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Smart Real Estate News & Commentary by Chris McLaughlin, February 3, 2010

by admin on February 3, 2010

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Refinance loans up 21%

Demand for home loans rose to a six-week high on a mini refinance wave, with borrowers pushing to lock in rates before they climb later this year, the Mortgage Bankers Association (MBA) said today.  Applications to buy homes and refinance loans jumped last week to mid-December levels as average 30-year mortgage rates held near 5%. The industry group’s mortgage index jumped 21% last week, fueled by a 26.3% leap in demand for refinancing as purchase loan requests increased 10.3%.  The 30-year mortgage rate dipped 0.01%age point to 5.01%. But this borrowing cost was 0.40%age point above the record low set last March and seen headed higher throughout the year.  “Rates continue to hover around 5%, quite low by historical standards, but are well above the record lows seen in 2009 and hence are not generating substantial refi volume,” said Michael Fratantoni, MBA’s vice president of research and economics.  Affordability remains high with mortgage rates still historically low and average home prices plunging about 30% from 2006 peaks before stabilizing since last summer.  The government’s bonus to first-time and move-up buyers via a tax credit remains in place for several more months, luring buyers who have been sitting on the sidelines waiting for some signs of stability.  “I do think the housing recovery in the U.S. still has legs and is firmly in tact,” said Ian Pollick, economics strategist at TD Securities in Toronto. “There’s a lot of pent up demand in the system right now, there are a lot of really really good deals.”

Jobs reports mixed

According to payroll-processing firm Automatic Data Processing (ADP), private-sector employers cut 22,000 jobs in January, marking the smallest decline since February of 2008.  The number of cuts in December was revised down to 61,000 from the previously reported 84,000. Economists surveyed by Briefing.com had forecast a loss of 30,000 jobs in January.  The service sector reported an increase of 38,000 jobs in January, marking the second consecutive month of job growth for that sector following a 21-month decline.  The figure was offset by a loss of 60,000 in the goods-producing sector and a drop of 25,000 manufacturing jobs, which marked its lowest level since January, 2008.  In a separate report Wednesday, outplacement firm Challenger, Gray & Christmas Inc, said planned job cuts had accelerated in January.  Challenger said employers announced 71,482 layoffs in January, reversing what had been a steady decline in layoff announcements.  January’s figure is up 59% from December 2009, when layoffs fell to a 24-month low of 45,094. But it was a sharp decline from the 241,749 cuts announced a year ago.  The retail and telecom sectors were the hardest hit in January, with 16,737 and 14,010 job cuts, respectively.  The unemployment rate is expected to remain unchanged at 10%.

MBA – Commercial and Multifamily Mortgages Increased in 4th Quarter

According to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, fourth quarter 2009 commercial and multifamily mortgage loan originations were 12% higher than during the same period last year and 15% higher than during the third quarter of 2009.  The 12% overall increase in commercial/multifamily lending activity during the fourth quarter was driven by increases in originations for all property types except multifamily.  When compared to the fourth quarter of 2008, the increase included a 105% increase in loans for hotel properties, a 101% increase in loans for retail properties, a 59% increase in loans for industrial properties, a four% increase in loans for office properties, a one% increase in health care property loans, and an eight percent decrease in multifamily property loans.  Fourth quarter 2009 mortgage originations were 15% higher than originations in the third quarter 2009.  Among investor types, loans for commercial bank portfolios saw an increase in loan volume of 39% compared to the third quarter 2009, loans for life insurance companies saw an increase in loan volume of 35% compared to the third quarter 2009, conduits for CMBS decreased by 50% during the same time span, and originations for GSEs decreased 15% from the third quarter to the fourth quarter 2009.  “Commercial and multifamily mortgage originations picked up in the fourth quarter, but remain at a low level in absolute terms,” said Jamie Woodwell, Vice President of Commercial Real Estate Research at the MBA.  ”The trend shows stability coming back to the market, but the pick-up in volumes really indicates just how low origination levels had fallen.”

Obama’s budget in a nutshell

President Obama’s proposed 2011 budget calls on Congress to make a number of tax changes for individuals.  These include:  Letting tax cuts expire – the 2001 and 2003 Bush tax cuts are scheduled to expire by 2011 – the 33% bracket would become 36% and the 35% bracket would rise to 39.6%.  The long-term capital gains tax rate would increase to 20%, up from 15%;  limit itemized deductions – to cap at 28% the rate at which high-income households can itemize their deductions.  Currently the value of a deduction is equal to the deductible amount multiplied by one’s top income tax rate, which can range well above 28%; keep the estate tax – assumes the estate tax will be made permanent at a $3.5 million exemption level per person and a top rate of 45% on taxable estates.

That’s more generous than current law, which calls for a $1 million exemption level and a 55% top rate starting in 2011; raise taxes on investment fund manager profits – tax the portion of profits paid to managers of hedge funds and private equity funds as ordinary income rather than as a capital gain, subjecting it to much higher tax rates than the 15% capital gains rate currently imposed; eliminate capital gains tax on small business stock – eliminate the capital gains tax altogether on stock in small businesses held for at least five years; make tax cuts permanent on lower and middle income – tax cuts will be made permanent for everyone making less than $200,000 ($250,000 for couples); permanently protect the middle class from the “wealth” tax; extend the Make Work Pay credit – one-year extension of the stimulus-created tax credit; permanently expand a low-income tax credit – families making less than $85,000 would be able to claim nearly double the child and dependent care tax credit for which they currently qualify; permanently extend the American Opportunity Tax Credit – expanding the existing Hope Scholarship tax credit and making it partially refundable.  So much for deficit restraint.

DSNews.com – Banks not tightening credit any more

According to a new report from the Federal Reserve, most large banks have stopped tightening standards on a number of loan types.  However, just because it’s not getting tighter doesn’t mean it’s getting easier.  Still, it might be seen as a hopeful sign for a financing world that’s been strained since 2007 – hopeful for pretty much every sector except commercial real estate, that is. That’s one of the only loan types where the majority of banks said they’d continued to tighten credit criteria.  “Banks’ policies on commercial real estate lending were an exception, as large net fractions of respondents further tightened their credit standards during the final quarter of last year,” the report said. “In addition, banks reported that they had tightened terms on [commercial real estate] loans substantially over the past year.”  The Fed said only a small net fraction of banks tightened standards on prime residential real estate loans in the fourth quarter.  A somewhat larger percentage of banks – but still fewer than in previous quarters – tightened standards on nontraditional residential real estate loans.  Likewise, just a small net fraction of banks reported more stringent lending standards for revolving home equity lines of credit.  Banks reported weaker demand across the board – for commercial property loans, prime residential real estate loans, nontraditional mortgages, and home equity loans, alike.  The Federal Reserve’s survey results are based on responses from 55 domestic banks and 23 U.S. branches and agencies of foreign banks.

Vacancy rate unchanged

According to the US Department of Commerce, the national vacancy rate for “homeowner” housing units remained at 2.7% in Q409, unchanged from Q109.  The rate only slightly wavered from 2.9% at the end of 2008 and 2.6% in Q309. The highest the rate has ever climbed since 1996 was to 2.9% in Q108 and again in Q408.  For rental housing, the vacancy rate dropped to 10.7% in Q409 from 11.1% in the previous quarter but increased from 10.1% in the last quarter of 2008.  For Q409, more vacancies appeared in principal cities, 3.1%, compared to 2.5% in the surrounding suburbs, according to the report. The rate within the city dropped from 3.5% in the fourth quarter of 2008.  More vacancies appeared in the South, 2.9%, edging 2.8% in the Midwest and 2.7% in the West. The Northeast region had a 1.9% vacancy rate. The South also had the highest rental vacancy rate of 13.7% in Q409. The Midwest had a 11.2% rental vacancy rate, followed by the West, 8.9%, and the Northeast, at 7.2%.  To combat vacancies, the US Department of Housing and Urban Development (HUD) recently announced that it would provide financing for owner-occupants looking to purchase real-estate owned (REO) property.

Now on to our real estate investing educational section…

How to Save the Sale

Sooner or later every short sale investor encounters a sale in danger of dying. Fortunately, with a few simple steps it’s possible to dramatically reduce the risk of spoiling a sale.

1. Get Smart. Prequalify and prepare from first contact. Everyone has an “A” list and a “B” list when it comes to prospective buyers but it’s still necessary to put things into proper perspective before spending a lot of time and effort on dead-ends. Remember, the internet helps to eliminate and reject prospects through the use of well placed questions and comments.  For example, asking a simple question such as “Is there another home you wished you had bought?” can explain a lot; price range, comfort zone and readiness just for starters.

2.  Value-Driven. Tough economic times have led most buyers to become more price conscious than ever; it’s no longer enough to simply show a few over-priced homes to prep for an attractive in-house alternative…instead, be prepared to demonstrate real value with low risk. Buyers want to know they won’t lose money in the long run by buying a given house or property.

3. Don’t Shut Doors on any Deal. Some buyers are just the opposite – they have money and when presented with the right opportunity – are willing to go substantially above and beyond their traditional budget. Don’t automatically exclude higher priced properties for those that have the means to make ends meet at a larger than life level. In this situation, recognize the price is not the prime motivator but rather the “right”  property. Determine what constitutes a desirable deal then make it happen.

4.  Time Right. Timing is everything but it takes time to learn how to distinguish valid help from harassment when working with prospective clients. Too soon and you can quickly cool even the hottest prospect…too long of a delay and you risk having others step in to fill your shoes.

5. Preferred Status. Everyone likes to feel special and as a short sale professional it is your duty to given individualized attention to every prospect….of course, some clients are just a bit more special than others especially when it comes to sealing the deal. Find a few ways to express that little extra something when working with your “A” list clients; meet at a local coffee shop then foot the bill (don’t worry – it’s a legitimate write-off) or schedule exclusive “preview” showings to the most promising prospective buyers before the big announcement. Remember, it’s the thought that counts not necessarily the size of the status symbol.

6. Teach sellers to think like buyers and vice versa. Yes, it’s easier said than done but it’s all in the wording. By teaching sellers to act like buyers and buyers to act like sellers you assure they will present and demand more reasonable offers. Think of it as a small investment that pays big dividends at closing time.

7. Have a contingency plan in place. Every good investor identifies the “out” long before buying into the given investment – it’s no different with short sales. Know when and how you plan to exit the property then have a contingency in place should something go amiss. It’s one additional layer of protection that allows short sale investors to sleep easy by knowing they have plenty of outlets for every property.

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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The Truth About Yesterday’s Housing Plan & Its Impact on Short Sales & REOs

by Chris McLaughlin on February 19, 2009

Real Estate News & Commentary by Chris McLaughlin, February 19, 2009
http://www.shortsalesriches.com/welcome.html

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Ok, before we get started will you do me a favor?   Please forward this e-mail to every Realtor and real estate investor you know.  I’m getting inundated for my opinion on the latest housing bill and its impact on short sales and REOs.  So here’s the truth of what is really going on.

It is much ado about nothing … unfortunately our friends in the media know little about the housing crisis that we’re living through, but let’s start talking about this new “Homeowner Affordability and Stability Plan” that was announced by the President.

They are saying that the plan will enable “up to 4 to 5 million responsible homeowners to refinance.”  That’s true … and a great boom for loan officers and title companies, but let’s look a little more at these claims that they will stop foreclosures.  It helps folks who right now aren’t the ones really struggling … and ignores the folks under water on their mortgage beyond 5%.

Let’s read directly from the White Houses’ summary:

 

“Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.”

 

Yep, they sure can do that … but guess what?  Most of the folks who will take advantage of this are not the folks that are in foreclosure or currently facing foreclosure!  If they have a conventional mortgage with Fannie and Freddie, they aren’t the issue right now … for the most part, the subprime garbage is.

 

But there’s a magic number out there … 105%.  Yes, that’s what we’re talking about.  If the loan is less than than 105% of its current market value, they might be eligible for refinance.  But come on!  Most of the people in foreclosure purchased with 100% financing … you know, the 80/20 loan.  Most homes lost at least 15% of value last year, and in California, Nevada, Arizona and Florida, just double that to at least 30%.  This plan does nothing for these homeowners.

 

Now let’s think about this further.  In order to refinance with Fannie and Freddie, you have to not only have equity in your home (or in this case you can’t be under water more than 5%), but you also have the meet the guidelines for a loan refinance.  That means you have be employed.  You must have a job.   NINJA (no income, no job, no assets) loans aren’t around anymore.   So everyone who just lost their job doesn’t qualify for this help.

 

But is this a good idea, regardless of whether it won’t help people facing foreclosure?  Yes.  If we can reduce mortgage rates that will allow more Americans to have more money in their pockets, which translates to more consumer spending.  Frankly I like this idea a lot more than the $400 a year tax credit that will do little to actually help our economy.

 

Unfortunately, with 80% of distressed properties having a first and second mortgage, modifications for those who were over leveraged is going to be next to impossible unless they’ve been paying extra payments to bring down their loan balance.  So what did Obama signal that he supports?

 

Cram downs.

 

What is that?

 

That’s when a bankruptcy court judge steps in and basically modifies loans and cuts its principal.  But here’s the rub: if you violate the sanctity of contracts, you will add uncertainty to the end investor, which means he’s not willing to pay as much for the loan portfolio, which drives up interest rates. 

 

Will cram downs slow short sales?

 

NO!  Come on folks, the reason people do short sales is to save their credit and stop a foreclosure.  Do you think those doing short sales want a bankruptcy on their record?  No, those are the individuals that don’t want to a short sale anyhow … those are the ones that really want to stay in the home and believe with a modification they can afford it.

 

What cram downs may do is create an incentive for lenders to approve more short sales and modify more loans.  Why?  Because they don’t necessarily want to roll the dice with a bankruptcy court judge. 

 

But I read that these banks are putting moratoriums on foreclosures?  Won’t that mean fewer REOs and short sales?

 

Who owns the majority of loans in trouble?  It isn’t the banks!  It is the investors that purchased these loans.  They then hired a servicing company to service that loan on behalf of Collateralized Debt Obligation A23GE63 in Singapore.  This is critically important: the majority of homes in foreclosure are not owned by banks, they are owned by investors who bought mortgaged backed securities.

 

An article in the Wall Street Journal today noted that these investors are now threatening to sue the servicer if they screw up a modification or mishandle a foreclosure.  “The securitization has split the interest in the home loan among so many different parties that it is difficult for servicers to make a modification without fear that some significant party may sue or do something else that hurts the servicers,” Kurt Eggert, a professor at Chapman University, told the Journal.

 

So, we’ve talked about loan refinance and cram downs.  What about the modification for those who are in foreclosure?  What is that all about?

 

First, the lender reduces the interest rate on the mortgage to no more than 38% of the borrower’s income.   (Note: what if they don’t have a job…kinda hard to do, huh?)

 

Second, the government will match dollar for dollar the reduction from 38% to 31% debt to income ratio (government is buying down interest rates, not a bad idea, but the investor has to take the hit getting to 38% which many of them won’t do).

 

Third, lenders must keep the modification in place for 5 years. 

 

In order to incentivize lenders, the government will pay the $1,000 for the initial modification and then will give a $1,000 payment for the next three years if the loan is current. 

 

Then the government will give a carrot to the homeowner of a $1,000 principal reduction for up to $1,000 each year for the next 5 years.

 

So does this do anything to really stem the foreclosure tide?  Unfortunately not really … because lenders know the nasty statistics that most folks don’t want to talk about.

 

But the New York Times told it to everyone on its front page today.  Guess what?   Read it for yourself: “The nation’s 14 largest banks reported that more than half of the loans they modified last year were delinquent again after just six months, according to the federal bank regulator, the comptroller of the currency.”

 

Yes, after just six months over half of the modifications that were done went back into foreclosure.  Why?  First of all, a lot of people that never should have been homeowners became homeowners with 100% financing.  They aren’t ready for the responsibility of owning a home and aren’t able to manage their finances accordingly. Second, the economy has a lot of folks wiped out and they’ve lost their job.  And third, after paying for a property that they know is $75,000+ underwater, at some point they just walk from it because it frankly doesn’t make economic sense to keep it, especially since their credit is shot already because they’ve missed so many payments.  They can bail out now, rebuild their credit, and buy something again in a few more years (with a short sale they only have to wait 2 years).

 

So what really happened yesterday?  A big mess just got messier.  False hope was given to millions of people facing foreclosure that own homes that are never going to get refinance or modified in a meaningful manner.

 

Now on to our investor education section …

 

Short Sales & Foreign Investments

 

Short sale investors with access to key markets with international appeal would do well to understand the basics about selling to foreigners; despite relative gains on the part of the dollar, the exchange rate remains highly favorable to foreigners interested in purchasing domestic real estate. Plus, unlike other nations, the United States remains “foreign” friendly by allowing non-residents to own property.

Fortunately, with the emerging economies around the world beginning to show an interest in other cultures and travel, even relatively modest homes can benefit from working with international buyers. Foreign vacation homes and affordable destinations are no longer reserved only for the rich; many middle class Europeans, rising young Asians and others are taking advantage of once in a lifetime buying opportunities to purchase a home of their own in the land of the free. Learn how to maximize potential profits by tapping into the lucrative foreign market with these quick tips:

1.      Evaluate the property carefully. Excellent examples of property of interest to foreign investors or buyers includes vacation homes, property located in major metropolitan areas such as New York City or Washington D.C., property located in close proximity of international airports and/or those with established access to colleges, hospitals or other desirable amenities.

2.      Make it meaningful. Speak the language. You will obtain better results by placing ads in both English and whatever other language you wish to target but don’t stop there! Understand how the cultural perception will influence how your home is viewed. For example, while white walls may seem clean and fresh to Americans’, potential buyers from Asiatic cultures often associate white with death. Make sure your ads are appealing both in word and picture for the target market.

3.      Watch the exchange rate. Exchange rates fluctuate dramatically so plan to spend a bit extra setting up an escrow account and other banking that is experienced with foreign transactions. Don’t skimp on overnight delivery – delays can literally cost hundreds or even thousands of dollars due to variations in the exchange rate. Specify how all funds will be paid, in what time period and in what form. It is highly recommended to require funds in USD to avoid major variations.

4.      Keep track of time. Don’t’ assume your buyer will be in the states during the period of the sale and transaction. Long distance transactions are increasingly the norm especially among the “jet set” crowd so use time marks and remain flexible when dealing with oversea transactions.

5.      Take it to the bank. One of the best reasons for selling to international buyers is the ability to create a win-win for all involved. International buyers are often used to high sales prices where American properties still seem like a bargain; combined with favorable exchange rates don’t’ be surprised to find them downright giddy. On the other hand, you get top price for a property. Yes, it is a little extra work but often well worth the time to learn the nuances of working with international buyers.

See you at the top!

 

Chris McLaughlin

http://www.shortsalesriches.com/welcome.html  

P.S.

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Sign up for our live webinar tonight at 8:30 PM ET!

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Copyright Loss Mitigation Institute 2009.
All Rights Reserved.

http://www.shortsalescoach.com
http://www.shortsalesriches.com/welcome.html
http://www.youtube.com/shortsalesriches
*************************************************
Finally, a blog for Real Estate professionals
that want up-to-the-minute news, & how it impacts
us and our market…

http://www.shortsalesriches.com/blog
*************************************************

About the author:

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

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month

   * Long-time authority on real estate investing
      and rapid flipping 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

 —

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