Hey everyone, another start of a terrific week, and I’m ready to go. I have my list of priorities and will be meeting with my team shortly to lay out our goals and objectives for the week. Do you have your plan in place already? Hopefully you’re well into it and have left plenty of room for activities that make you the most profit. Here’s to a good investing week!
July 19, 2010 - This Week’s Topics:
- Sellers Slash Prices, Banks Become Caretakers?
- Patience is a Virtue for Buyers
- Home Buying Applications Hit 13-Year Low
- 1 in 200 Loans Contain False Data
- Commercial Real Estate Showing Faint Pulse
- Cost of Seizing Freddie & Fannie Surges
- Hiring Your Dream Team – Insurance Agents
Sellers Slash Prices, Banks Become Caretakers?
According to Trulia.com, as of July 1, 24% of home sellers have reduced their home asking price at least once. That represents an increase of 9% over June, and $27 billion worth of lost national home equity. The result will be a delay in recovery until sometime in 2011 or 2012. Price stabilization was commonly credited to increased buying activity from the home buyer’s tax credit. The issue now is foreclosures. Bank possessions are on the rise, which means immediate inventory added to the housing market. But while banks hold on to their foreclosure inventory, they may soon have more incentive to dump them as fast as possible in the way of fines. Los Angeles, for one, passed a new city ordinance last week that fines banks, servicers or anyone who owns a foreclosed property up to $100,000 for letting a property fall into disrepair. The city is not going to tolerate run down houses in disrepair with overgrown lawns filled with weeds. Banks don’t want to be homeowners, and they certainly don’t want to incur fines, so any incentives to get rid of them are very welcomed. The problem? Housing starts are at an all time low, with vacancies on the rise. Will more cities follow LA’s lead? We’ll have to wait and see.
Patience is a Virtue for Buyers
I think everyone would agree that it’s a buyer’s market now, with home prices reaching new lows and interest rates at historic levels. But the issue now is that buyers are facing a new set of obstacles. Lenders are imposing new restrictions that are making it very difficult for buyers to obtain financing. The loan approval process is now taking much longer than the couple of days it took five or six years ago. Federal regulators are demanding that documentation be checked much closer to settlement, which can now be delayed for up to two weeks because of these extra hoops. What sorts of things are lenders asking for? Pay stubs (difficult if you’re relocating before starting a new job), credit checks right before settlement and general defensive measures. We’re seeing this impact not only those who are in a position where they have to find a new place to live, and also those who in the past would have traded up, but are now reconsidering and staying put.
Home Buying Applications Hit 13-Year Low
Last week the Mortgage Bankers Association announced that home buying applications hit a 13-year low, despite near record low mortgage rates. Requests for home-buying loans dropped 3.1% in early July, the lowest level since December 1996. Refinancing applications fell 2.9%. The low rates are helping those borrowers with perfect credit to buy and those with equity in their home to refinance. The big hurdles? High unemployment and foreclosure rates, and the concern over falling home prices for buyers. Many are estimating that home prices will continue to fall with single-digit numbers, and that the fall will be the time to see the true story of the ripple effects of the home buyers tax credit. That’s when things should begin to smooth out.
1 in 200 Loans Contain False Data
While fraud risk in the mortgage industry has declined by 25% since the peak in 2007, CoreLogic is reporting that one of every 200 home loans still contains misrepresentations or false data that will result in default. One area of increasing concern is short sales, which has become the preferred foreclosure alternative. Short sale volume from the beginning of 2008 to the end of 2009 increased by more than 300%. This is where one in 200 are classified as “very suspicious” by lenders, meaning there was a new sale transaction less than 60 days after the short sale, and the sale price was more than 20% higher than the short sale price. Income misrepresentation and undisclosed debt were found to be the most common type of fraud, followed by internal fraud. Other high ranking issues include falsification of borrower identify, occupancy and the property itself. While awareness and prevention of fraud is on the rise in the mortgage industry, it remains a major issue. Fraud patterns are changing and being better hidden.
Commercial Real Estate Showing Faint Pulse
Insiders in coastal cities such as New York, Boston, Los Angeles and Seattle are guardedly optimistic about a very weak upturn in the commercial real estate industry. Still mainly confined to the coasts, is this the sign of a national upturn? The debate continues since the middle of the country is not seeing any change yet. David Rifkind, managing partners of an LA-based real estate investment banking firm, contends that credit is opening up and banks are getting off the sidelines for commercial deals. He points to a sale last month by JP Morgan Chase Commercial Mortgage Securities Corp. of a $716.3 million bond backed by commercial mortgages, the second such deal this year and the first to include a portion without an investment-grade rating. In LA, recent commercial sales attracted more than 30 bids. In NY, five transactions have closed for buildings of more than 100,000 square feet, with seven more under contract. High unemployment is still a factor in the recovery. Others content that the bump is actually the result of mergers and acquisitions or consolidations of businesses, and any increase is by no means being felt away from the coasts.
Cost of Seizing Freddie & Fannie Surges
Freddie Mac and Fannie Mae are now two of the nation’s largest landlords – taking over a foreclosed home every 90 seconds during the first three months of the year, and owning 163,828 houses by the end of March. So far, the tab for taxpayers is nearly $146 billion, and growing every day. The final tab is predicted to be nearly $390 billion, according to the Congressional Budget Office. Fannie and Freddie increasingly were channeling money into loans that borrowers could not afford. As defaults mounted, the companies quickly ran low on money to honor their guarantees. The federal government, fearing that investors would stop providing money for new loans, placed the companies in conservatorship and took a 79.9 percent ownership stake, adding its own guarantee that investors would be repaid. The huge and continually rising cost of that decision has spurred national debate about federal subsidies for mortgage lending. Republicans want to sever ties with Fannie and Freddie once the crisis abates. The Obama administration and Congressional Democrats have insisted on postponing the argument until after the midterm elections. In the meantime, Fannie and Freddie are editing the results of the housing boom at public expense, removing owners who cannot afford their homes, reselling the houses at much lower prices and financing mortgage loans for the new owners.
Hiring Your Dream Team – Insurance Agents
Many real estate investors often overlook the importance of selecting a knowledgeable and experienced insurance agent to advise them on appropriate insurance coverage they need to protect their business and themselves. Here are some qualifying questions that you need to ask:
1.) How many insurance carriers that you are an agent for offer or sell coverage for vacant properties or rental homes?
2.) What percentage of your customers have investment/rental property?
3.) What type of insurance is best for this particular property that I have?
4.) How many investment/rental houses can I add to my existing homeowner’s policy?
5.) Do you have a blanket policy that would cover houses I buy and sell, as well as those that I might keep in a rental pool?
6.) What about a separate business liability policy?
7.) Since I use several entities, can they be named as insured's?
These are just a few of the questions to ask. Remember, this person will be assisting you in protecting all your assets and making sure that if something goes wrong, the insurance company is your first line of defense.
Hope your week is filled with real estate investing success.
Until next time… ~Josh
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