Wednesday, December 31, 2008

Maintenance Tips

Conduct a yearly walkthrough of all units. I notify my tenants that I will be conducting a quick walk through of their unit. I can tell you some real scary stories I've witnessed myself!

Monday, December 29, 2008

Mortgage rates at 37-year low

WASHINGTON — Rates on 30-year-fixed mortgages dropped this week to their lowest levels in at least 37 years, as the Federal Reserve pledged to pour money into the mortgage market in an effor spur the moribund U.S. housing market.

Freddie Mac, the mortgage company, reported today that average rates on 30-year fixed-rate mortgages dropped to 5.19 percent, down from the year's previous low of 5.47 percent, set last week.

The rate is the lowest since Freddie Mac's weekly mortgage rate survey began in April 1971.

Mortgage rates started falling after the Federal Reserve launched a sweeping new effort in late November to aid the U.S. housing market by purchasing up to $600 billion of mortgage-related securities and other debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

A daily survey found that the national average rate fell even lower Wednesday. Rates on 30-year, fixed mortgages was 5.06 percent, according to financial publisher HSH Associates, the lowest since the 1960s and down from 5.3 percent Tuesday.

It was the best news in months for anyone looking to lock in a 30-year, fixed-rate mortgage. But it was not expected to be a cure-all, and borrowers already in danger of foreclosure probably won't be able to take advantage because only borrowers with stellar credit can qualify.

"It's a call to action for homeowners looking to get out of adjustable-rate mortgages," said Greg McBride, senior financial analyst at "Unfortunately, it's not an equal-opportunity party."

Faced with a dramatic surge in defaults, both Freddie and its sibling company, Fannie Mae, are stepping up efforts to prevent foreclosures.

The federal agency that regulates the two companies anticipates they will modify about 75,000 troubled loans next year, up from about 60,000 this year. The program applies only to borrowers who have missed three months of payments and have not filed for bankruptcy and still live in their homes.

Most of the increase is expected result from of a mass loan modification program for loans owned by Fannie or Freddie that was launched this week. Loan servicing companies, which collect mortgage payments for Fannie and Freddie, are expected to send out thousands of letters to eligible borrowers in the coming weeks.

But for borrowers who are current on their mortgages, they can take advantage lower interest rates, refinance and save money.

The average rate on a 15-year fixed-rate mortgage dropped to 4.92 percent from 5.2 percent last week, Freddie Mac said.

Rates on five-year, adjustable-rate mortgages fell to 5.6 percent, compared with 5.82 percent last week. Rates on one-year, adjustable-rate mortgages dropped to 4.94 percent, from 5.09 percent last week.

The rates do not include add-on fees known as points. The nationwide fee for 30-year and 15-year mortgages averaged 0.7 point last week. The fee on five-year, adjustable-rate mortgages averaged 0.6 point, while the fee on one-year adjustable-rate mortgages averaged 0.5 point.

Mortgage application volume jumped last week, fueled by borrowers seizing on lower rates to refinance home loans, the Mortgage Bankers Association said Wednesday.

The trade group's seasonally adjusted application index rose 2.9 percent for the week ended Dec 12.

The Federal Reserve, aiming to free up lending and jolt the economy back to life, on Tuesday cut the federal funds rate from 1 percent to a target range of zero to 0.25 percent and pledged to keep funneling money into the market for mortgage investments.

Mortgage brokers are already reporting a surge of calls from borrowers trying to take advantage of the Federal Reserve's extraordinary actions.

On Wednesday, some mortgage brokers were quoting interest rates of close to 4.5 percent for people with strong credit and hefty down payments.

Falling interest rates mean Americans could suddenly find billions of extra dollars in their pockets at a time when consumers have sharply cut back on spending in the face of rising unemployment and declining household wealth. But many experts believe that the interest rate cuts alone won't be enough to jump-start the economy.

Source: Associated Press, Alan Zibel, (12/18/08)

Prescription for a Loan and Free Credit Report!

Bad credit can ruin a deal.

Bad credit translates into financing rejections, prohibitively high loan rates, and failed deals. That's why real estate professionals need to educate themselves about the credit system and show prospective buyers the value of repairing their credit, if necessary, in order to qualify for a mortgage.

Unfortunately for borrowers, most credit reports contain inaccurate information. A June 2004 study performed by the U.S. Public Interest Research Group, a consumer advocacy group, showed that 23 percent of consumers had mistakes on their credit reports serious enough to result in the denial of credit. All told, an amazing 79 percent of consumers had some mistake.

Fortunately, consumers' rights are protected under the Fair Credit Reporting Act. The FCRA gives consumers the ability to correct, update, amend, and take action regarding the contents of a credit report. It also guarantees consumers accuracy, fairness, and privacy in their credit reports.

The Act protects consumers only if they take action, however. Credit bureaus report the information they are given by creditors; they don't verify it. If an error occurs, the burden of discovering and correcting it rests on the consumer. Here's what your customers should do before they apply for a mortgage to make sure their credit reports are accurate.

Find out what's in their file. Every U.S. consumer is now entitled to one free credit report annually from each of the three credit bureaus: Experian, Equifax, and TransUnion. The easiest (and free) way to get a copy of your report is to go to the government-mandated Web site Also note that if consumers are denied a mortgage or other credit, the lender must tell them whether information in their credit report played a role in the denial.

Dispute inaccurate information. If your customer determines that something is incorrect on a credit report, the next step is to correct the inaccuracy. If consumers obtained their credit reports at, they can dispute errors online. Another option is to write a letter to all three credit bureaus detailing the dispute. (Some states require one agency to notify the other two, but why risk it?) The letter should include documentation such as a cancelled check showing payment, a discharge from bankruptcy, or the like. Remember, banks typically use the middle of the three credit scores when assessing a loan application. If one report showing a high score is correct but the other two are not, the buyers may still be denied credit or forced into less-favorable terms.

Dispute inaccurate items at the source. Consumers will also want to contact the credit card company or other source of the inaccurate information. For example, if a payment is credited incorrectly, it may be easier to resolve the error by contacting the credit company than a collection agency.

Excise outdated information. By law, credit bureaus are supposed to remove information pertaining to the credit score—such as a late payment or collection—that is more than seven years old. Neutral information such as employment history does not have to be removed since it does not affect credit scores. Consumers should ensure that the credit bureau removes older information since it can still negatively affect a credit score.

Protect credit identity. The Fair Credit Reporting Act makes it a federal crime to knowingly and willfully obtain a person's credit report without consent or under false pretenses. If consumers feel that their credit has been compromised, they can request that a credit agency put a “fraud alert” on their account. Consumers can take an even more aggressive step to protect their credit from identity thieves by paying credit bureaus to put a security freeze on their credit. Consumers can temporarily lift the freeze when they apply for a mortgage.

Ensure that your credit is intact before you begin the buying process this will make it easier for you-and I.

Source: Realtor Magazine, Ritchie, (January 2009)

Tuesday, December 23, 2008

Bear market Definition

A prolonged period in which investment prices fall, accompanied by widespread pessimism. If the period of falling stock prices is short and immediately follows a period of rising stock prices, it is instead called a correction. Bear markets usually occur when the economy is in a recession and unemployment is high, or when inflation is rising quickly. The most famous bear market in U.S. history was the Great Depression of the 1930s. The term "bear" has been used in a financial context since at least the early 18th century. While its origins are unclear, the term may have originated from traders who sold bear skins with the expectations that prices would fall in the future. Opposite of bull market.

Friday, December 19, 2008

6 things to know about the Fed rate cut!

The Federal Reserve on Tuesday cut its federal funds target rate by more than three-quarters of a percentage point to a range of between 0 and .25 percent. The decision signals that Fed Chief Ben Bernanke is more concerned with the rapidly deteriorating economy--which has been mired in a recession since December of last year--than the prospect of stoking inflation. “Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined,” the rate-setting Federal Open Market Committee said in its statement. “Financial markets remain quite strained and credit conditions tight.”

Here’s how the Fed’s actions affect you:

1. Fixed mortgage rates: Today’s rate cut will have little if any impact on 30-year fixed mortgage rates, which are determined by factors that operate largely outside of the Federal Open Market Committee’s reach, says Keith Gumbinger of HSH Associates. “Any change in the rate has little to do with long-term mortgage rates,” he says. But in its statement the Fed said it could expand a recently announced program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac that has already driven mortgage rates down to a very attractive 5.28 percent, according to HSH Associates. It also reiterated that it was looking at the possibility of buying long-term Treasury bonds. Both of these announcements could work to bring rates even lower.

2. Prime rate: The real impact of today's cut will be felt by consumers with products that are tied to the prime rate, a benchmark rate that typically moves in lock step with the federal funds rate. "The only place where you would see a concrete impact at the consumer level would be things that are directly tied to prime," says Mike Larson, a real estate analyst at Weiss Research. Many home-equity lines of credit and certain credit cards with variable interest rates are tied to prime rate. As such, borrowers with these products could see their interest rates decline.

3. Home-equity savings: Home-equity lines of credit averaged 5.5 percent in October but dropped to 5.26 percent in November following the Fed's half-point cut. Gumbinger says he expects average rates on home-equity lines of credit to experience similar declines this time around--but not everyone will be able to take advantage of them. That's because many of the interest rates on these products are already at their minimums and are contractually prohibited to go any lower. So check the terms of your home-equity line of credit to see if you are eligible to cash in on the decline.

4. Target vs. effective: When credit markets are functioning normally, Fed rate cuts reduce banks’ cost of funding, which allows them to widen profit margins and pass along savings to consumers in the form of lower interest rates. But today’s credit conditions have changed all that. Although the Fed’s target rate stood at 1 percent before today’s cut, such funds were actually being traded in the market at much less than that--just 0.18 percent as of yesterday before the Fed’s action. Although the Fed can usually control the effective rate by buying and selling government securities, the credit crisis has eroded its ability to do so. “Any juice that you would get from a funds rate cut in a normally functioning market, you’re not really going to get that here,” Larson says. “It’s not going to lower the banking industry’s cost of funds, because the banking industry’s cost of funds is already below the target rate anyway.” That means that interest rates tied to the federal funds rate won’t decline as much as they otherwise would have.

5. Now what? Nariman Behravesh, chief economist at IHS Global Insight, expects rates to go all the way to zero in a matter of weeks. “The Fed has already cut the federal funds rate to 1 percent and is likely to take it all the way to zero by the end of January,” Behravesh said in a recent report, issued before today’s announcement. “Once the overnight rate is at zero, the Fed may have to engage in ‘quantitative easing’ [direct purchases of long-term Treasuries].” Even if it doesn’t bring rates all the way to zero, the Fed signaled Tuesday that it’s not about to push rates higher anytime soon. “The Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time,” the Fed said in the statement.

6. Expect more unexpectedness. With only less than a quarter of a percentage point left to cut, look for the Fed to get even more creative in its efforts to revive the financial markets. New programs to support different corners of the credit market could certainly be introduced in 2009. “The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity,” the Fed said in the statement.

Source: U.S News, Luke Mullins (December 16, 2008 )

Tenant Leasing Tip #3

Landlord Tip: Your lease agreement should state how many people will be occupying the unit.

Sunday, December 14, 2008

More than half of Modified Loans Delinquent within Six Months!

New data shows that more than half of loans modified in the first quarter of 2008 fell delinquent within six months.

"After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent," said U.S. Comptroller of the Currency John C. Dugan. A report scheduled to be published later this month will show continued increasing delinquencies and foreclosures in process for all first-lien mortgages held by the largest national banks and federally-regulated thrifts, Dugan said. However, new foreclosures decreased by 2.6 percent from the second quarter.

The mortgage metrics report covers nearly 35 million loans worth more than $6.1 trillion, or about 60 percent of all first-lien mortgages in the United States. The quarterly reports are unique in that they are not merely surveys, but instead consist of validated, loan level data using standardized definitions for prime, Alt-A, and subprime mortgages, and standardized definitions for loan modifications.

30-Year Rates at Lowest in 4 Years

Freddie Mac reports a decline in the 30-year fixed mortgage rate to 5.47 percent during the week ended Dec. 11 from 5.53 percent last week and 6.11 percent a year ago.

Some lenders are locking in even lower rates as they build on momentum started when the Federal Reserve announced plans last month to purchase a substantial number of mortgage-backed securities. HSH Associates and Inside Mortgage Finance are reporting interest on 30-year fixed loans at 5.33 percent and 5.09 percent, respectively.

Freddie Mac chief economist Frank Nothaft says mortgage rates also were driven downward by the recession and rising unemployment.

Source: The Washington Post, Dina ElBoghdady (12/12/08)

Tuesday, December 9, 2008

U.S. in Official Recession as of December 2007!

The National Bureau of Economic Research on Monday determined that a peak in economic activity occurred in the U.S. in December 2007, and declared the U.S. economy officially in recession since that time. The December 2007 peak marked the end of the expansion that began in November 2001 and lasted 73 months; the previous expansion of the 1990s lasted 120 months.

A recession, as defined by the National Bureau of Economic Research, is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion. Because a recession is a broad contraction of the economy, not confined to one sector, the National Bureau of Economic Research emphasizes economy-wide measures of economic activity when determining a recession.

"It's more accurate to say that a recession -- the way we use the word -- is a period of diminishing activity rather than diminished activity," the National Bureau of Economic Research said in a prepared statement.

Tenant Leasing Tip #2

Don't be afraid to enforce the lease agreement. You can use a "Notice to comply with lease agreement" form to put your tenants on notice.

Tenant Leasing Tips #1

It's your property. You set the rules! Attach a list of your rules to the lease agreement and have the tenant initial a copy for your files. This will be invaluable if you end up in small claims court.

Mortgage Interest Rate History And a Change for the Best?

Today's economy is very dependent upon mortgage interest rates. Right now the interest rates are very low. This, of course, is good. Today, a 30-year mortgage can be obtained for about 6%, maybe less. At 6%, a $200,000 mortgage for 30 years would result in a monthly payment of $1,199.10.

What would happen if mortgage rates suddenly went up to 10%? Well, this same mortgage would require a monthly payment of $1,755.14. It doesn't take much imagination to see that this would have a negative effect on the overall economy. Someone requiring a $200,000 mortgage to buy a home, would need to be able pay $550 more per month to qualify for the same loan.

To the economy, this is wasted money. If a person was required to come up with $550 more per month to buy the house because the price was that much higher, it would be negated by the fact the seller would have made more money by selling the house.

If the seller happened to be an entrepreneur, this extra money would end up creating more jobs. In any event, the extra money would be put to some use in our economy, even if it were just put into a savings account. However, paying a higher price because interest rates are higher means no one gains anything. This, in itself, would cause an economic slowdown.

However, interest rates are good and have been for quite some time. So, you may ask how do these interest rates compare with other rates throughout history?

Fannie Mae and interest rate stability

In 1938, Fannie Mae was instituted. This put mortgage rates into a particular market. Before this time, mortgage rates varied wildly from lender to lender and between different areas of the country. With Fannie Mae, loans could be sold between different institutions. Having more people involved in a market tends to stabilize the price of the underlying commodity.

Back in 1938, there wasn't a lot of money around. Because of this, mortgage rates were very low, as low as even 3%. In the '40s mortgage rates stayed low in part because during wartime most of the economy was regulated and buying a house was very difficult. So, there wasn't a lot of demand for mortgage money.

The early mortgage rates

In the '50s and right up until the mid '60s mortgage rates hovered around 5% to 5.5%. This is very close to where mortgage rates are now. However, starting in 1971, mortgage rates started to increase. In fact by the late '70s, they had become out of reach. People who didn't enjoy a top credit rating were asked to pay as much as 23% for a mortgage. This of course, was devastating to the overall economy, so much so, a misery index was even created to gauge how bad consumer sentiment was.

Controlling the price of oil is not a new idea

Part of the reason interest rates were skyrocketing during the '70s, was the fact price controls were tied to oil prices. This had a very negative effect on the overall economy. It made gas unavailable to consumers and disrupted the normal American way of life.

Starting in the early '80s, Reagan-omics started interest rates falling once again. This trend, which started in about 1983, has not ended yet. The interest rates of the '90s ranged between 7% and 9%. Since about 2001, they have been between 5% and 7%. All in all, for the last 20 years we've enjoyed moderate interest rates.

Now that we're a closing in on a 50-year low for mortgage rates, it makes us wonder if this downward trend is ending and if mortgage rates will once again head upward. When I think of the possibilities, I must say I am petrified!

Is anybody for a change?

In this presidential election year, I hear many people say they're looking for a change. To me, this means interest rates being low is not what these people are looking for. Perhaps they would like interest rates at 15 to 20%. In their quest for change it would mean they would have to give up on the war against terrorism. This is a war we are winning, but change would mean they're looking to lose it.

Though the economy is no longer screaming along as it did for most of the last 23 years, the economy is not in a recession. In fact, it's not really close. But change would mean a recession. A profound change would mean a depression.

In our current economy the unemployment rate is about 5.2%. Not long ago, full employment was considered an unemployment rate of 6%. Within the last two years the unemployment rate reached an all-time low of 4.5%. However, people are looking for change. Perhaps the German-French style 13% unemployment rate is what they desire!

During the last 20 years, we've made many trade agreements with other countries. This has resulted in lower prices to consumers and lower prices to small businesses. This has been healthy for our economy because it has allowed the small businesses to expand and create. It has also allowed people to save and invest.

Those looking for change want to do away with our trade agreements with other countries. They have bought into the notion that free trade exports jobs. However, without free trade the common PC would cost about $15,000. This would be a change!

In 2003, our income tax rates were lowered. This has been very healthy for our economy. One of the changes some are looking for is to raise those income taxes again.

Worst of all, another one of the changes would be following those who want to put price controls on oil again. This would do the trick! It would indeed, mean change. Are you ready for 23% mortgage rates?

Wednesday, November 26, 2008

Top 10 Most Promising Housing Markets

Housing Predictor, which provides housing forecasts in 250 markets, has identified 10 markets where the regional economies are healthy and have strong potential for increasing prosperity.

These housing markets have bucked the national trend in 2008 and avoided the subprime crisis, the consultancy says.

Whatever the future holds for the housing market as a whole, Housing Predictor forecasts that these cities will continue to see steady, dependable growth.

Top cities and the percentage sales prices have increased so far in 2008.
  • Biloxi, Miss., 4.9 percent

  • Salem, Ore., 4.7 percent

  • Bismarck, N.D., 4.6 percent

  • Spokane, Wash., 4.4 percent

  • Yakima, Wash., 4.1 percent

  • Austin, Texas, 4.0 percent

  • Grand Junction, Colo., 4.0 percent

  • Fargo, N.D., 4.0 percent

  • Mobile, Ala., 3.9 percent

  • Albuquerque, N.M., 3.5 percent

Source: Housing Predictor (11/15/08)

How new bank deposit coverage may affect you

If the beaten-down stock market has got you seeking a haven for your cash, there's some good news.

The financial system bailout legislation enacted last month boosted limits on federal insurance for bank deposits, increasing the amount of cash you can stash in a bank account with every dollar fully insured by the government.

And the Federal Deposit Insurance Corp. has made it easier to structure your accounts in a way that maximizes your total coverage.

Here's a rundown of the changes:

What's different?

Until last month, the FDIC covered deposits of as much as $100,000 per owner per bank. For individual retirement accounts that hold bank deposits, the limit was $250,000 per owner.

The bailout legislation raised the insurance limit on nonretirement accounts to $250,000.

There are tricky but perfectly legal ways to significantly increase that coverage, however, even if you keep all your deposits in a single bank.

How do I raise my coverage?

The FDIC insures accounts based on their ownership status. For instance, you can have an individual account, a joint account, an IRA and a business account. Technically, each account has a different owner. If the accounts are set up properly, each is covered separately under its own insurance cap. Under the old limits, that would mean those four accounts could have as much as $550,000 in coverage (three at $100,000 each and the IRA at $250,000). Under the new limits, that maximum coverage rises to $250,000 per account, or a total of $1 million.

And there's a way to have even more deposits covered -- a whole lot more if you have many people you'd like to leave money to after you die.

What's that about inheritance?

Another form of ownership that the FDIC gives separate coverage to is a trust: an account for which you name one or more beneficiaries who will inherit the money after your death. Under FDIC rules, the account gets an additional $250,000 in coverage for each beneficiary named.

Until recently, the FDIC extended that extra coverage only for beneficiaries who were close relatives, such as a child, grandchild, parent or spouse. Now, the agency says any living person can be a qualified beneficiary.

"So Bill Gates could essentially set up an account, name every person in the country as equal beneficiaries, and his billions would be fully insured," said David Barr, an FDIC spokesman.

What's to stop me from naming all my friends as beneficiaries?

Nothing, if you really want to leave them the money. If you die while the beneficiary designations are in place, the assets in a pay-on-death account will go to the named beneficiaries no matter what other arrangements you might have made in your will.

Do I have to set up a "living trust" to name beneficiaries?

No. Banks can help you set up a simple trust through a "pay on death" account. In some ways, these are preferable to a living trust, with which you might be tempted to do something tricky -- such as give different beneficiaries varying portions of your assets -- that could have an effect on FDIC coverage.

Are these changes permanent?

Yes and no.

The relaxation of the rule governing trusts, which the FDIC did on its own, is permanent.

But the increase in the insurance limit per account owner to $250,000 from $100,000 is temporary. Under the bailout law, the higher caps expire at the end of 2009.

If you decide to take advantage of the higher limits, you'll need to set an alert in your electronic calendar or find another way to remind yourself to restructure your accounts before then.

What about business accounts? I heard a number of small businesses lost money when IndyMac Bank failed because their checking accounts used for payroll exceeded FDIC limits.

That's true. That issue is addressed by new -- but temporary -- FDIC rules. Until the end of 2009, "non-interest-bearing transaction accounts "-- essentially business checking accounts -- get unlimited FDIC coverage.

There are two important caveats, besides the expiration date, however. Banks must pay extra to provide this coverage, so some may opt out. If you want to make sure that your bank is included in the plan, check with the FDIC. The agency is keeping a list on its website of banks that have opted out.

The other caveat is that this extra coverage applies only to accounts that earn no interest. If your business checking account pays even a token amount of interest, it does not qualify.

Do I need to keep documentation to prove my accounts are fully insured?

It shouldn't be necessary, but it's never a bad idea to save the documents you got when you opened an account. These should clearly state the type of ownership on the account, such as individual, joint or pay-on-death. If your bank fails, those papers could come in handy.

What about people who lost money in a recent bank failure because some of their deposits were uninsured? Can they recoup their losses under the new, higher limits?

Unfortunately no. The rules are not retroactive.

Cities you love to hate!

Americans have a love-hate relationship with their largest cities, according to a survey of 2,500 employees and small business owners.

Human Capital Institute, a Washington-D.C.-based human resources think tank, asked employees and entrepreneurs to name the U.S. city where they'd be most eager to relocate.

The winner? New York City.

The loser? New York City.

Survey-takers who liked New York pointed to its entertainment options, readily available transportation and business opportunities. Survey-takers who panned it pointed out its high cost of living.

Here are the rest of the cities on the picks and pan lists. New York isn’t the only city to appear on both. Cities use the information in determining how to market themselves to attract out-of-town workers.

10 Favorite Cities to live and work:
  • New York

  • San Diego

  • San Francisco

  • Las Vegas

  • Los Angeles

  • Seattle

  • Denver

  • Phoenix

  • Chicago

  • Boston

10 Cities Workers Would Like to Avoid:

  • New York

  • Detroit

  • Los Angeles

  • New Orleans

  • Chicago

  • Washington DC

  • Las Vegas

  • Cleveland

  • Dallas

  • Miami

Source:, Prashant Gopal (11/19/2008)

Sunday, November 16, 2008

Modify Your Mortgage Scam...The Latest & Greatest!

How far would people go to get better terms on their mortgage?

Would you feign financial trouble to qualify for a loan-modification plan?

As the government and private lenders face more pressure to aid struggling borrowers in a worsening economy, they’ll inevitably have to deal with the "moral hazard" issue: They may be encouraging applications for help from people who could otherwise scrape by without assistance.

On Tuesday the Treasury announced a new loan-modification effort for mortgages held by Fannie Mae and Freddie Mac, which the government took over in September.

Basically, the plan would reduce a homeowner’s payment to no more than 38% of monthly gross income, by cutting the interest rate, deferring payments or extending the loan term.

To pre-qualify, a homeowner would have to miss at least three loan payments and must still be solvent, at least in theory (i.e., you can’t have filed for bankruptcy protection). Apparently, your loan would have to be for at least 90% of your home’s value.

As usual with these programs, the onus is on the borrower to contact the lender, to see what can be worked out.

Brian Montgomery, assistant secretary of Housing and Urban Development, insisted in a statement that loan modifications under the Fannie Mae/Freddie Mac program "are not a gift." A principal reduction on the front end of a loan, he said, would be repaid at the end of the loan. "This is not loan forgiveness; the loans will be paid, but under terms that are affordable to borrowers."

But if a loan's interest rate is reduced, the loan holder (in this case, Fannie or Freddie, and therefore taxpayers) would be forgiving part of the expected return on the mortgage, unless the interest savings were added to the loan principal.

Is there really a big moral-hazard risk in this plan?

If you believe that many people will try to cheat their way to a modification, you will be interested in the views of the well-known libertarian investment manager, Peter Schiff of Euro Pacific Capital.

Here’s his take, which he sent by email Tuesday:

"By offering to reduce mortgage payments to 38% of household income for home owners who are 90 days delinquent, the mortgage program announced today will spark a new wave of delinquencies. In a classic case of unintended consequences, the plan will encourage homeowners to re-arrange their finances to qualify for the benefit. Those who could conceivably economize to meet their existing obligations will now have a strong reason to forego such sacrifices."

"The intentional reduction of income is also a possibility. In many cases dual income families may decide to eliminate one job altogether as reduced mortgage payments combined with lower child care and other work related expenses, will likely exceed the after-tax value of the lost paycheck."

"It may also be tempting for some homeowners to temporarily quit high-paying jobs, or delay job searches, and accept low-paying jobs while the creditors consider their fate . Once their mortgage payments have been modified to fit their diminished incomes, these homeowners would then be free to pursue better-paying jobs. With mortgage payments reduced to a fraction of their prior payments, these workers will have much more employment flexibility than those foolishly struggling to meet non-modified mortgages."

Way too cynical a view?

And even if some people are going to cheat -- as some obviously did to qualify for their mortgage in the first place -- do lenders really have any choice but to get more aggressive with loan modifications rather than risk an even bigger wave of foreclosures?

2009 FHA Loan Limits Announced

Actually there are three sets of limits, a limit for homes in lower cost areas (the “floor”), limits in “higher-cost” areas and limits for areas outside the continental United States: The limits look like this:


  • One-Unit — $271,050
  • Two-Unit – $347,000
  • Three-Unit — $419,400
  • Four-Unit — $521,250

Higher-Cost Areas

  • One-Unit — $625,500
  • Two-Unit — $800,775
  • Three-Unit — $967,950
  • Four-Unit — $1,202,925

Alaska, Guam, Hawaii and the Virgin Islands

  • One-Unit — $938,250
  • Two-Unit — $1,201,150
  • Three-Unit — $1,451,925
  • Four-Unit — $1,804,375

The FHA loan limits are related to the conventional loan limit which is announced each year by Federal Housing Finance Agency. For 2009 the conventional loan limit will be $417,000, unchanged from 2008.

Which FHA loan limit applies to a property you want to finance or refinance? To answer that question check with a lender. Do not go house hunting until you’re certain which loan limit applies in your situation.

It’s important to check with lenders because the definition of a “high cost” area can change. That is, lenders in a lower-cost area can appeal to HUD to be redefined as a “high cost” housing area and thus qualify for larger FHA loans.

HUD does have an FHA loan limits page online, however borrowers will get far more information from lenders.

Tuesday, November 11, 2008

Tenant Screening Tips #4

When you take an application from a prospective tenant ask to see their drivers license. Make sure the picture is the same person and that the address listed on the license is the same one they wrote on the application. Professional bad tenants have other people rent for them.

Saturday, November 1, 2008

Tenant Screening Tips #3

An anxious tenant needing an apartment NOW is a big RED FLAG. My experience is that tenants needing a place immediately either has recently been evicted or has some personal problems that will only get worse.

Friday, October 31, 2008

Why the Foreclosure Crisis is Hard to Fix

The government has thrown billions at the foreclosure crisis, but as Sheila Bair, head of the Federal Deposit Insurance Corp., told the Senate last week, “There has been some progress, but it’s not enough.”

Until the sweeping foreclosure problem is resolved, mortgage system woes will persist.

Here are five reasons why the foreclosure crisis has proven difficult to fix:

  1. Falling home prices: More than 23 percent of home owners with a mortgage owe more on their loans than their homes are worth. Lenders won’t give new loans to people with negative equity and that leads to owners walking away, causing the lender to foreclose.

  2. Too many investors: More than 30 percent of properties in the foreclosure process are owned by someone who doesn’t live in the property, according to RealtyTrac Inc. Programs that help home owners in trouble are not designed to aid investors.

  3. Complex investments: Nearly all mortgages in the last decade have been packaged into securities and sold. Investors in these securities are hesitant to agree to loan modifications because it will mean a significant loss. U.S. Rep. Barney Frank, D-Mass., has accused hedge fund investors of blocking loan modifications. In a letter summoning hedge fund investors to a hearing, he wrote: "For the hedge fund industry, which has flourished for much of the past decade, to take steps so actively in opposition to what is currently in the national economic interest is deeply troubling.”

  4. Job losses: Unemployment is the main reason people can’t pay their mortgages. As the unemployment rate has risen above 6 percent, the percentage of mortgage delinquencies caused by job loss has risen to 45 percent.

  5. Small modifications don’t work: One third of all subprime loans modified in the third quarter of 2007 were delinquent again within 10 months, according to a Credit Suisse report.

Source: The Associated Press, Alan Zibel (10/27/08)

Saturday, October 25, 2008

Who Says Selling REO Properties Is Easy!

Being a seller of foreclosed properties isn't easy. “It’s more about the numbers, and less about the emotions,” says Michael Krein, president of the National REO Brokers Association.

Real estate pros trying to move foreclosures often must clean out properties that have been abused, pay past-due utility bills, arrange for repair of hard-to-ignore damages, and provide security in lousy neighborhoods.

Despite these issues, selling REO properties isn’t all that lucrative. Commissions are split with the associate who sells the property and after payment of the costs of maintenance and cleanup. Collecting money from slow-paying banks is also part of the job.

Professionals who specialize in these properties make money on volume. For instance, so far this year Christina Lazrak, owner of RE/MAX Prestige in Chelmsford, Mass., and her partner Ann Marie DuRoss, have sold 85 properties worth a total of $16.2 million in the Boston area. For the year, they expect to net less than $100,000 each.

It may not be big bucks or inspiring work, but there are rewards. “We’ve got job security into 2009,” DuRoss says.

Source: Newsweek, Daniel McGinn (10/20/08)

Monday, October 20, 2008

Despite the credit crunch, there's still plenty of mortgage money

Credit squeeze, credit freeze, credit system seizures: Everybody knows how severe and painful the global financial breakdown has been -- with banks unwilling to lend even to other banks.

But what about mortgages? Can you still get a home loan with less than a 20% or 30% down payment? Or with a credit score below 720?
Absolutely. It would be a big stretch to label housing the sunny side of the market at the moment, but there's more light there than in other financial sectors. Consider these facts:
  1. There is no shortage of money available for home mortgages, no freezing of credit to purchase or refinance a house. Why? Because the American mortgage market effectively has been federalized -- at least for the time being.
  2. More than 90% of new loans now are being made through the Federal Housing Administration insurance program, plus Fannie Mae and Freddie Mac. FHA is owned by the federal government, and Fannie and Freddie are operating under federal conservatorship. All three have unfettered access to global capital markets at rock-bottom costs because their borrowings are fully guaranteed by the Treasury. Ginnie Mae, which is FHA's pipeline to the bond market, recorded an all-time high of $29 billion in new mortgage-backed securities issued in August.
  3. Loan terms and credit underwriting standards have been toughened up, but you can still put down 3% (3.5% after Jan. 1) on an FHA-insured mortgage and 5% on certain Fannie Mae and Freddie Mac loan programs with private mortgage insurance. FHA's credit standards are generous and forgiving -- the agency exists to help people with less-than-spotless credit histories.
  4. Fannie and Freddie have raised their credit-score requirements over the last year, but buyers and refinancers with scores in the upper 600s can still qualify for loans carrying reasonable rates and fees.
  5. Despite the global financial system's quakes, mortgage rates not only remain low by historical standards but have actually declined recently. For the week that ended Oct. 8, according to the Mortgage Bankers Assn., 30-year fixed rates fell to an average 5.99%, and 15-year mortgages averaged 5.71%. Freddie Mac said 30-year rates dropped to an average 5.94%.
  6. Maximum loan amounts through FHA, Fannie and Freddie in high-cost local markets on the West and East coasts continue to be $729,750 through December. In January, the maximum is projected to drop to about $625,000.
  7. Home prices -- pushed by foreclosures and short sales -- have rolled back to 2003 and 2004 levels or lower in many former boom markets. As a result, growing numbers of buyers are coming off the sidelines. The pending home sales index jumped by 7.4% based on purchase contracts signed in August, according to the National Assn. of Realtors. The heaviest increases -- pointing to higher closed sales in the coming two to three months -- were in California, Florida, Nevada and the Washington, D.C., area.
Housing and mortgage leaders say consumer worries about the stock market have obscured positive developments underway in real estate, where pricing pain and downsizing have been facts of the life for the last 2 1/2 years.

David G. Kittle, president and chief executive of Principle Wholesale Lending Inc. and incoming chairman of the Mortgage Bankers Assn., says "the mortgage market has never shut down" despite the global financial crisis. Money is "clearly available as long as you can qualify for it."

Bottom line: Scary as the news has been about stocks and banks, this is not the case for mortgages. Besides shopping at large national lenders, home buyers should check with local banks and credit unions, which may be originating loans for their own portfolios -- not for Fannie, Freddie or FHA. Many of them are healthy and have plenty of cash to lend.

Bank of America Will Modify Troubled Loans

Bank of America on Monday said it is launching a "home retention program" on Dec. 1 to modify troubled mortgages for nearly 400,000 customers of Countrywide Financial Corp.

Bank of America acquired Countrywide on July 1.

The program, which can reduce up to $8.4 billion in interest payments and principal, was developed in partnership with state Attorneys General to help borrowers that financed their homes with subprime loans or adjustable rate mortgages.

The goal is to "help as many Countrywide customers as possible stay in their homes," says Barbara Desoer, president, Bank of America Mortgage, Home Equity and Insurance Services.

The centerpiece of the program is a proactive loan modification process to provide relief to borrowers who are seriously delinquent or are likely to become seriously delinquent as a result of rate resets or payment recasts. For more information, visit Bank of America's Web site.

Source: Bank of America

Sunday, October 19, 2008

Cities Where Your Buck Goes Furthest

Money goes further some places in the United States than it does in others.

Housing, in particular, has remained most affordable in the South and the Midwest. That’s because of less stringent building, an abundance of land and growing populations in the South, says Daniel McCue, a research analyst at Harvard’s Joint Center for Housing Studies.

To determine the cities that offer the best quality of life for the least amount of money, Forbes magazine calculated the ratios between a city’s median home price and its median household income. It also factored in projected job growth. And it compared median income to Moody’s’s cost of living index.

Here are the 10 cities that it found to offer the best value, and the cities that it believes offers the worst value.

Cities Where Residents Get the Most for Their Money:
  1. Austin, Texas
  2. San Antonio, Texas
  3. Indianapolis, Ind.
  4. Houston, Texas
  5. Charlotte, N.C.
  6. Columbus, Ohio
  7. Dallas
  8. Minneapolis/St. Paul
  9. Denver
  10. Portland, Ore.
Cities Where Residents Get the Least for Their Money:
  1. Los Angeles
  2. Providence, R.I.
  3. New Orleans
  4. Philadelphia
  5. Cleveland
  6. New York
  7. Milwaukee, Wisc.
  8. St. Louis, Mo.
  9. Washington, D.C.
  10. Sacramento, Calif.
Source: Forbes, Abha Bhattarai (10/10/2008)

Government Takes $250 Billion Stake in Banks

The U.S. Treasury announced plans today to purchase up to $250 billion in preferred stock from the nation's top banks. The move is part of a plan that President Bush says will help prevent recession and preserve the free market.

"Government owning a stake in any private U.S. company is objectionable to most Americans – me included," Treasury Secretary Henry Paulson said in a statement. "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable. When financing isn't available, consumers and businesses shrink their spending, which leads to businesses cutting jobs and even closing up shop."

Nine major financial institutions have already agreed to the voluntary plan. Combined, these institutions will receive $125 billion in capital from the government. The banks are:

  • Goldman Sachs Group Inc.
  • Morgan Stanley
  • J.P. Morgan Chase & Co.
  • Bank of America Corp.
  • Citigroup Inc.
  • Wells Fargo & Co.
  • Bank of New York Mellon
  • State Street Corp.
As part of the voluntary program, the government will buy stock "on attractive terms that protect the taxpayer," according to a joint statement by the Treasury, Federal Reserve, and FDIC.

The shares be non-voting, unless the matter directly affects the government's rights as a shareholder. Banks that agree to be part of the program will accept restrictions on executive compensation while the government is holding the stock.

Paulson said taxpayers should expect a "reasonable return" from the stock and said the government will also receive warrants to buy additional stock from institutions participating in the program.

"The actions today are aimed at restoring confidence in our institutions and markets and repairing their capacity to meet the credit needs of American households and businesses," Federal Reserve Chairman Ben Bernanke said in a statement.

Source: U.S. Treasury, Wall Street Journal

Saturday, October 18, 2008

Tenant Screening Tips #2

When you take their application, tell them you will be checking all references, employment history and credit history...ask them if there will be any problems with that. Listen and don't interrupt them. Silence is a powerful thing, use it.

Sunday, October 12, 2008

Tenant Screening Tips #1

In your initial phone interview, be sure to ask "why" they are moving. If they fumble, stumble or complain about their current landlord, this may be a red flag.

Tuesday, October 7, 2008

I want the Government to Bail Me Out of Foreclosure!

The rescue package for the financial system includes measures designed to stem the rising tide of foreclosures. Here's a look at the specifics.

The $700-billion rescue package for the financial system includes measures designed to stem the rising tide of foreclosures. Here's a look at the specifics.

How does the bailout plan help homeowners facing foreclosure?

The plan provides the Treasury secretary as much as $700 billion to buy troubled mortgages, and securities tied to these mortgages, that are held by banks and other large investors. When these assets come under government control, federal officials are required to "implement a plan that seeks to maximize assistance for homeowners" and use their authority to minimize foreclosures.

Does that differ from what the government and lenders are already doing?

Federal officials have already been encouraging lenders to modify loan terms whenever possible. Mortgage industry experts say most lenders are willing to make modest changes to payment plans to avoid the time and expense of foreclosure but are reluctant to do so if they determine that the borrower lacks the income to make even modified payments or if their losses would be too great.

It sounds as if the plan doesn't do much more for troubled homeowners then.

There are different opinions on that. Steven Adamske, spokesman for the House Financial Services Committee, believes that the government -- by becoming an investor in mortgage-backed securities -- will have new clout to demand that loan servicers modify mortgages. "If servicers are an impediment [to loan workouts] we can take another look at the industry next year and see if there are other actions we can take to remove roadblocks," he said.

Unlike a private investor or lender, "the government is here to help. We want to rebuild neighborhoods from the ground up," Adamske said.

But Paul Leonard, California director of the Center for Responsible Lending, a nonprofit advocacy group, thinks the measure really won't help many homeowners. He believes the only way to ensure people stay in their homes is to allow bankruptcy judges to modify or forgive loan terms in bankruptcy cases, which he said could have prevented 600,000 foreclosures. Such a measure has been opposed by mortgage lenders, who say it would discourage banks from making loans.

How many people are currently facing foreclosure?

Nearly 2 million mortgages are delinquent by 60 days or more, putting them at risk of foreclosure. Industry experts say there have been more than 900,000 foreclosures since 2007.

How are loans modified to prevent foreclosures?

Foreclosure prevention is centered on two programs, both of which have "hope" in their name.

A new federal loan workout program called Hope for Homeowners begins this month, targeting those unable to pay their mortgages. It is for homeowners who bought their homes before 2008 and now have monthly payments exceeding 31% of their income.

Under the program, banks would in many cases write down mortgages to 90% of a home's current value. Such a provision would be important in California, where many recent home buyers have mortgages that now greatly exceed their property values.

The new 30-year fixed-rate loan would be insured by the Federal Housing Administration and could not exceed $550,440.

An existing voluntary effort to prevent foreclosures has been in place since last year. Called Hope Now, the program is a joint effort by lenders, mortgage servicers and nonprofit housing groups to help troubled homeowners renegotiate their mortgages. Through this program, borrowers have been able to defer or reschedule monthly payments or reduce their loan principal.

How will I know whether the government owns my loan?

This has yet to be determined. The Treasury secretary will have 45 days to implement a plan, and presumably these details will become available at that time.

Tom Deutsch, deputy executive director of the American Securitization Forum, a financial industry group, said that in many cases the loan servicer won't change even if the government has taken over a mortgage. You can ask your loan servicer who owns your mortgage, but if the government was one of many investors in a mortgage-backed security into which your loan is packaged, you might not be able to tell.

Deutsch said the government might also set up a method for borrowers to inquire about who holds their loans.

So what should I do if I want assistance?

Consumer advocates say you should first contact your lender to see whether you can adjust the terms to make the payments more affordable.

Monday, October 6, 2008

Government Bailout 101: What the new law says

Here's a rundown of key provisions of the financial rescue plan.

It took two tumultuous weeks of moral and fiscal debate, but Congress and the Bush administration on Friday finally put a capstone on the $700 billion bailout of the financial system.

President Bush signed the bill less than two hours after the plan, which had been amended and passed by the Senate on Wednesday, was approved by the House.

The changes the Senate made include the addition of a host of tax break extensions and some new provisions intended to help individuals and businesses.

Here's a breakdown of some of the economic rescue plan's main provisions:

Attacking credit crisis: The core of the plan the House voted on is the same as what it rejected on Monday: the Treasury's proposal to let financial institutions sell to the government their troubled assets, mostly mortgage-related. It will allow the Treasury access to the $700 billion in stages, with $250 billion being made available immediately.

Protecting taxpayers: The final law is also similar to the original House bill in that it includes a number of provisions that supporters say will protect taxpayers. One will direct the president to propose a bill requiring the financial industry to reimburse taxpayers for any net losses from the program after five years. And the Treasury will be allowed to take ownership stakes in participating companies.

In addition, over time, supporters say, taxpayers are likely to make back much if not all of the money the Treasury uses because it will be investing in assets with underlying value.

The law includes a stipulation that the Treasury set up an insurance program - to be funded with risk-based premiums paid by the industry - to guarantee companies' troubled assets, including mortgage-backed securities, purchased before March 14, 2008.

Curbing executive pay: The law will place curbs on executive pay for companies selling assets or buying insurance from Uncle Sam. For example, any bonus or incentive paid to a senior executive officer for targets met will have to be repaid if it's later proven that earnings or profit statements were inaccurate.

Oversight: The rescue plan will set up two oversight committees.

A Financial Stability Board will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director, the Housing and Urban Development secretary and the Treasury secretary.

A congressional oversight panel, to which the Financial Stability Board will report, will have five members appointed by House and Senate leadership from both parties.

Tax breaks: The Senate-version of the bill that the House passed on Friday included three key tax elements designed to attract House Republican votes.

It extends a number of renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels.

The law also continues a host of other expiring tax breaks. Among them: the research and development credit for businesses and the credit that allows individuals to deduct state and local sales taxes on their federal returns.

In addition, the law includes relief for another year from the Alternative Minimum Tax, without which millions of Americans would have to pay the so-called "income tax for the wealthy."

New accounting rules: The bailout plan underlines the Securities and Exchange Commission's power to change accounting rules on how banks and Wall Street firms value securities, and directs the agency to study the issue.

Some observers argue that tight accounting rules are a major reason for the credit crisis in the first place. Others contend that changing the so-called mark-to-market rules will just bury problems lurking beneath the surface and could further shake investor confidence in the already battered financial sector.

Shielding bank deposits: The law temporarily raises the FDIC insurance cap to $250,000 from $100,000. It allows the FDIC to borrow from the Treasury to cover any losses that might occur as a result of the higher insurance limit.

Federal bank regulators, who first floated the idea to Congress late Tuesday, said that bumping up the insurance limits will help improve liquidity at banks across the country. It may also provide a much-needed dose of confidence for consumers who may be worried about the health of their bank.

The plan will also temporarily increase the level of federal insurance for credit union savings to $250,000.

Mitigating foreclosures: The new law calls on federal agencies to encourage loan servicers to modify mortgages by a number of means - including reducing the principal or interest rate. It also extends a temporary provision that exempts from federal income tax any debt forgiven by a bank to a borrower in a foreclosure.

Cost: The law's tax provisions - the bulk of which come from the addition of tax breaks from other legislation - may reduce federal tax revenue by $110 billion over 10 years, according to estimates from the Joint Committee on Taxation. More than half of that is due to the one-year extension of AMT relief.

The Congressional Budget Office said it cannot estimate the net budget effects of the troubled asset program because of the many unknowns about that piece of the bill. However, the agency noted in a letter to lawmakers on Wednesday, it expects the program "would entail some net budget cost" but that it would be "substantially smaller than $700 billion."

Overall, the CBO said, "the bill as a whole would increase the budget deficit over the next decade."

Friday, October 3, 2008

Bailout Impacts!

The federal government's multi-billion-dollar bailout of bad mortgage debt could be a game-changer for home buyers, sellers and real estate professionals. But how much may not be clear for months, maybe even a year.

In the short term, according to Jay Brinkmann, chief economist for the Mortgage Bankers Association, the government's plan to greatly expand purchases of mortgage backed securities by the Treasury, Fannie Mae and Freddie Mac, should "provide a signal to the market that there's going to be an underlying floor on (interest) rates."

That's because when the Treasury buys mortgage securities -- and it's pledging $10 billion for this month alone, plus lots more to come - it has the effect of pumping fresh capital into the mortgage market, allowing more home loans to be made at more favorable rates.

Now, although rates should remain low, currently they're close to 6 percent for 30-year fixed rate loans on average -- that doesn't mean it'll be easier to qualify for a home purchase if you've got damaged credit or an income too low to pay for what you want to buy.

Those days are over for years to come.

What about the larger economic impacts of the bailout plan? Again, we're at the earliest stages of this whole process, but if the plan brings a sense of stability to the financial markets, then, absolutely, the net effect should be to restore confidence.

And consumer confidence is an essential ingredient for a home buying recovery. People who are worried about the safety of their money market investments and bank deposits aren't good candidates for purchasing houses -- even at rock bottom prices.

But the reverse is true as well: Greater consumer confidence in the financial marketplace -- along with modest interest rates and attractive prices -- could kick the whole cycle into gear and get housing moving again.

There's another factor here too: Without the big bailout plan, hundreds of thousands of financially distressed homeowners were on a non-stop conveyor belt to foreclosure. But when the government takes over mortgage portfolios, it's likely there'll be at least temporary halts to foreclosures and massive efforts to "work out" the terms of delinquent loans to enable owners to make payments at levels they can afford.

For neighborhoods hard hit by foreclosures -- and the distressed owners themselves --that will definitely be a game changer.

President Signs $700 Billion Rescue Bill!

President George W. Bush signed a historic economic rescue bill on Friday, which sets out to revive the U.S. financial system by allowing the federal government to buy up to $700 billion in failed mortgaged from banks and other financial institutions.

The president signed the bill shortly after the U.S. House of Representatives voted 263-171 today to pass the far-reaching legislation.

"This legislation is critical to stopping the economic turmoil that millions of Americans are facing," NAR President Dick Gaylord said in a statement. "Today's action will go a long way toward ending the current economic crisis crippling the housing and financial markets."

The legislation will help restore liquidity to the mortgage market, which will stabilize the housing market and protect home owners, Gaylord said.

President George Bush, along with congressional members, had lobbied throughout the week for the support of spending billions of dollars to buy bad mortgage-related securities from troubled financial institutions, as a way to ease the credit crisis.

The bill was tossed a setback earlier in the week after the House voted it down, which sent stocks plunging 777 points, the biggest single-day drop in U.S. history.

The Senate revived the bill on Wednesday by making changes to the $700 billion measure, which was aimed at garnering more bipartisan support. The revised bill extended bank deposit insurance and expired tax breaks. The Senate passed its version of the bill in a 74-25 vote on Oct. 1.

Earlier in the week, NAR had called on its members to contact Congress to support the bill. NAR also teamed up with eight other business organizations to run an ad in major newspapers across the country that urged Congress to pass the recovery plan.

Source: REALTOR Magazine Online (10/3/08)

Greater Oversight Likely to Accompany Rescue Plan

Once a financial rescue plan is executed, legal and political observers expect Capitol Hill legislators to turn their attention to tightening the regulation of mortgage lending—an especially obvious target due to the fact that so much of the troubled debt handcuffing the nation's banks originated with the lax practices of mortgage brokers and lenders.

In addition, lawmakers may try to overhaul the patchwork of government authority over the nation's banks, which are currently regulated by four agencies with overlapping jurisdictions: the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision, and the Federal Reserve.

Finally, legislators may try to bring unregulated markets, such as those for credit default swaps, under control. The market for credit default swaps alone has mushroomed to $44 trillion in face value, so vast that a problem at any one of the major participants poses a global risk.

Source: Los Angeles Times, Michael A. Hiltzik (09/25/08)

Cities With Most Exposure to Financial Crisis

Wall Street's woes are going to have an impact on communities all over the country.

Not only because the $700 billion bailout will most likely result in higher taxes for most Americans, but because people who work in industries related to the financial sector will be vulnerable as companies make cutbacks.

The financial, insurance, and real estate sectors employ approximately 9.8 million people in the U.S., or nearly 7 percent of the entire American work force.

New York may be the center of the financial market, but people in small cities could feel the downturn even more.

BusinessWeek identified the top-10 communities across the country that are most likely to be most affected by the financial crisis, based on how many people are employed in finance, real estate, and insurance, and leasing.

  • Darien, Conn.: 27.23 percent employed in finance and real estate
  • Bloomington, Ill.: 26.31 percent
  • Hoboken, N.J.: 23.33 percent
  • West Des Moines, Iowa: 22.15 percent
  • Garden City, N.Y.: 20.22 percent
  • Summit, N.J.: 19.74
  • Westport, Conn.: 19.39 percent
  • University Park, Texas: 18.83 percent
  • Wethersfield, Conn.: 18.73 percent
  • Mountain Brook, Ala.: 18.66 percent

Source:Business Week (9/25/08)

Tuesday, September 23, 2008

Cities Where Home Owners Spend the Most

Almost 15 percent of American home owners with a mortgage spend half of their income or more on housing costs, according to 2007 data released Tuesday by the U.S. Census Bureau. That is up from nearly 7.1 million in 2006.

Traditionally, the government and most lenders consider home owners spending 30 percent or more of their income on housing costs to be financially burdened. That definition now covers nearly 38 percent of American home owners with a mortgage – 19 million of them.

Here are the top 13 areas where the most mortgage holders spend more than 30 percent of their income on their homes. The information is an estimate based on an analysis of Census data by Harvard University’s Joint Center for Housing Studies.

  1. Miami-Fort Lauderdale-Miami Beach, 58 percent
  2. Stockton, Calif.,57 percent
  3. Riverside-San Bernardino-Ontario, Calif., 55 percent
  4. Cape Coral-Fort Myers, Fla., 55 percent
  5. Los Angeles-Long Beach-Santa Ana, Calif., 54 percent
  6. Modesto, Calif., 54 percent
  7. San Diego-Carlsbad-San Marcos, Calif., 53 percent
  8. San Francisco-Oakland-Fremont, Calif., 53 percent
  9. Sarasota-Bradenton-Venice, Fla., 52 percent
  10. Oxnard-Thousand Oaks-Ventura, Calif., 52 percent
  11. San Jose-Sunnyvale-Santa Clara, Calif., 51 percent
  12. Las Vegas-Paradise, Nev., 51 percent
  13. Sacramento-Arden-Arcade-Roseville, Calif., 50 percent

Source: The Associated Press, Adrian Sainz and Alan Zibel (09/23/08)

Monday, September 22, 2008

This Is Not the Great Depression

Comparing the current crisis to the Great Depression is just plain wrong, say historians and veteran financial experts.

"The nomenclature of the word 'crisis' has cheapened," says Roy Smith, a professor at New York University's Stern School of Business and former partner at Goldman Sachs .

“The Great Depression had thousands of banks failing and people losing their life savings, 25 percent unemployment and social unrest and tent cities of the poor," says Allan Sloan, Washington Post and Fortune magazine columnist.

"With just 6 percent unemployment, we are having a debate as to whether we are even in a recession," says Richard Sylla, professor of the history of financial institutions and markets at New York University.

Source: Reuters News, Robert MacMillan (09/22/08)

Saturday, September 13, 2008

What is a Tax Lien Certificate?

A tax lien certificate is nothing more than a lien on a property for not paying taxes. Essentially, each and every year owners of real estate have a tax lien (aka financial obligation to pay taxes) placed on their real estate. If the property taxes are paid on time the tax lien is removed. If they are not paid, in due time the county government will allow investors to pay on behalf of the real estate owner. The winning bidder at the public tax lien auction receives a tax lien certificate as proof of purchase. As the owner of the tax lien certificate the investor may expect one of two possible outcomes, 1) An annualized return of 16%, 18%, up to 50% per year on what they paid to obtain the tax lien certificate or 2) Through foreclosure, become the owner of the real estate free and clear of any junior liens (aka mortgages and mechanics liens).

Once you become the owner of the tax lien certificate all you must do is sit back and wait. When the property owner finally decides to pay his tax obligation he / she must pay a visit to the county tax collectors office where he/she will repay what you paid to acquire that tax lien certificate plus interest. At this point the government will contact you, ask you to return the tax lien certificate and upon receipt of the tax lien certificate the government will generate a check in the amount you paid to acquire the tax lien certificate plus interest.

For those of you who are investing in foreclosures, this is another great investment that compliments foreclosures. For those of you that know lien priority you know that property taxes get paid first above everything else, even mortgages. Therefore, tax lien certificates are a very safe investment. So, next time you come across a foreclosure and you run a title report and find unpaid property taxes, you may want to see if you can invest in the certificate. It may be worth your time. The best part about Tax Liens is that they are available in every county in the U.S. The most popular county is Maricopa, in Arizona.

ZIPs Where Property Is Selling Like Hot Cakes!

Altos Research, which tracks real estate data all over the country, identified these ZIP codes in which homes for sale spent the fewest days on the market.

In cases where communities of relatively fast-selling real estate were clustered, the best ZIP Code in the area was chosen.

Overall, expensive homes and big bargains are selling with general ease, says Ken Gold, director of the Center for Real Estate Education and Research at Ohio State University. Meanwhile, homes in middle-income neighborhoods are selling the slowest, he says.

Here's the list of the Top 10 fastest-selling ZIPs:

  1. Sunnyvale, Calif. 94087: 66 days on market
  2. Austin, Texas 78749: 68 days on market
  3. San Diego, Calif. 92131: 70 days on market
  4. Plano, Texas 75075: 75 days on market
  5. Portland, Ore. 97202: 77 days on market
  6. Houston, Texas 77094: 77 days on market
  7. Wakefield, Mass. 01880: 79 days on market
  8. Seattle, Wash. 98117: 86 days on market
  9. Littleton, Colo. 80130: 90 days on market
  10. Atlanta, Ga. 30340: 91 days on market
Source: Business Week, Prashant Gopal (09/05/08)

Friday, September 12, 2008

The shareholder-return machines that were Fanie & Fredie

You wonder why Wall Street will so miss Fannie Mae and Freddie Mac?

In their golden years -- and there were many of them -- Fannie and Freddie generated spectacular returns for their shareholders.

Check out the accompanying chart. It measures the "total returns" of Fannie and Freddie, meaning stock price appreciation plus dividend payments, from the end of 1989 through the end of 2006. I wanted to see how well the stocks performed before the bottom began to fall out of the housing market in 2007.
Freddie was the star: The stock’s total return was 1,536% in the 17-year period, an average of 17.9% a year -- compared with a 475% (10.8% a year) return for the Standard & Poor’s 500 index.
What’s more, Freddie’s return far exceeded the 900% gain of the average financial stock in the S&P 500.
Fannie Mae, with a 909% total return in those 17 years (14.6% a year, on average), performed just slightly better than the average financial stock, but left the S&P 500 in the dust.

The poor Nasdaq composite index could do no better than a 431% return (10.3% a year) in the period, which encompassed both the tech boom of the late-1990s and the bust of 2000-’02.

How did Fannie and Freddie do it? Leverage, of course. On relatively small capital bases the companies dramatically expanded their mortgage portfolios. They could do so because they were able to borrow at such low interest rates, thanks to the implied government guarantee of their debt.

In the boom years the payoffs were great, and they flowed like water to the shareholders -- not to the taxpayer, whose money always stood behind Fannie and Freddie, and who now is being tapped to clean up the mess they helped make in the housing market.

Privatizing gains, socializing losses -- that’s the enduring story of Fannie and Freddie.

Winners and or Losers in the U.S. takeover of Fannie Mae/Freddie Mac

Who wins and who loses under the Treasury’s decision to take control of mortgage titans Fannie Mae and Freddie Mac?

Here’s a quick rundown:

--- Owners of both common and preferred shares in the companies could lose it all, depending on how much capital the government winds up putting into the firms to keep them solvent. The government won’t cancel the common or preferred shares, but all dividend payments on the stocks will be halted.

The Treasury will buy a new class of senior preferred stock from the companies. The shares will pay the government a 10% annualized yield initially and will carry with them warrants representing a potential ownership stake of 79.9% in the companies.

The Treasury could invest as much as $100 billion in each company via the new preferred stock over time. The more stock the government has to buy -- to bolster the companies’ capital cushions against mortgage losses -- the more likely it will be that current common and preferred shareholders will lose everything. But that may not be known for years.

There had been some speculation that the government would preserve the current preferred shares (about $36 billion is outstanding between the two companies), because some banks and thrifts have been big investors in those securities. Those institutions now stand to suffer heavy losses if the preferred shares’ market value plunges further.

Bank regulators said today they would work with banks that are stung by losses on Fannie and Freddie preferred stock to "develop capital-restoration plans." But in the short term, a dive in the value of the companies’ preferred shares could worsen stresses in the financial system by further weakening some banks and thrifts.

--- Holders of Fannie and Freddie’s senior and subordinated debt securities will be protected. Their interest payments will continue. This should ease concerns of private and public investors worldwide who own the debt. In effect, they now own U.S.-government-guaranteed bonds.

--- The Treasury also sought to give peace of mind to owners of the companies’ mortgage-backed securities. The Treasury will begin buying some of those bonds in the open market, seeking to bolster the value of the securities by providing another source of demand.

The Treasury expects its initial purchases of mortgage-backed securities to total $5 billion. The purchases and management of the bonds will be handled by independent asset managers, under contract with the government. (There's a win for Wall Street.)

Because the government expects to earn more on the bonds than its cost of borrowing to buy the securities, "There is no reason to expect taxpayer losses from this program, and it could produce gains," the Treasury said in a statement outlining the plan. But that will depend on the level of defaults and ultimate losses on the home loans backing the bonds that the Treasury buys.

--- The government hopes that its plan will bring down mortgage rates, which have remained elevated over the last year despite the Federal Reserve's deep cuts in short-term interest rates. The average rate on 30-year conventional home loans now is 6.35%, up from 6.07% at the start of the year.

By removing doubts about the solvency of Fannie and Freddie, Treasury Secretary Henry M. Paulson Jr. hopes to make investors feel more confident about buying the companies' mortgage-backed bonds. That could lower Fannie's and Freddie's cost of borrowing, which in turn could allow them to lower the rates they require on home loans purchased from banks and thrifts.

The Treasury said it expected its bond purchases to generate "increased availability and lower cost of mortgage financing." But of course, that will be up to the marketplace.

Tuesday, September 9, 2008

Most Expensive Housing Markets!

Eight out of the top 10 most expensive housing markets in the U.S. are in California, while eight Midwestern cities are among the 10 most affordable, according to the Coldwell Banker Home Price Comparison Index released today.

The study compared the average value of 2,200-square-foot houses with four bedrooms, two and a half baths, and a family room, plus a two-car garage, in 315 U.S. markets.

The results make it easy to conclude that some people pay a lot more than others for the same living space.

The average sales price of the homes that met the survey criteria was $403,738, a drop of 4.4 percent from 2007.

To search in your local area:

The 10 least expensive markets were:

  1. Sioux City, Iowa
  2. Jackson, Mich.
  3. Akron, Ohio
  4. Canton, Ohio
  5. Garyling, Mich.
  6. Minot, N.D.
  7. Arlington, Texas
  8. Muncie, Ind.
  9. Killeen, Texas
  10. Eau Claire, Wisc.

The 10 most expensive markets and their average sales prices were:

  1. La Jolla, Calif.: $1,841,667
  2. Greenwich, Conn.: $1,787,000
  3. Beverly Hills, Calif.: $1777,475
  4. Palo Alto, Calif.: $1,740,333
  5. Santa Monica, Calif.: $1,653,333
  6. Santa Barbara, Calif.: $1,599,667
  7. Newport Beach, Calif.: $1,546,250
  8. San Francisco, Calif.: $1,513,181
  9. Boston, Mass.: $1493,750
  10. San Mateo, Calif.: $1,366,475

Source: The Associated Press, Alex Veiga (09/09/08)