Smart Real Estate News & Commentary by Chris McLaughlin November 19, 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
**********************************************************
Funniest video of 2010:
**********************************************************
HAMP dead?
“It’s safe to say that HAMP isn’t meeting its goal of preventing foreclosures,” Representative Maxine Waters said at a House Financial Services subcommittee hearing after the Treasury provided a preview of a report by the U.S. Treasury Department. According to the report, homeowners are dropping out of the Obama administration’s foreclosure prevention program at a faster rate than they are joining it. Bankers, housing regulators and members of Congress agreed on this much in the week’s second congressional hearing on foreclosure problems: The system needs fixing. Borrowers aided by the Home Affordable Modification Program grew to nearly 520,000 in October, up 23,750 from a month earlier, the Treasury said in its monthly report. The increase was less than five percent. A total of 36,300 borrowers have dropped out of the plan for failing to make their payments, an increase of 24 percent from a month earlier.
The Treasury and the Department of Housing and Urban Development issue monthly progress reports on HAMP, a $50 billion program authorized by Congress in 2009. The program was targeted to reach more than 3 million homeowners by paying mortgage servicers $1,000 to rewrite loan terms and $1,000 annually as long as the borrower participates, up to three years. The program has been faulted by lawmakers and watchdogs including Neil Barofsky, special inspector general for the Troubled Asset Relief Program, for the high number of recipients who default on mortgages after getting the government aid. Banks seized more than 93,000 homes in October, according to Irvine, California-based data seller RealtyTrac Inc. There were nearly 3.3 million foreclosure starts from September 2009 through September 2010, according to LPS Applied Analytics in Jacksonville, Florida. Mortgage servicers say they are trying to balance the needs of borrowers and the demands of investors who own their loans. “We’ve reached a crossroad between modification efforts now and the reality of foreclosure. Despite our best efforts and numerous programs, for some customers foreclosure will be unavoidable,” said Rebecca Mairone, default servicing executive for Bank of America Corp. home loans, at today’s House hearing.
Unemployment bill stopped
The House failed Thursday to pass a bill that would have given the unemployed three more months to file for extended jobless benefits. Congress has extended the deadline to file those applications four times in the past year. The last jobless benefits extension — which lasted six months and cost $34 billion — faced a lot of opposition on deficit conscious Capitol Hill before it finally passed in mid-July. The $12.5 billion bill that was on the floor Thursday needed two-thirds approval, or 275 votes, a tough hurdle. The vote was 258 to 154. The bill was the opening salvo in what’s likely to be a highly charged debate on extending the safety net for the nation’s millions of unemployed. While the next step is unclear, it’s possible the extension will resurface in a larger bill, such as one that would extend the Bush tax cuts. A growing chorus of Republicans say they will only support an extension if it is paid for — which it is not at this point. They are concerned about the impact on the deficit and point to unspent stimulus funds as a potential pot of money. They also question whether prolonged benefits keep the jobless from looking for work.
MBA – foreclosures down, foreclosure starts rise.
According to the Mortgage Bankers Association’s (MBA) National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 9.13 percent of all loans outstanding as of the end of the third quarter of 2010, a decrease of 72 basis points from the second quarter of 2010, and a decrease of 51 basis points from one year ago,. The non-seasonally adjusted delinquency rate decreased one basis point to 9.39 percent this quarter from 9.40 percent last quarter. The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans on which foreclosure actions were started during the third quarter was 1.34 percent, up 23 basis points from last quarter and down eight basis points from one year ago. The percentage of loans in the foreclosure process at the end of the third quarter was 4.39 percent, down 18 basis points from the second quarter of 2010 and down eight basis points from one year ago. The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.70 percent, a decrease of 41 basis points from last quarter, and a decrease of 15 basis points from the third quarter of last year. The combined percentage of loans in foreclosure or at least one payment past due was 13.78 percent on a non-seasonally adjusted basis, a 19 basis point decline from 13.97 percent last quarter.
“Mortgage delinquency rates declined over the quarter and over the past year, due primarily to a large decline in the 90+ day delinquency rate. The number of loans in foreclosure also dropped, bringing the serious delinquency rate to its lowest level since the second quarter of 2009. However, the foreclosure starts rate increased for all loan types and the foreclosure starts rate for prime fixed loans set a new record high in the survey, as more loans entered the foreclosure process,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “Most often, homeowners fall behind on their mortgages because their income has dropped due to unemployment or other causes. Although the employment report for October was relatively positive, the job market had improved only marginally through the third quarter, so while there was a small improvement in the delinquency rate, the level of that rate remains quite high. As we anticipate that the unemployment rate will be little changed over the next year, we also expect only modest improvements in the delinquency rate.
Here we go again – jobs created or saved
The White House says the $800 billion stimulus law passed in the early days of the Obama administration continues to improve economic conditions and increase employment. President Barack Obama’s Council of Economic Advisers issued a report Thursday concluding that the contentious law that targeted the recession has been a significant factor in the recovery. The report says the stimulus has created or saved 2.7 million to 3.7 million jobs through the third quarter of this year. Obama economists predicted in early 2009 that the stimulus would save or create 3.5 million jobs. Unemployment, however, is 9.6 percent, and the report comes after an election in which voters appeared to reject assertions by Obama and Democrats that they had pulled the country out of an economic quagmire. The last round of such White House claims eventually retreated to the category “lives touched” by the stimulus, after it became apparent that “jobs created or saved” didn’t work well when unemployment was actually increasing.
New budget chief confirmed
The Senate confirmed Jacob Lew as director of the White House Office of Management and Budget late yesterday. Obama tapped Lew in July, shortly after the president pledged to cut the nation’s budget deficit in half by 2013 at a meeting of world leaders in Toronto. His confirmation had been held up — as Senate rules allow — by Sen. Mary Landrieu, a Democrat from Louisiana who objected to Obama’s policies on offshore drilling. The confirmation comes at a critical time. The nation’s long-term debt, widely considered to be unsustainable, is front and center in Washington. And as a practical matter, Lew will be in charge of drawing up the administration’s fiscal 2012 budget proposal, which is due to Congress early next year. Lew told lawmakers in September that his “first task” will be to push for polices that spur the economic recovery. “At the same time,” Lew said, “we must put our nation back on a sustainable fiscal course in the medium term while making investments critical to long-term economic growth.”
Olick – banks vs builders
“As new home construction continues to falter and bank repossessions continue to rise, an interesting flip is taking place in the housing market which pits builders against banks. Builders are already at odds with big banks, complaining that lack of credit is hampering growth. Home builder sentiment did edge up a little in November, but, ‘builders remain very concerned about the lack of available financing for new-home construction at a time when inventories of completed new homes are quite thin; after all, you can’t sell what you can’t build,’ writes NAHB Chairman and home builder Bob Jones. Builders are facing a lack of credit from banks, but they are also facing steep competition from banks. Banks are now in possession of thousands and thousands of foreclosed properties that they need to sell in order to recoup losses. Today I saw some new numbers that really put this into perspective. In 2006, newly constructed homes accounted for one in five home sales. Today they account for one in ten. Hanley Wood Market Intelligence reports that out of the top 100 metros in America, just 17 closed more newly constructed homes than REOs (bank owned properties) in 2010 so far. Roes are far outpacing and of course out-pricing new construction.
Many REOs are in fact relatively new construction. As banks continue to take possession of more homes, they are trying ever more aggressively to market them. Fannie Mae, while not a big bank, is one of the largest holders of REO. Just this week it announced a pilot program, ‘to collect and manage real estate purchase offers for Fannie Mae-owned properties in Orlando, FL, San Diego, CA, and in Wayne County, Detroit, MI. Through the pilot, real estate agents submit offers on behalf of their clients online, receive confirmations and track the status of submitted offers.’ It’s all part of streamlining the process and getting homes sold more quickly and efficiently. Meanwhile the big banks are employing armies of REO sales agents to push their products. We have said all along that the biggest competition for home builders is foreclosed properties and short sales (when the bank allows the borrowers to sell for less than the value of the mortgage). It’s just an interesting conundrum upon us now, as the banks are both the hand that feeds the builders and their greatest competition.”
Now for our real estate education section…
Friday File – 15 Minute Short Sale Resolution: Understanding EBIT versus PBIT
Earlier this week we discussed the differences between accounting and finance as it pertains to short sales and real estate in general. Today we will cover a practical real life application of the same concept – the difference between EBIT and PBIT. While perhaps not the most exciting topic, it is an important concept for every investor and will only take a few minutes to master.
Quick Definitions
EBIT = Earnings Before Interest & Taxes
PBIT = Profit Before Interest & Taxes
Many novice investors mistakenly think these two items are one and the same but like many things in life, it is not the similarities that matter most but rather the differences. Earnings indicate the money collected by the business or investor while profit is the amount of money remaining after all expenses have been paid. Most investors must pay expenses out of revenue or earnings…what remains is the profit.
How to Calculate
So, to put this into an easy to use formula…
EBIT = Operating Revenue – Operating Expenses + Non-operating Income
PBIT = Net Profit + Interest + Taxes
Usage
EBIT and PBIT are both used by bank, credit scoring companies and even investors to measure the relative health of an enterprise. EBIT measures profitability excluding interest and income tax expenses in order to measure earning potential. The higher the EBIT, the better as far as banks or others are concerned. PBIT also measures profit but is additionally used as a proxy for operating income. However, it should NOT be confused with gross income. Instead, EBIT is a useful tool for those with little to no depreciation and/or amortization since it represents the total amount of available cash available to pay off creditors.
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
–
