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: http://idx.diversesolutions.com/MLS/SoCal/Agents/ptorredw

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)

Sunday, September 7, 2008

Atlanta Named Best City for Singles

Forbes magazine has for the eighth year rated the nation’s largest urban areas in terms of how friendly they are to the country’s 74 million single adults.

To determine which U.S. cities are most comfortable for soloists, the magazine ranked the 40 largest urbanized areas in seven different categories: number of singles, nightlife, culture, cost of living alone, job growth, online dating activity and coolness.

Coolness was the most subjective factor. It was determined by a Harris poll, which asked singles to answer the question: “Which city do you think is the coolest?”

This year’s top 10 cities for singles are:

  1. Atlanta
  2. San Francisco
  3. Dallas
  4. Minneapolis
  5. Washington D.C.
  6. Seattle
  7. Boston
  8. New York City
  9. Orlando
  10. Phoenix

Sources: Forbes, Elizabeth Eaves (09/04/2008)

Saturday, September 6, 2008

Real Property Assessments

State law mandates that all property is subject to taxation unless otherwise exempted. Your property taxes support necessary services provided to the residents of Los Angeles County. These include law enforcement, fire protection, education, parks and recreation, and other vital services.

Property taxes are based on the assessed value of your property. Property tax bills show land and improvement values. Improvements include all assessable buildings and structures on the land. It does not necessarily mean that you have recently “improved” your property.

In general, properties that are owned and used by educational, charitable, religious or government organizations may be exempt from certain property taxes. You may also qualify for certain exemptions.

What Does the Assessor Do?

The Office of the Assessor has the following four primary responsibilities:
  1. To locate all taxable property in the County and identify ownership.
  2. To establish a taxable value for all property subject to property taxation.
  3. To complete an assessment roll showing the assessed values of all property.
  4. To apply all legal exemptions.

Proposition 13

In 1978, California voters passed Proposition 13, which substantially reduced property tax rates. As a result, the maximum levy cannot exceed 1% of a property’s assessed value (plus bonded indebtedness and direct assessment taxes). Increases in assessed value are limited to 2% annually. Only four events can cause a reappraisal:
  1. A change in ownership;
  2. Completed new construction;
  3. New construction partially completed on the lien date (January 1); or
  4. A decline-in-value (see Market Value Decline - Prop. 8).

Change in Ownership Appraisals

When a publicly recorded transfer occurs, the Assessor receives a copy of the deed and determines whether a reappraisal is required under State law. If required, an appraisal is made to determine the new market value of the property.

Upon notification of the new assessment, the property owner has the right to appeal the value if he/she does not agree with it.

The transfer of property between husband and wife does not cause a reappraisal for property tax purposes. This includes transfers resulting from divorce or death. Also, the addition of joint tenants, whether related or not, does not result in a reappraisal. In most cases, transfers by irrevocable trusts are reappraisable. For more information on changes of ownership that are excluded from reappraisal, click here.
New Construction Appraisals
Copies of building permits are also sent to the Assessor. New buildings, additions, and other structures require an appraisal. Structural repairs and/or replacement are not appraisable in most situations.

The value of new construction is added to the existing improvement assessed value. The new assessed value will not change except for the annual inflation adjustment of up to 2%. As with all newly assessed values, the property owner has the right to appeal the value.

Supplemental Assessments - SB 813

State law requires the Assessor to reappraise property upon change in ownership or completion of new construction. The supplemental assessment reflects the difference between the new value and the old value. The Auditor-Controller calculates the supplemental property tax, and prorates it, based upon the number of months remaining in the fiscal year in which the event occurred. The fiscal year runs from July 1 through June 30.

A change in ownership or new construction completion which occurs between January 1 and May 31 results in two supplemental assessments and two supplemental tax bills. The first supplemental bill is for the remainder of the fiscal year in which the event occurred. The second supplemental bill is for the subsequent fiscal year.

Notices of Assessed Value Change are mailed to property owners before supplemental tax bills are issued.

Remember that supplemental tax bills are in addition to the regular annual tax bills. Supplemental bills go directly to the property owner, and not to an impound account - where one might exist.

For an estimate of your supplemental taxes resulting from a change in ownership, click here.

Thursday, September 4, 2008

I need help with my Mortgage!

Questions and answers about the Hope for Homeowners Act of 2008, passed by Congress to try to steer as many as 400,000 struggling homeowners away from foreclosure:

What exactly will the legislation do?

It will allow those who qualify to cancel their old mortgage loans and replace them with 30-year fixed-rate loans for up to 90 percent of the home's current value. The Federal Housing Administration will insure a total of $300 billion of the loans over a three-year period.
But the decision on whether to write such a loan remains up to banks, which would have to be willing to take a loss on the existing loans in exchange for avoiding an often-costly foreclosure.

Who is eligible?

Eligible borrowers must have spent more than 31 percent of their monthly incomes on their mortgages as of March 1, 2008. The troubled loan must have originated no later than Jan. 1, 2008, and be on the borrower's primary residence. And the borrower's income must be verified.

When does the program start?

It takes effect Oct. 1 and runs through September 2011, although the FHA isn't likely to have it operating at full capacity until next year.

Since lenders can pick and choose which loans to refinance, how can consumers determine if theirs will be selected?

Check with the bank or financial company servicing your mortgage, but it may be weeks before they make decisions concerning the new guidelines and assess individual loans.

Even then, keep expectations limited.

"Servicers are going to be reluctant to take the government up on their offer," predicted Mark Zandi, chief economist at Moody's Economy.com. "The earliest they'll start taking them up on it is early next year. And even then it's likely to be modest."

Is there anything a homeowner can do to improve chances of benefiting from the program, such as crunching numbers to make a case for the bank?

Not really. The best step is to keep up your payments as best you can.

But doesn't this provide an incentive to NOT pay your mortgage, if you're barely keeping ahead of bills and are underwater on your house, so you can qualify?

No. If your situation deteriorates enough, the bank may reject any possible new loan.

"Turning yourself into a financial basket case is not going to work," said Dan Seiver, a finance professor at San Diego State University. "If you turn into a complete deadbeat, the servicer is going to just foreclose and dump it."

So what should I be doing now besides trying to keep up with payments?

Talk to a local credit counselor and call the toll-free hot line of the Hope Now alliance — an industry group trying to coordinate a response to the mortgage crisis — at 888-995-HOPE. It is available 24 hours a day to provide mortgage counseling in multiple languages.

Mary Thomason, director of resource development for The Impact Group of Atlanta, a housing counseling group, also suggests tracking expenses and income closely in order to be able to forecast your cash flow for the next six months and give yourself better control of your finances.

If the banks and lenders refuse to write these loans, then what?

Public and political pressure may prompt them to participate. If not, and more people continue to lose their homes, Zandi says the next White House administration subject them to additional regulations or investigations if they remain unwilling to take on the risks.

What happens if I'm able to sell my home after I refinance?

If you sell during the next five years, you must agree to share 50 percent of any profits from the resale with the government. What's more, homeowners can only retain equity gains based on a sliding scale. The homeowner would have zero equity from a sale in the first year, with the amount rising 10 percent in each succeeding year and capping at 50 percent from a sale in year five and thereafter.

The equity must be repaid because the maximum amount on the new loans will be capped at 90 percent of the current market value, which automatically gives the previously troubled homeowner 10 percent equity in the home.

Where can consumers find more detailed information about the plan?