taxes

Smart Real Estate News & Commentary by Chris McLaughlin February 14, 2011 — Happy Valentine’s Day!

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Adjustable rate mortgages are back

After accounting for nearly 70% of all mortgages issued during the boom, adjustable rate mortgages (ARMs) vanished during the bust, totaling just 3% of the market in 2009. Now they make up 5% of all mortgages issued, and Freddie Mac predicts 10% by December.  Behind the comeback is a simple fact: ARMs are a great bargain right now. The most common ARM loan currently has a rate of 3.5% compared to 5% for a 30-year fixed-rate mortgage.  “For anyone with a high likelihood of moving soon, the 5/1 is a great product,” said Michael Fratantoni, vice president of research and economics for the Mortgage Bankers Association. “It’s a well understood product too; there’s not a lot of danger with it.”  So why isn’t everyone grabbing an ARM?  Well, because fixed-rate mortgages are seen as safer because they carry the same rate over life of the loan. Borrowers always know what their payment will be.  But with ARMs, interest rates change over time.

For example, the 5/1 ARM — the most common loan — has the 3.5% introductory rate for the first five years. After that, the rate adjusts annually.  That sounds kind of dangerous, but look deeper. On a $200,000 mortgage, the monthly ARM payment at 3.5% would be $898 compared with $1,074 for a 30-year, fixed-rate loan at 5%.  That’s a $10,560 difference after five years, when the ARM would adjust. At that point the ARM rate could jump to a worst-case scenario 8.5% and the monthly payment to $1,538.  It would still take more than 22 months of the higher ARM payments to offset the first five years of savings.  Many buyers remember the so-called toxic or exploding ARMs and how their defaults triggered the mortgage meltdown, helped sink the housing market and usher in the Great Recession.  These loans failed for a couple of reasons. Many were issued to people who lacked the income to pay once the initial years of low fixed rates ended and the interest rate reset higher. Too, the caliber of borrowers was very low.  The 5/1 is an entirely different animal, experts says. Unlike the toxic ARMs, these products are issued to borrowers with high credit scores, making substantial down payments and with assets, debt and income carefully underwritten before approval.  Rosenbaum said he’s always featured the 5/1 ARM as the product of choice unless the clients tell him they’re planning to live in the home for 15 or 20 years.  For people planning to stay for less time, “It’s paying for insurance they don’t need,” he said.

Budget released today

President Obama’s 2012 budget, will be released in its entirety at 10:30 a.m. EST, and is sure to stoke the debate over how to get the government’s fiscal house in order.  The budget will take a bite out of domestic spending and slash deficits by $1.1 trillion over the next decade, according to White House estimates.  Broadly speaking, the president’s request calls for a mix of spending proposals aimed at boosting U.S. competitiveness and belt-tightening intended as a “down payment” on serious deficit reduction.  Two-thirds of those deficit cuts would result from spending reductions, while a third would come from an increase in tax revenue, according to senior administration officials.  But even as it trims deficits, the president’s budget would add $7.2 trillion to the debt held by the public between 2012 and 2021. 

On the president’s right, Republican lawmakers are calling for even deeper cuts and hankering for a fight now over 2011 spending. At the same time, many Democrats and liberal advocates are expected to lash into the administration for the depth of some of his proposed cuts.  Overall, Obama will call for a five-year freeze on non-security discretionary spending, which the White House estimates will save more than $400 billion over 10 years.  Sen. Jeff Sessions of Alabama, the ranking member on the Senate Budget Committee, told “American Morning” the budget cuts are nowhere near deep enough to reduce the deficit or the interest payments on the debt.  He said the “$1 trillion reduction is insignificant and does not get us off on the right course. We are facing a fiscal crisis.”

Housing crash hitting stable cities now

The rolling real estate crash that ravaged Florida and the Southwest is delivering a new wave of distress to communities once thought to be immune — economically diversified cities where the boom was relatively restrained.  In the last year, home prices in Seattle had a bigger decline than in Las Vegas. Minneapolis dropped more than Miami, and Atlanta fared worse than Phoenix.  The bubble markets, where builders, buyers and banks ran wild, began falling first, economists say, so they are close to the end of the cycle and in some cases on their way back up. Nearly everyone else still has another season of pain.  “When I go out and talk to people around town, they say, ‘Wow, I thought we were going to have a 12% correction and call it a day,’ ” said Stan Humphries, chief economist for the housing site Zillow, which is based in Seattle. “But this thing just keeps on going.” 

Seattle is down about 31% from its mid-2007 peak and, according to Zillow’s calculations, still has as much as 10% to fall.  The slump began when the low-quality loans that drove the latter stage of the boom began to go bad, but the resulting recession greatly enlarged the crisis. Many people could not get a mortgage, and others simply gave up the hunt.  Now, though the overall economy seems to be mending, housing remains stubbornly weak. That presents a vexing problem for the Obama administration, which has introduced several initiatives intended to help homeowners, with mixed success. 

CoreLogic, a data firm, said last week that American home prices fell 5.5% in 2010, back to the recession low of March 2009. New home sales are scraping along the bottom. Mortgage applications are near a 15-year low, boding ill for the rest of the winter.  In September 2006, after prices started falling in many parts of the country but were still increasing here, The Seattle Times noted that the last time prices in the city dropped on a quarterly basis was during the severe recession of 1982.  Two local economists were quoted all but guaranteeing that Seattle was immune “if history is any indication.”  A risk index from PMI Mortgage Insurance gave the odds of Seattle prices dropping at a negligible 11%.

Where the cuts are

The Obama budget cuts hit far and wide: airports, heat subsidies for the poor, water treatment plants and Pell grants are just some of the targets. In total, half of all government agencies would see their funding reduced from 2010 levels.  The budget would eliminate or reduce funding to a total of 200 government programs for savings of $33 billion in 2012 alone.  In a move that is sure to anger Democrats from cold-weather states, the administration will propose cutting $2.5 billion from a program that helps low-income people pay their energy bills during periods of extreme weather.  The American Gas Association, an industry group that represents natural gas companies, predicts 3.2 million households, and 9 million individuals, would be affected.  Some parts of the Pell grant program are also on the chopping block.

The budget will propose eliminating Pell grants for summer school, and making interest on federal loans for graduate students build up during school; currently, the interest tab doesn’t start running until after graduation. The administration said that those cuts would help preserve the maximum Pell grant of $5,500.  According to the administration, the savings would be $8 billion dollars next year, and $60 billion dollars over 10 years.  The budget will also lay out Obama’s plan to cut defense spending, a politically tricky area. Including spending on the wars in Iraq and Afghanistan, the 2012 defense budget would come in at more than 5% below 2011 request. Savings come from in part from a drawdown of forces in Iraq, and also from $78 billion in cuts identified by the Pentagon.  The budget will propose slashing a quarter of the government’s funding for the Great Lakes Restoration Initiative — a move that will save $125 million.  Obama will also ask Congress to scale back a community service grant program, and cut a community development program that funds projects like housing, sewers and streets, and economic development. The two reductions will save around $650 million.  Taken as a whole package, the White House says its budget would cut deficits by $1.1 trillion over 10 years.  But before becoming law, the proposal will have to survive a marathon budget process, and a Republican controlled House that favors far more severe cutbacks.

Olick – Fannie Freddie redux

“I have been sitting at the Brookings Institution for much of the day, listening to housing and mortgage experts react to the Obama Administration’s ‘white paper‘ on winding down Fannie Mae and Freddie Mac and reforming the mortgage market.  The morning began with Treasury Secretary Timothy Geithner, who was actually a last minute add to the event, because this event was scheduled long ago and just coincidentally with the release date of the white paper.  Geithner was quite careful, making clear that whichever of the three proposals is chosen, it will take many many years for the big changes to be implemented.  His main point: ‘Homeowners need to hold more equity in their homes.’  He admitted that could have a negative effect on the many Americans who use home equity loans to invest in their small businesses, but I guess that is the necessary evil, at least to his point. 

I’m still waiting for the keynote from Alan Greenspan, the former chairman of the Federal Reserve, who presided during much of the headiness in the housing boom, but here are just a few of the comments that have gone out this morning from industry, analysts and politicians: Michael Berman, Chairman of the Mortgage Bankers Association:  ‘We are gratified to see that one of the concepts they articulate closely tracks MBA’s proposal, released eighteen months ago, that visualizes a workable, commonsense system driven by private capital.

Our proposal envisions an explicit, but limited, government guarantee of lower-risk mortgage-backed securities. The guarantee would be paid for by fees used to build a fund to protect taxpayers. We continue to believe that this is the most prudent approach, one that places the primary risk on private investors and ensures sufficient liquidity during times of economic stress in order to provide affordable mortgage finance in all types of mortgage markets. Our proposal directly addresses the problems that caused the failure of the Fannie Mae/Freddie Mac system.’  Chris Whalen, Institutional Risk Analytics:  ‘We repeat our admonition to all sides of the GSE debate to be careful what they wish for. The residential housing sector is in freefall — six down months in a row for Case-Shiller. Nobody wants to discuss this. Our channel checks confirm that volumes for new residential loan applications are falling off sharply. Were it not for the repurchases of bad loans, FNM/FRE would be shrinking. Think about that. The GSEs are the only bid for secondary market in loans. Virtually all bank production today is being written for Fannie/Freddie/FHA guarantees.

The guarantee fees are less than half the market rate, whatever that its. So talk about privatization is childish. Meanwhile, the Obama Administration is proposing to raise the conforming loan limit on a ‘temporary’ basis.’  Paul Miller, Analyst, FBR Capital Markets:  ‘This should be a positive for all banks as it allows for a more competitive and robust private mortgage market where credit is more accurately priced. This could see significant pushback from Realtors, homebuilders and mortgage brokers because it will be more expensive to buy a house because of higher mortgage rates and larger down payments, which should lead to lower purchase volumes. We expect the final plan will eventually fall somewhere between the second and third options mentioned above.’  Chairman, House Financial Services Committee, Spencer Bachus:  ‘The Administration’s report incorporates several elements of the plan that House Republicans proposed two years ago to fix Fannie Mae and Freddie Mac and end their $150 billion taxpayer bailout, and for that I commend them. However, what the Administration offered today isn’t a plan to move us forward, but rather a collection of options to consider. What’s needed is a real plan, and we intend to sit down with Administration officials to find common ground. We must address this as part of a comprehensive housing finance reform, which will include FHA as well as the private sector. The Administration’s report today is just a start. What we need is legislation that protects taxpayers from further losses and future bailouts and builds a stable housing finance system based on private capital.’”

Community banks against GSE reform

Community banks say the Treasury’s proposed housing market reforms will privatize the secondary mortgage market to the detriment of community banks that use Government Sponsored Enterprise (GSE) loan products to fund loans to consumers in small towns and rural areas.  “A reliable secondary market is essential so that the nation’s Main Street community banks can continue to offer residential mortgages to their customers,” said Jim MacPhee, ICBA chairman and CEO of Kalamazoo County State Bank in Schoolcraft, Mich. “While reform should focus on preventing future crises in the housing market and embracing the common-sense underwriting standards long practiced by community banks, it should not eliminate all government involvement in the secondary market while turning it over to Wall Street.” 

MacPhee said the Treasury’s plan as it stands would simply transfer power to large banks insured by the Federal Deposit Insurance Corp., while removing some of the government mortgage products that community banks and their customers rely upon.  “Its future structure should not foster further consolidation in the mortgage market, which would only result in higher mortgage costs and fewer consumer options,” MacPhee added. 

The Community Mortgage Banking Project — a coalition of lenders that advocates for mortgage market reform — believes the plan will create a group of mega-lenders that will fail to offer diverse products.  “The proposed wind down of Fannie and Freddie does little to restore healthy competition in the mortgage market and will simply permit the three mega lenders that currently have a combined 55% market share to use their too big to fail status and FDIC insured deposits to drive mid sized and smaller lenders out of business and further increase their market dominance,” said CMBP Managing Director Glen Corso. “The end result will be to simply replace the two GSEs with a handful of too big to fail government backed banks. We do not believe that any proposal that reduces competition and diversity of funding sources for American home buyers is a good public policy outcome.”

Now for our real estate education section…

Cultivating Ambition – It Really Is Different This Time

“Today’s youth aren’t what they were when I was young”…. It’s a common refrain among older persons but is it actually true? Is there something inherently different about today’s young people compared to earlier generations? Even more importantly, what does it have to do with real estate? Does it really matter if the youth of today lack ambition? Well, it does matter…quite a bit as it would turn out. According to industry experts, the average young person doesn’t believe in the American Dream nor do they embrace the value systems held so dear by their parents and grandparents. They are not willing to spend a lifetime loyally working for one corporation only to be given a pink slip months before retirement. In fact, the entire concept of working for the same company for thirty or forty years is as foreign to them as that of an 8-track tape. It’s simply not on their horizon.

Jobs and employment needs are closely correlated with housing choices. Without permanent employment, young people are much less likely to see the purchase of a home as a permanent decision and much more likely to see it as a temporary function. Other important differences rapidly transpire; rather than viewing home ownership as a fundamental part of their personal identity, today’s youth are more likely to see it in terms of “life stages” consisting of discreet and highly individualized situations. Home is not where the heart is but rather a location to sleep and store physical (as opposed to virtual) belongings at this time in life. So, how are real estate investors and agents supposed to reach out to the new wave of first-time homebuyers? By embracing these differences rather than attempting to persuade buyers on the merits of a bygone era.

1. The American Dream has turned into the American Nightmare in the minds of many young people today. They see parents and grandparents losing their homes, slaving away for decades at jobs which leave little time for personal enjoyment and essentially buckling under loads of debt.

Take-Away:- Don’t try to sell dreams…sell the reality instead. This generation is ready for it.

2. Home is Not Where the Heart Is. According to the most recent Census data, less than 1 out of every 2 newborns are born to married parents. Female head-of-household homes are becoming an increasingly popular option. Women are now the primary decision-makers when it comes to purchasing property.

Take-Away: Learn how to effectively market to women, minorities and other traditionally underserved populations.

3.  Home Sweet Home – Once upon a time the family home was passed down from generation to generation. People lived and died in the same town. They lived in close proximity to their relatives and remained close throughout life. Today, technology allows people to remain in contact and the average family moves ever five to seven years.

Take-Away: Focus on the here and now. Emphasize convenience, local amenities and the lifestyle afforded today.

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)

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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 150 high-value, high-profit
      properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     420 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!

   * In 2010, Chris’ 4 Central Florida real estate offices

      closed 2,786 sides for a closed sales volume of

      $392,912,927!  
    * 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 27, 2010

Forward this e-mail to your friends! 

Then they can subscribe directly at the following link: 

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22% of private mortgages default

Nearly 11% of mortgages modified under the government’s Home Affordable Modification Program, known as HAMP, have fallen two months behind in payments, according to a banking regulators’ report issued Friday. By contrast, just more than 22% of non-HAMP adjustments redefaulted.  The reason for the gap is pretty clear, regulators said. HAMP modifications reduce a borrowers’ monthly payment by an average of $608, while bank modifications lower it only by $307. “There is a correlation between sustainability of payment and the reduction in the payment,” said Joe Evers, deputy comptroller at the Office of the Comptroller of the Currency, which put out the report along with the Office of Thrift Supervision.

Under HAMP, eligible borrowers can have their monthly payments lowered to 31% of their pre-tax income as long as its more profitable for the bank to modify the loan than to foreclose. The federal government pays servicers an incentive to participate in the program.  Also, proprietary bank modifications are outpacing HAMP adjustments by more than 2-to-1. Many troubled homeowners are falling out of the government program and 44.5% of them are receiving bank modifications. Housing counselors have been wary of proprietary modifications, mainly because there is not a lot of information about them. They caution homeowners to make sure they understand the terms of the adjustment. A Chase spokesman said HAMP is always the first program the bank considers for troubled borrowers “because it lowers the payment more than most other programs.” If they don’t qualify for HAMP, they are reviewed for a proprietary modification.

Tax bill comes under fire

Sen. Dick Durbin of Illinois and other Democrats plan to bring a tax bill called “Creating American Jobs and Ending Offshoring Act” up for a vote tomorrow, but the legislation has already come under attack from Republicans and business groups. The U.S. Chamber of Commerce called on lawmakers to oppose the bill, saying it would hurt the economy and lead to job cuts. Instead, the group urged lawmakers to extend all of the Bush tax cuts set to expire on Dec. 31 — an issue Congress is unlikely to resolve until after congressional elections on Nov. 2.  Tax policy analysts say the bill is politically-motivated and doubt that it will have a meaningful impact on hiring.  “I don’t think this package is going to be successful,” said Anne Mathias, a tax analyst at Concept Capital’s Washington Research Group. “Politically it makes sense, but economically I’m not sure it will work.”  The bill would give U.S. employers a two-year break from payroll taxes on wages paid to new U.S. workers performing services in the United States, according to a summary of the legislation.  0:00 /4:24′Car Czar’: Bailout saved GM, Chrysler

To be eligible, businesses would have to certify that the U.S. employee is replacing an employee who had been performing similar duties overseas. 

Experts said the amount of money companies could save as a result of the tax holiday may not be enough to offset the benefit hiring workers in cheaper labor markets. In addition, analysts said many questions remain about how the provision would work if the bill is passed.  “How do you identify the jobs that have come home?” asked Roberton Williams, senior fellow at the Tax Policy Center. “How does the firm prove that a job has moved from overseas to home? How do they prove that the job wouldn’t have been created here anyway?” In addition, businesses would be blocked from taking any deduction, loss or credit for costs related to reducing or ending U.S. operations while expanding similar operations outside of the United States.  Critics, like the Chamber of Commerce, say ending deferral would subject American companies to “double taxation” on the earnings of their foreign subsidies. “Limiting deferral would hinder the global competitiveness of these American companies, impede U.S. economic growth, and ultimately result in the loss of jobs,” Bruce Josten, an executive vice president at the Chamber, wrote in a letter to Senators last week.

New home sales near lows

Sales of new homes were flat in August at a seasonally adjusted annual rate of 288,000, the second lowest level since the Commerce Department started tracking new home sales in 1963. Sales year-over-year are down 28.9%. Home sales were expected to jump to an annual rate of 291,000 in August, according to a consensus estimate of economists surveyed by Briefing.com. “It would have been nice to finally see a nice upward blip, but this is not surprising at all,” said Leif Thomsen, CEO of Mortgage Master. “Builders are unable to get financing for new homes in this economy, and buyers aren’t in a hurry to buy because they know nothing is really selling.”  Reports earlier this week on existing home sales and new home construction indicated slightly improving housing market conditions. But until hiring picks up and more people start shopping for houses, a significant rebound is unlikely. The median price of new homes sold in July was $204,700, a 0.5% decline from July and down more than 1% from August 2009. At the end of August, 206,000 new homes were for sale. At the current sales pace, the government expects the supply to last 8.6 months.  Sales soared in the West, rising 54.3% in August. The Northeast saw sales rise by 16.7%. Sales in the Midwest fell the most, by 26.1%, while sales in the South fell 10.8%.

MBA – Variety of Alternative Mortgage Loan Products Around the World

According to a study released today by the Mortgage Bankers Association (MBA), mortgage features like longer terms, interest-only periods and flexible payment designs are quite common in other countries and are not associated with higher rates of default.  The study entitled, “International Comparison of Mortgage Product Offerings”, which was conducted by Dr. Michael Lea, Director of the Corky McMillin Center for Real Estate at San Diego State University and sponsored by MBA’s Research Institute for Housing America (RIHA), examines the predominant mortgage designs and characteristics that exist in different international markets and how they have performed prior to and during the crisis.

The study examined 12 developed countries with distinctly different mortgage market and product configurations.  The study results showed that 95% of new loans made in the U.S. in 2009 were long-term fixed-rate products compared to various other countries with a lower share including 1% in Spain, 2% in Korea, 10% in Canada, 19% in the Netherlands and 22% in Japan. In addition, 5% of new loans made in the U.S. in 2009 were variable rate, which compares to the higher shares found in other countries including, 92% in Australia and Korea, 91% in Ireland, 47% in the UK and 38% in Japan. Key findings:

- of the countries sampled, all typically subject fixed rate mortgages to an early repayment penalty except Denmark, Japan and the U.S.  In Australia, Canada, Denmark, Germany, the Netherlands and Switzerland the penalties are designed to compensate the lender for lost interest over the remaining term of the fixed rate.

- while some believe that the fixed-rate mortgage (FRM) is the ideal consumer mortgage instrument for all borrowers, its use does have significant drawbacks. In effect, the cost of the pre-payment option is socialized, with everyone paying a premium in the mortgage rate for the option. This contrasts with the European view that only borrowers who exercise the option for financial advantage should pay the cost.

- the U.S. has an unusually high proportion of long-term FRMs as well as use of securitization in the finance of housing. The dominance of the FRM and securitization is driven in part by the presence of government-backed secondary mortgage market institutions that lower the relative price of this type of mortgage.

- the U.S. is unusual in the banning or restriction of prepayment penalties on FRMs. Most countries in the survey allow such penalties to compensate lenders for loss associated with the financing of mortgages. As a result, mortgage rates in those countries do not include a significant pre-payment option premium and other financing techniques, such as covered bonds, are more common.

- according to an EMF study on the efficiency of mortgage collateral, borrowers remain liable for deficiencies in Belgium, Germany, Greece, the Netherlands, Spain, France, Ireland, Portugal and the U.K.

Now for our real estate education section…

Behind the Headlines – News You Can Really Use

Despite a less than enthusiastic response from Democrats or Republicans, President Obama has recently proposed a tax incentive that would allow business owners and corporations to write-off 100% of new plant and equipment expenditures through 2011. So, what does that mean for real estate professionals and/or investors?

Let’s take a few minutes to crunch the numbers and see how this will work in “real life” should the provision actually be passed (which remains to be seen). For the sake of brevity, let’s assume Joe the Plumber’s small business generates an additional $100,000 above and beyond ordinary expenses which would normally be taxed at 35%. Although Joe would love to purchase a new plant or equipment that happened to cost $100,000, he has been sitting on the sideline because he would be forced to depreciate the purchase over a period of several years. Under the new tax incentive, Joe would be able to fully depreciate the purchase in only one year, resulting in a substantial offset of taxes.

Let’s take a look at the hard numbers:

$100,000 property depreciated over  as long as 27 years =$3700 per year tax offset (standard policy). Remaining tax liability at 35% = $33,700.

$100,000 property depreciated over 1 year = $100,000 tax offset (proposed policy). Remaining tax liability at 35% = 0.

In the first example it is easy to see why small business owners are reluctant to invest; they must spend $100,000 and still pay a hefty tax of nearly $34,000. Plain and simple, they may not be able to afford it. Given the current economic climate, it can be risky to use up surplus cash reserves that may be needed in the event of a continued economic downturn.

On the other hand, by accelerating the depreciation schedule, the tax savings allow Joe the Plumber to purchase the additional capital investment provides a long term advantage to his business and still leave the business with some excess cash on hand in the event of an emergency need. New plant and equipment purchases help keep jobs here at home, update aging equipment and provide a much needed push to help revitalize the economy; does it have a real chance of passing?  Only time will tell. Prudent short sale and real estate professionals will begin preparing now.

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 August 27, 2010

Forward this e-mail to your friends! 

Then they can subscribe directly at the following link: 

http://www.smartrealestatenews.com/ 

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

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

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MBA – delinquencies down overall but first time delinquencies up

According to the latest data from the Mortgage Bankers Association (MBA), the nation’s overall delinquency rate dropped to 9.85% in the second quarter, down from 10.06% of all loans outstanding three months earlier.  he percentage of seriously delinquent loans — ones 90+ days late or already repossessed by lenders — dropped to 9.11% from 9.54% in the first quarter.  The drop in loans 90 days or more late was the biggest the MBA has ever recorded, according to the MBA’s chief economist, Jay Brinkmann. “That shows we’re making headway,” he said.  He cited three reasons for the improvement: Fewer loans are coming into the default process; The homebuyers tax credit, which increased demand for homes, generated many pre-foreclosure sales, removing the attached delinquent loans from the statistics;  The government and lender-led mortgage modifications “cured” some payment problems. 

However, even with those bright spots, there was one troubling finding: First-time delinquencies increased after four quarters of decline. It inched up to 3.51% in the second quarter from 3.45% in the first quarter. According to Brinkmann, the reversal reflects the weakness in both the housing market and the overall economy.  “It’s a question of jobs,” he said. “It takes a paycheck to make a mortgage payment.”

No taxes for the middle class?

Well, we knew it was too good to be true, and now so do the politicians.  Obama asked his tax reform task force to examine ways to simplify the code, reduce tax evasion, and close corporate loopholes — and to do so with an eye to raising more revenue.  The trouble is they can’t…not with Obama’s campaign promise not to increase taxes on any married couple making less than $250,000 or any single individual making less than $200,000. 

The panel wasn’t allowed to consider anything that would tap 98% of the country.   In order to both simplify the code and raise more revenue, lawmakers would need to jettison or scale back many of today’s credits, deductions and exemptions. But Obama’s pledge would make that very difficult.  “Tax breaks are not limited to people making over $250,000,” said Rutgers economics professor Rosanne Altshuler, who served as the senior economist for President Bush’s bipartisan tax reform commission in 2005.  Really?  Do tell.

Olick – MBA too optimistic

“Barely an hour after I reported the somewhat positive delinquency survey from the Mortgage Bankers Association, I received a soon-to-be released report from Lender Processing Services that threw a bucket of water on the cautious optimism of the Bankers. The MBA reported a drop in overall delinquencies and foreclosures.  The big focus was a drop in the pool of loans 90 days+ past due.  That was due to fewer loans coming into the pool, modifications and bank repossessions, and the home buyer tax credit (which helped a lot of troubled borrowers to sell).  The MBA warned that the one rough patch in the report, a rise in new delinquencies, could push the numbers back up again if the employment situation doesn’t improve.  The Realty Check got a first look at an upcoming report from Lender Processing Services which shows a huge jump up in foreclosure starts in July.

“July showed an astounding 24.5 percent month-over-month increase in foreclosure starts, which dovetails with Treasury’s latest report on HAMP [Home Affordable Modification Program] cancellations (approx. 50% according to Treasury’s numbers).” It also reports that seriously delinquent (6 mos.+) cures have declined by 25 percent. Cures are loans that are made current again. So with fewer cures and more newly delinquent loans, that 90-day delinquency bucket is increasing, hence more foreclosures again. We’ve been noting the improvement in new delinquencies as a sign of recovery for several months, but all this new data turns that tenet on its head.”

GDP slower than expected

Gross domestic product expanded at a 1.6 percent annual rate, the Commerce Department said, instead of the 2.4 percent pace it had estimated last month.  However, the reading was a touch better than market expectations. Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, revised down to a 1.4 percent growth rate. The economy grew at a 3.7 percent pace in the first three months of the year.  The revised GDP data will likely fuel analysts’ concern that slowing growth is putting the economy at growing risk of slipping back into recession. Federal Reserve policymakers were meeting on Friday at their annual retreat in Wyoming to ponder the economy’s direction and hear from Fed Chairman Ben Bernanke.  “There is no doubt we are losing momentum in the economic recovery,” said Robert Dye, senior economist at PNC Financial Services in Pittsburgh. “But if we define recession as two or more consecutive declining quarters of GDP, I think we are not going to go there.  “We are going to see a pattern where we may have declining GDP in one quarter followed by smaller gains in the next quarter, bouncing along the bottom as it were,” Dye said. 

Radar Logic – “Overwhelming supply”

According to Radar Logic’s June RPX composite price index, which measures per-square-foot home pricing trends in 25 metropolitan statistical areas, is showing fresh signs of housing weakness. Over half of the MSAs tracked by the company posted month-over-month price declines during June, compared to just two markets last year. On a year-over-year basis, only seven MSAs posted price gains during June.  The 25-MSA RPX Composite price for June 24 was $197.09 per square foot, just $1.09 (0.6%) higher than a month earlier and flat year-over-year. This was the second-worst performance for the month of June since the beginning of Radar Logic’s data. The average May-to-June increase over the last ten years has been $2.75 (1.4%), the firm said.  “In a sign of weakness to come, the RPX composite price for the Western region hit its peak for the year in May and declined sharply in June,” the firm’s report said. “The Western region has been the source of much of the recent strength in the 25-MSA RPX Composite, outperforming the other regions year-to-date and year-over-year on a composite-price basis. The end of seasonal price gains in the West suggests that the 25-MSA RPX Composite will soon start to decline as well.”

Now for our real estate education section…

Friday File – 15 Minute Resolution: 7 Best Internet Marketing Commandments

This week we have explored online marketing with an emphasis on what agents and investors can do to enhance the effectiveness of their Internet presence. Today we will turn our attention toward those “black hat” techniques that can actually detract visitors – or get the site banned entirely. Use this list to steer clear of troublesome techniques and avoid getting blacklisted by major search engines.

1. Thou shall not use link farms. You know how annoying it is to perform a search then find a page filled with vague links that don’t really match the original criteria…or worse, do match the search criteria but are all but impossible to use. Don’t perpetuate this on prospective clients. It will only irritate them.

2. Thou shall not duplicate content. Repurposed content is fine once in awhile but visitors expect something fresh and new…so do search engines. Give it to them!

3. Thou shall not use spinning software. Not only does most of it yield less than impressive results but it’s simply not worth ruining your reputation by using stale information.

4. Thou shall not use keyword stuffing. If you have ever read an online article full of hyperbole’, excessive adjectives and simply verbose nonsense it’s easy to understand why this should be avoided at all cost. Use the KISS formula….keep it simple stupid and just write another article.

5. Thou shall not cloak content. It’s tempting…after all, who will see it? Well, Google for one. Although this can be effective at times, it’s usually not worth the time and effort. Instead, focus on getting it right the first time around.

6. Thou shall not use hidden text. If cloaking is tempting then imagine how easy it is to add a bit of hidden text to a page so Google indexes it. What’s the drawback? Well for one, it’s easy to forget about it in the future especially when you want to update pages. Again, the bit of a bump isn’t worth the extra effort for the average investor or agent.

7. Thou shall not use redirects. There are legitimate uses for redirect pages but

keep their use to an absolute minimum. The last thing you want is for visitors to bookmark the wrong website or forget the name. Use doorway or gateway pages with redirects sparingly and only for legitimate uses.

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
–

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

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

***********

FixAFlip ReOpens TONIGHT at 8:30 PM ET, 5:30 PM PST:

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  lenders that require personal guarantees.

Truth is, you’re going to be unstoppable when you apply this

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So click on this link now and we’ll see you tonight:

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

Foreclosure pipeline clogging – over 13% of loans delinquent

One in every 7.5 homeowners either fell into delinquency or foreclosure as of November 30, 2009, according to the December mortgage monitor report from Lender Processing Services.  The total number of delinquencies reached a record high of 9.97%, a 5.46% increase from the previous month and a 21.29% increase from November 2008. Loans falling into more severe delinquent categories reached 5.01% through November, compared to 1.52% of loans improved toward a current status.  That’s compared to November’s mortgage monitor report, when 4.02% of current mortgages through December 2008 fell into delinquency by October 2009.  More than 4% of the loans that were current in December 2008, fell behind by 60 days or more, including foreclosure, by the end of November 2009. 

It’s the highest rate for that part of the year since LPS began reporting the data.  The foreclosure rate in November reached 3.19%, a 1.46% increase from the previous month and an 81.41% increase from November 2008. This doesn’t include the amount of homes falling into the shadow inventory of foreclosure. Some data providers like First American CoreLogic speculate that number could be as high as 1.7 million as the roadblocks of the government incentive programs and moratoriums clog the foreclosure pipeline.  “Foreclosure starts continued to decline as a result of loss mitigation efforts like the federal government’s Home Affordable Modification Program (HAMP) and elevated delinquent loan volumes,” according to the report. “The reduction in foreclosure starts, combined with the steady increase in the number of seriously delinquent loans, has resulted in an ever-growing ‘shadow’ inventory of troubled properties.”  The states with the most non-current loans were Florida, Nevada and Mississippi. Those with the fewest were North Dakota, South Dakota and Alaska.

Just what we need…more taxes

A senior administration official said yesterday that the White House is considering a tax on financial institutions to ensure that taxpayers who bailed out banks get paid back.  The Troubled Asset Relief Program (TARP) dictates that the Office of Management and Budget can take that action five years after TARP went into effect in October 2008 to prevent the federal bailout from adding to the deficit.  Robert Gibbs, the White House press secretary, would not discuss how a possible bank fee would fit into Obama’s fiscal year 2011 budget, which is set to be released next month. “There is a significant likelihood that we will not be repaid for the full value of our investments in AIG, GM and Chrysler,” Geithner told an oversight panel.  Yet, the financial industry tax under discussion could impact the entire financial industry, a prospect the banking industry opposes. With few details available about any proposed fee, it’s unclear whether banks would be required to pay for losses incurred by GM and Chrysler. “Imposing new taxes on top of the increased regulatory costs will weaken the industry, just when the industry is helping lead the economic recovery,” said Scott Talbott, chief lobbyist for the Financial Services Roundtable, a bank lobbying group.  Gibbs said it is the president’s “goal” to ensure the “money that taxpayers put up will be paid back in full.”  The trouble, of course, is that soaking “the banks” means soaking you too, since taxes are  almost always passed on to the consumer.

Smaller drop in home equity

A new report from Trulia.com finds that of all homes on the market today, 21% have seen at least one price reduction. But that’s the second straight month that the%age has declined. Total home equity declines dropped 14%, from $24.7 billion in December to $21.2 billion in January.  The South continues to improve the most with 20% of homes seeing price reductions. All other regions stand at 22%.  Los Angeles, CA and New York City are seeing the biggest improvements in the number of sellers reducing prices, but the luxury market is still being hit hardest. The average price discount on a luxury home (those listed at $2 million and above) is 15%, the highest since Trulia began tracking price cuts in April, 2009. The average price discount on homes under $2 million is 10%. While luxury homes make up just 2% of the total listings currently, they maker up 24% of the total dollar value of price reductions.  While the numbers look promising now, recent data showing a slowdown in sales and rising foreclosures could put additional pressure on home prices. Government stimulus in housing in the form of the tax credit and lower mortgage interest rates will phase out by Spring, and some experts believe a double dip in home prices is a real possibility.

Small business sentiment down

The sentiment of U.S. small business owners stalled in December, hurt by weak sales and worries about government policies, according to a survey released on Tuesday.  The National Federation of Independent Business said its small business optimism index fell for the second straight month, dropping 0.3 point to 88.0 in December.  “Continued weak sales and threatening domestic policies from Washington have left small business owners with little to be optimistic about in the coming year,” said the federation’s chief economist, William Dunkelberg, in a statement.  Small business owners are not in a hiring mood because customers are not in a spending mood, the group said. Owners continued to liquidate inventories and weak sales trends gave them little reason to order new stocks.  Plans to make capital expenditures over the next few months rose 2%age points to 18%, but was still only 2 points above the 35-year record low, the group said.  “Capital spending is on the sidelines,” said Dunkelberg. “Spending on capital projects remained at historic low levels, as did the demand for credit to finance such projects.”  Of the owners surveyed, only 7% characterized the current period as a good time to expand facilities, down 1 point from November.  The group said 92% of the owners surveyed either obtained the credit they wanted or were not interested in borrowing.

CMBS delinquencies up 5 times over a year ago

According to credit-rating agency Fitch Ratings, an increase in defaults across property types pushed total commercial mortgage-backed securities (CMBS) delinquencies 42 basis points higher, closing 2009 at 4.71% delinquent. The rate of growth in delinquent CMBS looks set to continue in coming years, with a potential peak at 12% in 2012.  “Though delinquencies have increased approximately five times from a year ago, they may not peak until 2012,” said Fitch managing director Mary MacNeill. “An increased amount of loans are coming due over the next two years that will result in delinquencies possibly peaking at 12%.”  Property types rose across the board since December 2008, from delinquent multifamily growing by 196%, to delinquent hotel swelling by 1,175%. 

Multifamily properties reached 7.54% delinquent in December 2009. The dollar volume of multifamily delinquencies is $5 billion, from $1.6 billion in December 2008.  Hotel properties mark the largest single category in terms of percent delinquent – 9.13% or $4.6 billion – while retail properties claim the highest dollar amount delinquent – $5.7 billion or 4.25%. Office properties squeak by Industrial as the lowest delinquency rate – 2.66% or $3.9 billion – while industrial properties claim the lowest dollar amount delinquent – $851.3 million or 3.57%.  Not only are the occurrence of delinquent loans growing within CMBS, but the delinquent loans are increasing in size. There are now 25 delinquent CMBS loans greater than $100m, compared with four in December 2008. The four most recent vintages grew to more than 75% of the total delinquencies by balance, from just under half one year earlier.

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

Time Impact on ROI

Yesterday we discussed the impact of price on ROI so today it is only natural to mention the impact of time. Price and time provide the cornerstone of ROI valuation for most real estate especially when leveraged funds are utilized. Just as total price tends to become less of an imperative when purchasing a property using leverage, the length of the loan is also able to dramatically change the ROI/NOI equation. Let’s use a few realistic examples to demonstrate.

Suppose for just a second that you purchased a short sale property for $90,000 with an anticipated return on initial investment of $9,000 – a total of 10%. Not a bad rate of return by any means but nothing to get overly excited about. As we all know, inflation and the opportunity cost of doing business may or may not make this an attractive investment compared to  other alternatives. So, how can you determine whether or not this is the best use of your hard earned money over a given period of time? Remember, time is one of the most important considerations to keep in mind when determining the true profit potential or value of any investment.

One way to measure the impact of time on ROI is to realize that many different types of investments are able to produce exactly the same return depending upon the initial interest rate combined with time. For example:

$180,000 invested at 5% for one year can generate $9,000 but so can a $60,000 investment that pays 15% interest. Of course, everyone wants the highest possible rate of return without the risk but eliminating risk isn’t always possible. However, it is possible to reduce risk – substantially. The most simple method is to calculate the NOI or net operating income in order to assure the property is able to generate enough income or profit to pay for itself.

Using the prior example of a  short sale property with a purchase price of $90,000, payments would be roughly $750 per month. Now it is a matter of covering the cost of the monthly mortgage by selecting the time/value sequence of money generated by the NOI. Think of it as the “spread” between time/interest of the property value. A 3% to 5% interest rate at 15 years would allow you to still pay the original $750 mortgage or a 7%-8% interest rate could be covered with a 20 to 25 year mortgage. By adjusting the length of the loan and interest rate, it is often possible to pay the sellers a higher asking price while still coming out ahead.

Bottom line – use the time/money value when negotiating price for a given property. Combined with the use of leverage, it’s one more method savvy short sale investors use to maximize ROI while simultaneously decreasing risk.

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 

*************************************************
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
–