parks average $250 to $400 per month. So, if you own a ten acre mobile home park that has 40 units and rents for $300 per month with tenants paying utilities, the park would generate an anticipated $12,000 per month  multiplied by .70 or $8,400 anticipated monthly net.

3. Evaluate the “Break Even” point. As a general rule of thumb some mobile home park investors like to cap the cost at an arbitrary number such as $5,000 per $100 of lot rent (less for vacant lots) however, it’s often possible to find a diamond in the rough for significantly less especially if it has been poorly managed or the owners are looking to liquidate. Using the same example from above, a 40 unit park with rents of $300 per month would expect to sell somewhere in the neighborhood of $600,000 before taking vacancies into account. Discount for average vacancy rates, assess the impact of accelerated depreciation and other tax advantages plus down payment to determine your “break even” point.

4. Add in the cost of appreciation, rentals and other ancillary services such as laundry, RV lots, sales of mobile homes, rentals of mobile homes, wi-fi or other potential sources of income.

Many investors are surprised to learn how affordable and easy investing in a mobile home park can be; it’s just one quick example of another alternative to breaking into commercial real estate investments. This week, perform a quick search for a small mobile home or RV park to see what’s available in your area. Remember, it’s easy to trade free lot rent for an on-site manager to keep the headache and hassle down while rapidly increasing the income and appreciation.

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.smartrealestatenews.com/ 

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

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

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

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Existing-Home Sales Continue to Improve in April 

Existing-home sales rose again in April with buyers motivated by the tax credit, improving consumer confidence and favorable affordability conditions, according to the National Association of Realtors®. Existing-home sales, which are completed transactions that include single-family, town homes, condominiums and co-ops, increased 7.6 percent to a seasonally adjusted annual rate of 5.77 million units in April from an upwardly revised 5.36 million in March, and are 22.8 percent higher than the 4.70 million-unit pace in April 2009. Lawrence Yun, NAR chief economist, said the gain was widely anticipated. “The upswing in April existing-home sales was expected because of the tax credit inducement, and no doubt there will be some temporary fallback in the months immediately after it expires, but other factors also are supporting the market,” he said. “For people who were on the sidelines, there’s been a return of buyer confidence with stabilizing home prices, an improving economy and mortgage interest rates that remain historically low.”

Total housing inventory at the end of April rose 11.5 percent to 4.04 million existing homes available for sale. The national median existing-home price for all housing types was $173,100 in April, up 4.0 percent from April 2009. Distressed homes accounted for 33 percent of sales last month, compared with 35 percent in March. Single-family home sales rose 7.4 percent to a seasonally adjusted annual rate of 5.05 million in April from a pace of 4.70 million in March. NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said buyer traffic is mixed. “It looks like the level of home sales that close in May and June will stay elevated, but many buyers remain in the market even without the tax credit,” she said. “Some Realtors® tell us they are very busy with clients who are entering the market now as a result of improved conditions, while others are welcoming a slowdown from frantic market conditions in recent months.”

Diana Olick – Existing Homes Sales are Up-But Realtors are Still Down

“Today’s existing home sales report should have had analysts, experts, economists, and Realtors dancing in the streets. Sales were higher than expected, prices respectably up, but then there was that sticky inventory number that seemed to befuddle the Realtors’ chief economist Lawrence Yun: “The latest inventory increase is somewhat puzzling, because I had anticipated it steadily declining,” he said in an interview following the monthly presser. And then all the analysts reports came flooding in, which included adjectives, “Troubling,”  “Concerning,”  “Not healthy,”  “Not meaningful.”  I think this, from Credit-Suisse’s Dan Oppenheim, really sums it up: “Total months’ supply increased to 8.4 from 8.1 in March, driven by an 11.5% increase in absolute inventories. This reflects a larger increase than the typical 6% rise in inventories from March-April, as we think people listed more homes for sale in anticipation of tax credit demand and foreclosures continued to come on to the market. However, we think inventories are likely even higher, as the NAR does not fully capture total foreclosure levels.

The concern of course, nationally, is that all the positive numbers we’re looking at today, that is sales and prices, are all heavily influenced by the already-expired tax credit. The only number not under that spell is inventory, and that’s the one that went the wrong direction. “The figure that puzzles are sales in the West, where sales soared just before the first tax credit expired, but have hardly responded to the second tax credit,” writes Patrick Newport at IHS Global Insight. I think part of that puzzle is that so much of California’s sales over the past year were driven by investors…investors who would not be eligible for the home buyer tax credit. Remember, the existing home sales report is based on closings, not contract signings, so you will see these elevated sales numbers through June, still juiced by the credit. After that, most are expecting a drop off, and given the high inventories, that will put pressure back on home prices.”

Regulators May Never Know Cause of ‘Flash Crash’

U.S. regulators may never know what caused the recent market crash and still have not found evidence trading errors or system malfunctions triggered the brief free fall, on May 6^. More than two weeks after the Dow Jones Industrial average lost nearly 700 points in minutes before recovering, regulators and exchange operators are still searching for answers. “I think that’s possible” that we may never know what happened on May 6, Jill Sommers, a commissioner with the Commodity Futures Trading Commission, told Reuters. The CFTC and fellow market regulator the Securities and Exchange Commission have been forced to set aside long-standing differences over jurisdiction. For more than a year their respective chairmen have worked together on new derivatives rules and were thrust back into the spotlight after the market crash.

The SEC will meet on Wednesday to propose rule to improve market surveillance. Currently the dozens of market venues are supervised by exchanges and market regulators such as the SEC, CFTC and broker dealer watchdog the Financial Industry Regulatory Authority. The investigation by regulators into the unexplained crash has been hampered by their inability to see clearly across all markets and obtain trading data from a single source. The panel set up to advise regulators on emerging regulatory issues is made up of former and current regulators and other financial luminaries, including Nobel laureate economist Joseph Stiglitz and Richard Ketchum, a market regulator for more than 30 years and currently the head of Finra and Brooksley Born, who has been praised for trying to regulate the $615 trillion over-the-counter derivatives market when she was the chairman of the CFTC.

Show Down for GSEs?

A house resolution (HR) currently under consideration in Congress details the timeline to take the government-sponsored enterprises (GSEs) out of conservatorship and eventually wind down Fannie Mae and Freddie Mac.  However, even if passed in current form, as sponsored by Jeb Hensarling (R-TX), the bill will still contain provisions that may prevent the GSE from going totally out of business. If passed, the “GSE Bailout Elimination and Taxpayer Protection Act” — HR 4889 — directs the director of the Federal Housing Finance Agency (FHFA) to remove the GSEs from conservatorship, two years after the bill is signed into law. Three years after that, the bill would revoke the charters for both entities and establish a 10-year-long wind down of the entities. During that 10-year period, the FHFA director and the Treasury secretary would be responsible for imposing regulations that would divest the GSEs of their holdings.

The bill is currently under consideration in the House Financial Services Committee and comes on the heels of a Senate that approved the Restoring American Financial Stability Act. That bill calls for the end to government ownership of the GSEs by the end of 2011. The house resolution would also amend the 1992 legislation and repeal GSE housing goals. When the 1992 law passed, it established HUD-imposed housing goals for financing of affordable housing and housing in central cities and other rural and underserved areas, according to Fannie Mae’s website. Those goals would be repealed. 

The bill also sets down payment requirements for homebuyers. When the GSEs exit conservatorship, the bill requires borrowers to make a 5% down payment. One year later, it increases to 7.5% and after two years out of conservatorship, the bill requires borrowers make a 10% down payment.

MBA Reacts to Passage of Financial Regulatory Reform

Robert E. Story, Jr., CMB, Chairman of the Mortgage Bankers Association (MBA) issued the following comment today, reacting to passage of S. 3217, the Restoring American Financial Stability Act of 2010. Here are a few key comments: “MBA has long supported a more efficient regulatory regime for the financial services industry, and passage of the bill is another important milestone.   However, the bill, as we view it, still has flaws that will negatively impact borrowers and the real estate markets. The next step will be to reconcile the differences between the House bill and the Senate bill.  MBA believes the American people would be best served by Congress convening a formal conference committee. Of particular importance to us is ensuring that the final language on risk retention does not discourage prudent, responsible lending.  If not, we risk doing long-term damage to our single-family, multifamily and commercial real estate markets. The bill could be improved by creating one consistent standard for the purpose of regulating residential mortgages. 

If legislators insist on moving forward with mandating additional risk retention, setting credit criteria and restricting certain loan products and features, they should use one consistent standard that works across the board to identify what is and what is not subject to the new rules. Unless improvements are made during the Senate-House negotiations, this bill will likely bring regulations that will only further constrain credit for borrowers, make real estate purchases more expensive and drag out the ongoing turmoil in the real estate markets. All through this process, we have worked with members of Congress on both sides of the aisle to try and craft the best possible bill that will create a new regulatory structure that will better protect consumers without limiting product choices and increasing borrowers’ costs to finance a real estate purchase.  We look forward to continuing those efforts.”

76% of Consumers Favor Renting to Homeownership

For many, homeownership is a dying dream. According to a new online survey of more than 2,000 U.S. adults conducted in May by Harris Interactive and commissioned by the Arlington, Virginia-based National Apartment Association (NAA), 76 percent of consumers deemed renting to be the more favorable option to owning a home in the current real estate market. “While some may want to declare the housing crisis over, consumer patterns of behavior are showing otherwise,” said Douglas Culkin, NAA president. “The findings in this survey mirror what our members are seeing throughout the country, especially in areas of the country that are experiencing the first signs of economic recovery.” 

Of those who favored renting, 64 percent cited having no responsibility for major repairs or maintenance as the primary benefit to renting a home versus owning one, up from 57 percent in 2008. In addition, 50 percent cited financial reasons such as not being impacted by an unpredictable real estate market and not being susceptible to foreclosure.  Going forward, 60 percent of renters surveyed said they plan to continue renting their current resident or rent a new residence within the next year, and just 12 percent said they have plans to buy a new home this year. As for homeowners, 71 percent said they will stay in their current home over the next year. As renters and homeowners are not eager to make any changes in their housing status signifies low consumer confidence and uncertainty in the housing market, NAA said. According to the survey 93 percent of respondents said they feel the financial security of homeowners is more or equally affected by the current state of the housing market. NAA said this indicated that the economic impact of the foreclosure crisis has not shifted or improved.

Now on to our real estate investing education section …

Understanding Triple Net Leases 

Intrepid short sale investors searching for new ways to expand their portfolio are increasingly turning an eye toward retail and other commercial properties. Key to their success is the concept of Triple Net Lease; plain and simple…they are the life blood of the investment sector as they continue to outperform nearly all other comparable assets and generate double digit returns.

Triple Net Lease Defined

Unlike a standard lease where the property owner pays for required maintenance, taxes and insurance a triple net lease removes these major expenses from the equation by making the tenant assume full responsibility. Not only does this result in enhanced appreciation but generated income is substantially higher since taxes, insurance and maintenance remain the most costly expenses associated with any property.

What Type of Properties Qualify?

A triple net lease can be negotiated for nearly any type of commercial property but is commonly used in conjunction with retail, manufacturing and professional office space where the tenant may require extensive modifications of the space.

Savvy real estate investors interested in pursuing a long term approach (or searching for ways to maximize the attractiveness of an income producing property in anticipation for a resale) would do well to look into starter properties that could be used for physician offices, retail outlets and even major manufacturing. Remember, these are long term leases with an emphasis on tenants that rarely relocate.

Finding Triple Net Properties

Don’t listen to the naysayers who try to tell you it is impossible to locate a triple net property via short sale. Here are a few facts to keep in mind; due to the global recession and economic downturn, the commercial sector as a whole has experienced nearly 40% decline…triple net leases have held their value to a better extent but have still declined in value by nearly 15 percent or even more in some hard hit areas of the nation.

Benefits Galore

In addition to appreciation and enhanced income opportunities, a triple net lease tends to attract the most financially stable and least mobile types of tenants. Without maintenance, taxes and insurance to deal with, owners literally sit back and collect the cash. With the recent influx of short sale commercial properties hitting the market, now is the time to take the next step.

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
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Home Loan Demand Sinks to 13-Year Low

Demand for loans to buy U.S. homes shriveled to a 13-year low last week, following the expiration of federal tax credits, while near-record low mortgage rates stoked refinancing, the Mortgage Bankers Association said on Wednesday. Mortgage purchase applications sank 27.1 percent to the lowest level since May 1997 in the absence of the popular government support, the group said. U.S. housing groped for footing after more than a year of homebuyer tax credits worth up to $8,000 expired on April 30. Requests for home purchase loans have fallen almost 20 percent over the past month despite low borrowing costs. “The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season,” Michael Fratantoni, the industry group’s vice president of research and economics, said in a statement.

Overall loan requests were down 1.5 percent, on a seasonally adjusted basis, in the week ended May 14, cushioned by a 14.5 percent jump in mortgage refinancing applications as home loan rates neared historic lows. Average 30-year mortgage rates fell 0.13 percentage point last week to 4.83 percent, the lowest since last November, the MBA said. The record low was 4.61 percent in March 2009, based on the group’s survey, which has been conducted since 1990. Low borrowing costs and stabilizing home prices are being offset by near double-digit U.S. unemployment and a looming supply of foreclosed properties yet to hit the market. The worst of the housing crisis is over but recovery will be long and slow, most economists agree.

SEC moves to expand stock circuit breakers

The Securities and Exchange Commission proposed new rules Tuesday that would pause trading in certain stocks that experience extreme swings.  The move is in response to the brief but historic stock market crash of May 6, in which the Dow Jones industrial average fell nearly 1,000 points, its biggest intra-day drop on record, before the index rebounded within a matter of minutes. Under the proposed rules, trading in an individual stock would pause across all U.S. stock markets for a five-minute period in the event that the stock experiences a 10% change in price over the preceding five minutes.

The pause, also called a circuit breaker, would give the markets the opportunity to attract new trading interest, establish a reasonable market price, and resume trading of an affected stock in a fair and orderly fashion, according to the SEC. The proposal would create uniform, market-wide standards for individual securities in the S&P 500 stock index. In the current system, circuit breakers are triggered under various circumstances depending on which exchange a stock trades on.  The SEC said about 30 stocks in the S&P 500 (SPX) fell at least 10% in a five-minute period in an event which has become known as the “flash crash.” The new rules reflect a “consensus” that was achieved in that meeting, the SEC said. The new rules, which are subject to Commission approval following the completion of a comment period, will be rolled out as a pilot program running through Dec. 10, 2010. The SEC did not state when the program would start.

DSNews.com – Moody’s: Distressed Sales Key to Speed of Recovery

The future of U.S. home prices is acutely tied to the speed and the manner in which distressed sales work through the system, Moody’s Economy.com stressed in a report issued this week. “We expect that house prices will continue to decline because the pipeline of distressed mortgages is substantial and because the price discounts for distress sales weaken all house prices,” the forecasting and credit risk unit of Moody’s Analytics wrote. While the overall housing market has largely bottomed, Moody’s Economy.com says home prices aren’t there just yet. The company projects home sales and new construction to rise slowly this year, but “[n]onetheless, we foresee a 5 percent additional house price decline nationally. Regions with increasing foreclosure volumes will suffer more,” Moody’s said in its report. During the course of this housing correction, home price trends have been closely tied to distressed transactions, including foreclosure sales and short sales.

The greater the number of foreclosures in a market relative to total home sales, the greater the downward pressure on prices, Moody’s says. Banks discount the price of foreclosed properties in order to dispose of them quickly, and Moody’s says the typical markdown has doubled since the beginning of the housing bust. The report noted that short sales have a more muted impact on the downward pace of home prices since the discount is far smaller than price cuts associated with a foreclosure sale. The administration’s Home Affordable Foreclosure Alternatives (HAFA) program is expected to drive up the number of short sales this year as compared to last year. 

Mortgage Default Rates Lower as Consumers Choose Property Over Plastic

The monthly default rates for first and second mortgages fell in April, but climbed for bank card loans for the third consecutive month, according to the latest data from credit-rating agency Standard & Poor’s and national credit bureau Experian. Defaulting balances of bank card loans rose to 9.1% in April, from 8.9% in March and from 7.7% a year earlier, according to S&P. First and second mortgage default rates slipped to 3.7% and 2.5%, respectively down 6% and 11% from March levels. At the same time, the share of borrowers delinquent on credit cards but current on their mortgages slipped to 3.6% from 4.1%.

“Consumer defaults continue to moderate in the key big ticket items of first and second mortgages and auto loans,” said David Blitzer, managing director and chairman of  the index committee at S&P Indices. “In these areas, defaults bottomed out around the same time as the stock market in the first half of 2009. Bank cards on the other hand continue to worsen and are at levels not seen in the history of these indices.” The S&P/Experian default index for first mortgages fell 6.2% from last month and 31.1% from the same time last year, while that of second mortgages posted similar declines of 11% and 45.4%. At the same time, however, the default index for credit cards grew 2.4% from last month and 19.3% from last year. According to the S&P/Experian indices, consumer credit defaults vary across major cities and regions of the US.  Among the five major Metropolitan Statistical Areas (MSAs) studied for the April report, Chicago showed the smallest decrease of 5.8% in the past year. The sharpest decline was in Miami where defaults declined 40.5% in the last 12 months and 7.9% in the past month. It marks a reversal of recent trends of borrowers paying down credit cards before mortgages, as seen by national credit bureau TransUnion.

Investor confidence takes a hit

U.S. futures and European shares fell sharply early Wednesday after Germany announced restrictions that prevent traders from betting against some government debt securities and financial shares.  Germany’s DAX lost 1.7%, the FTSE 100 in Britain fell 1.7% and the CAC 40 in France declined 1.9% in morning trading in Europe. In the United States, Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were all lower.  Futures measure current index values against perceived future performance and offer an indication of how markets may open when trading begins in New York. 

Companies: Target reported Wednesday that net earnings for its most recent quarter were $671 million, up from $522 million in the year-ago quarter. The retailer also reported earnings per share of 90 cents, up 30% from 69 cents in the same quarter last year. This fell just short of the 91 cents EPS expected by a Thomson Financial’s analyst consensus. Dollar and commodities: The euro partly pulled out of its slump, after hitting a four-year low on Tuesday. Against the shared currency, the dollar fell 0.5%. The greenback was down 0.3% on the British pound and fell 1% versus the Japanese yen. Bonds: Treasury prices were higher early Wednesday, pushing the benchmark 10-year note’s yield down to 3.36%. Bond prices and yields move in opposite directions.

Now on to our real estate investing education section …

Commercial Real Estate Jargon Buster

Real estate can be a complex and confusing area but in our ever expanding effort to follow the KISS directive, we are proud to present a real life interpretation for modern day real estate lingo. While you may not find these definitions in sync with the latest version of Webster’s Dictionary, we think you will agree they accurately reflect the state of affairs.

PAD: A stand alone building in a prime location of a large shopping center…or, what banks are doing with bail-out funding while waiting for the next shoe to drop.

Anchored Tenants: A big brand-name national tenant…or a commercial tenant that can’t afford to relocate across the street much less across town.

Gross Lease: A lease where the tenants are supposed to pay the rent while the landlord or property owner pays the taxes, insurance and maintenance. Given the rising cost of property taxes and insurance, the standard definition will suffice.

GRM: Gross Rent Multiplier or the ratio of purchase price over annual income. In many commercial divisions that bought during the boom, the GRM can perform the rare and somewhat elusive feat of  multiplying negative numbers.

LOI: Typically this stands for Letter of Intent or a non-binding offer letter use to purchase a commercial property. In today’s tough commercial market it could also stand for “Loss of Interest” as short sales continue to climb among many retail spaces.

Absorption: The amount of inventory or units of a specific commercial property type that become occupied during a specified time period…or the amount of money being soaked up by the under-performing property.

Cash Flow After Taxes/ES – The net operating income less mortgage, improvements, property taxes etc…or, a non-existent state among many retail operations bought over the past several years.

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
–