Treasury Department’s Bailout Working?

Most believe it’s unlikely that Paulson will tap the TARP again, for his next $350 billion installment, as the Obama Administration will likely oversee the next deployment. But he’s done with buying bad loans, and it is highly unlikely that idea will come to the table again.  He thinks the market conditions have changed, and his proposal to buy illiquid mortgage backed securities, or collateralized debt obligations, is history.  Gone.  Outta here.  No more.

 

What the heck does this mean?

 

A lot.

 

You see, some of our clients who were short sale listings were calling

 us wondering what to do … and loss mitigators seemed to be dragging

 their feet in the last month, all believing that Uncle Sam was coming to

 the rescue and would ultimately be off the hook.  Instead, Treasury

 injected capital into the banks themselves, to shore them up, but it did

 an about-face and decided not to use the cash to buy up all the

 mortgage backed securities.  As I noted before, even if they had, it didn’t

 mean the government was actually buying the foreclosed house–they were

 just buying the underlying security. It is also called a derivative.

 

So, again, what does all this mean?  It means that we’re back to

 business as usual, and the banks now understand it.  You’re going to hear

 more from the banks now about loan modifications, because frankly the

 banks need to do everything they can to keep people that want to keep their

 house in it.  But these proposed loan modifications won’t even really

 make a dent in the problem.

 

Why, you ask?   Folks think about it.  How much time does it take to

 negotiate a 2nd lien holder away, or to deal with a condo association

 that has back dues?  The proposals by the government for “refinancing” are

 ridiculous because they are essentially short sales–but rather than

 selling, they are refinancing.  But the same amount of work has to go

 into it!  And guess what?  The government is going to compensate the

 lender with a whopping $800 fee for doing so.   After they take their cut

 the loan office gets $400.  

 

Would you do a short sale for $400?  We both know the answer to that. 

 

So as I said eariler, the only way out of this foreclosure mess is to

 stimulate demand.  We need tax credits, and we need them NOW. We actually needed them yesterday.  We need downpayment assistance for qualified borrowers. These maybe available with grants from non-profits.  We need the government to come in and either buy down the rate or give guarantees that will drive interest rates lower.

 

That’s how we’re going to stop foreclosures: they will end when demand

 is back, which means that housing prices will stabilize and people will

 understand that there might be equity yet in their home.

 

So what is my challenge to everyone?  Get real about short sales.  Get

 real about REOs.  Get real about distressed properties.  They are here

 to stay.  This is when you will make your money!  This is the moment.

  This is the time.  Don’t read the nasty headlines out there … you can do this, and you can profit!

California Home Sales Surge in September

SAN FRANCISCO (Reuters) – Southern California home sales soared nearly 65 percent in September from a year earlier as bargain hunters seized on the region’s glut of foreclosures and depressed real estate prices, according to a report released on Monday by MDA DataQuick.

read more | digg story

Whatever happened with Economic StimulUS package?

At the beginning of the 2008 year, we as Americans were intrigued about an economic stimulus package that was issued by the US Treasury under President Bush’s plan to spur the slowing economy. Many of you received either $600 or $1200 checks. My best guess was that many hard working Americans ended up paying down some of that large credit card debt that most of us have or just putting it in one of the many banks that have failed in the recent months.

Unfortunately, the only group that seemed to benefit from the government’s stimulus package was the credit card companies.  Most Americans have more than $5000 in revolving credit card debt, and the average credit rate is far above the current prime rate of about 6%.  What’s even worse is that many people in this great country of ours are glad to receive help from the government, thinking that it’s the government’s job to take care of all of us.  If that were the case, we would have lower mortality rates, less people living in poverty and everyone receiving the health care we should all have.

But how did that package affect the real estate market or even the economy as a whole?  In the recent months we have all seen the headlines of “Largest Bank failure in US History” describing the failure of Downey Savings and Loan earlier this year. We also saw Bear Stearns investment bank shares go from the price of $160 last year to $2 and getting bought by JP Morgan Chase bank, which also just acquired the deposits of Washington Mutual. This makes JP Morgan Chase Bank one of the most powerful and longest running banks in the world today.

Yet I still see many foreclosures and bank failures or buyout or whatever you want to call it, in the future. Whether it’s a hostile takeover, or just another buyout, which I feel is the same thing, I think that we have yet to see the bottom of this real estate market.

How Speculators Are Causing the Cost of Living to Skyrocket

After investing in high-tech stocks and real estate loans for years, legions of speculators have now discovered commodities like oil and gas, wheat and rice. Their huge investments are pushing prices up to unprecedented levels — with serious consequences for ordinary people’s quality of life and the global economy.

read more | digg story

Good Contractor Recommendations

There has been a lot of discussion on the blog concerning finding quality contractors.  Since the slowing of the home loan market, there are many contractors looking for house remodels becuase they cannot find work on new developments.

Since some of the readers seem to have experience or opinions about where to find good contractors.  This is an open call for people to comment with information on good contractors.  If you have had work you like please post a comment.

Please include the following:

• Name or Company
• Location
• What type of work they do
• Timely, Costly
• Contact Information, if you have it.

Thanks.  – Adam

Now Is The Time To Upgrade for Long Term Homeowners

The current market trends are holding pretty tight for first-time homeowners who want to try to get into home ownership, but for long-time home owners, it is time to consider upgrading the size or quality of your home.

Right now the housing prices have hit a plateau.  There not going to go much lower.  Also, the ability to qualify for loans is going to be difficult for everyone but the seasoned homeowner.  If you are sitting on 5 or 6 years of payments into your equity, it might be time to use that money as a down payment on a larger property.

For Example.  If you bought a home in 2000 for $500,000 (10% down), it might have reached $1.2 Million in 2006 and may be $1 million currently.  You have probably paid $3,000 monthly for 90 or so months ($270,000).  Assuming you have an 30 year loan with a 6% fixed rate you have paid down about $50,000 off of the note, but the house’s increase in value is still $500,000 above the purchase price.  If you chose to sell your current home and put $550,000 down on a $1.5 million dollar property, you would be sitting on another $500,000 in equity growth in the next 8-10 years.  That means that the $2 million home that is out of your price range might be affordable right now.

Keep in mind that depending on your interest rate, you might be looking at a $1000-$2000 increase in your payments and you should only upgrade if you can afford those larger monthly mortgage payments.

The best opportunity to recieve the most bang for your credit will be right now (well, for the next 12 months or so).  The economy is probably going to remain slow for another 24 months.  Once the recession passes, banks will be able to open up their lending requirements and homes will become more expensive as Real Estate returns to a seller’s market.

Rental Market Becoming Advantagous for the Renters

The home market changes have had an interesting side effect:  Changes in the rental market.

Change 1:  The Rental Market has More Renters

Even though the prices have decreased since the bubble’s burst the anks have not loosened up their loan qualifications.  This means that there are many homes sitting on the market worth less money, maybe even in the average family’s range, that cannot find qualified buyers.

These buyers now must turn to rentals to find their Valley Homes.

Change 2:  The Rents Are Cheaper

The market is now flooded with rentals that banks, brokers and other investors need to sell.  They are losing money for each day they have unsold homes.  In order to cut their losses, they are renting these refurbished homes.   Unforntunately for them, since they are competing with “lower-tier” quality homes, they are forced to rent for a lower price.

Change 3:  The Houses Are Nicer

With all of these owners fighting for the best renters, a good FICA score renter will be able to move into a higher quality home than normal.  At least as long as the banks keep these renters out of houses.

California’s Prop 98 Improves Eminent Domain

(Photo Courtesy Matsuda Yukihiro)

The summary of Proposition 98 according to the California Secretary of State’s Website:

Bars state and local governments from condemning or damaging private property for private uses. Prohibits rent control and similar measures. Prohibits deference to government in property rights cases. Defines “just compensation.” Requires an award of attorneys fees and costs if a property owner obtains a judgment for more than the amount offered by the government. Requires government to offer to original owner of condemned property the right to repurchase property at condemned price when property is put to substantially different use than was publicly stated.

I think that most reasonable people will agree that limits to eminent domain are a necessary as governments are finding it easy to transfer properties from long-time small business owners to large corporations to guarantee larger tax revenues. Most of the controversy surrounding Proposition 98 involve the rent control issue.

When most people think of rent control, they conjure up images of old ladies living in Santa Monica. The reality is that most of the people benefiting from rent control are those with the means to afford higher rent, but that are smart enough to live within high-demand rent control communities. Also, the language of Proposition specifically states:

“any statute, charter provision, ordinance, or regulation by a public agency enacted prior to January 1,2007, that limits the price a rental property owner may charge a tenant to occupy a residential rental unit (“unit”) or mobile home space (“space”) may remain in effect as to such unit or space after the effective date for so long as, but only so long as, at least one of the tenants of such unit or space as of the effective date (“qualified tenant”) continues to live in such unit or space as his or her principal place of residence.”

That means that no one can be affected by the change to rent control until they move out of there current home. Anyone who currently lives under rent control will still be protected, only those with new rental agreements will no longer be subject to them.

Obviously I support Prop 98. Whether or not you support it, please vote June 3.

Foreclosure Basics

Foreclosure is a legal process by which a bank will claim a home after a borrower (homeowner) fails to make regular payments on their debt. This period of non-payment is called default. Foreclosure occurs often in California due to the expensive prices of homes. More recently, foreclosures have been a problem since the prices of homes in the San Fernando Valley have been experiencing a “correction”, meaning that the price of home is not steadily increasing as it had been for many years. If you are a homeowner in default or in foreclosure, here are a few steps you might want to consider.

1. Sell your home.

If you are in default, or “pre-default” (where you have not reached default but are unable to make your payments), you might have time to sell your home. This will require two variables to be correct. First, you have to have equity in the house. If the home cannot sell for the amount of money that you owe, you cannot sell at market value or you will not receive enough money to pay off the bank. Second, you need to have money to invest in upgrades. Retail home sales wil require new paint, carpet and fixtures for starters. If you don’t have the money to invest in making the sale, don’t bother.

2 . Rent or Lease Option the House.

If you lease option the house, you can charge up to %25 more than the current market rental price, because you are offering to let the tenants buy the house. You might also be able to use the option consideration to pay for the payments to the bank of which you are behind.

3. Sign your deed over to an investor.

This is your last resort, but definitely better than a bankruptcy. An investor will have the money needed to fix up the house and make it ready for sale on the market. They also have the experience in selling houses fast. You will have to accept less than you would like for the property, but it should be enough for the investor to generate a profit, otherwise, they have no incentive to help you.

Whatever you decide to do with your home, be sure to do something… anything. Many homeowners ignore the notices and delay the inevitable, especially when they had ample time to fix their situation.

(Photo Courtesy bafunding)

Easy Loans for San Fernando Valley Residents

I have found this new site called Prosper. Basically what they do is allow people to apply for loans and allow others to contibute as much as they can ($50 minimum) to borrowers. They call it community loans, and I think this is going to be the new trend in investing. I have started a group called the San Fernando Valley Borrowers. The more members that we have, the better the chances that someone who is looking for a loan to remodel, rehab or anything else will get financed. Also, the better our group’s rating the better the interest rates of our borrowers. Join the group today, you don’t have to borrow money to join.

(Photo Courtesy questcorporateservices)