In a story recently reported by Reuters, rumors are running wild from Washington to Wall Street. The Obama administration is allegedly about to order Fannie Mae and Freddie Mac, both placed under government control in 2009, to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth.
An estimated 15 million mortgages in the United States - about one in five - are underwater with approximately $800 BILLION in negative equity. While fiscally conservative members of the House and Senate are sure to condemn yet another huge government expenditure, the White House is gambling that more Americans will be grateful for the relief than offended by the use of their tax dollars to pay down someone else’s mortgage.
If you’re among those Americans who think this isn’t such a great idea, the biggest slap-in-the-face is that much of this mortgage assistance is being targeted towards the politically important states of Arizona, California, Florida, Oregon, Michigan, North Carolina, Nevada, Rhode Island, and South Carolina. And oh, by the way, these funds should be available just in time to influence the November elections.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
In a prior newsletter, I mentioned that many homeowners throughout the United States are struggling with their mortgage payments or facing foreclosure. Out of desperation, many of these homeowners have applied for loan modifications or have sought the help of some questionable modification companies and attorneys.
The problem is only a small percentage of homeowners are qualifying for these alternatives! Despite the programs put forth by the White House and lenders, the criterion for help is so restrictive, it’s determined that most homeowners are making too much income - or not enough!
In an effort to educate homeowners on the legitimate options available to them, Fannie Mae created www.KnowYourOptions.com. This website is a valuable resource that can help homeowners cut through all of the misinformation being broadcast by the White House and by less than reputable modification “specialists.”
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
If necessity is the mother of invention, then Collateral Based Lending is certainly one solution for those borrowers unable to obtain mortgage financing.
In this current lending environment, many borrowers are looking to cash out of their homes, but are unable to obtain it. They’re realizing they have less equity than they thought and are possibly even “under water.” They might have credit issues that prevent them from qualifying. Or they’ve found that the “No Income Verification” mortgages they need are no longer available. (By the way, I’m still closing “No Income Check” mortgages with my lenders.)
What is a borrower in need of cash to do?
A Collateral Based Loan might be the solution. In truth, Collateral Based Lending is not a new concept; simply a product that had fallen out of vogue over the past two decades. As the name implies, Collateral Based Loans are secured solely by assets owned by the borrower. Loan amounts can range from $20,000 to $2,000,000 and the loans can be secured by:
Publicly traded stock or bonds
Precious metals or stones
Fine watches or jewelry
Exotic cars, planes, or yachts
Art or other collectables
In certain circumstances, funds can even be secured against the future appreciation of your home!
With Collateral Based Lending, qualifying is much easier!
There are no credit checks required.
Income and employment are not verified.
Qualifying is strictly based on the value of the assets and the loan-to-value.
Interest rates are dependent on the size of the loan, the asset used to collateralize, and the loan-to-value. However, these rates are typically competitive with mortgage rates for similar sized loans.
These loans can be used for any purpose, including saving your home from foreclosure. And the closing process is measured in days, not months.
Like any other financial instrument, Asset Based Loans are not appropriate for everyone. However, for the right borrower, they can be the answer to their prayers.
If you would like more information, please contact me. We can discus your needs, analyze your financial picture, and determine the appropriate lending solution for your situation.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
My practice is based exclusively on referrals. Realtors, attorneys, CPAs, financial advisors, and of course, prior clients, refer to me with complete confidence that their friends, family, and clients will be treated with respect, receive the right advice, will secure a competitive rate, and most importantly, they will close.
Yet some borrowers don’t initially appreciate the value of working with a Mortgage Planner like myself. They rhetorically ask, “Why would I have a problem going to my bank for a mortgage?” The answer is frequently wasted time, poor advice, lost investment opportunities, and tens of thousands of dollars in additional costs over the life of their loans.
Some Recent Examples:
Scenario: Borrower is purchasing a $1.6M condo in NYC and applying for a $400K mortgage. His income and credit are excellent, and he has significant investments at “his bank.” Why wouldn’t they approve him? Problem: Although he plans to eventually use this condo as his primary residence, he already owns a coop and isn’t planning on selling it for many months. I told him that “his bank” will view this as an investment property and based on their guidelines, deny the loan. I had a solution that worked for him. Never the less, he applied with “his bank” anyway. Result: His loan was denied and the self-serving “mortgage salesperson” at his bank convinced him to “cash out” the needed funds by refinancing his coop instead. Consequences: When he sold his coop and paid off the mortgage, he eliminated his mortgage deduction. Because this borrower received the wrong advice, any mortgage on his new condo would never be tax deductable. By not heeding my advice, he’s now paying tens of thousands of dollars in extra income taxes that could easily have been avoided.
Scenario: First time buyers are purchasing a $444K home and putting 20% down. They had good income, credit, and assets. His wife worked for a “community bank” and felt they would receive VIP treatment and an easy loan approval. Problem: I informed them this “community bank” followed strict Fannie Mae guidelines. Due to a subtle issue I picked up on regarding the property, this bank’s strict interpretation of the guidelines would result in a loan denial. These buyers applied with their community bank anyway. Result: Five weeks later, they were back. My predictions proved accurate. But with my help and guidance, they closed with big smiles on their faces. Consequenses: Buyers, sellers, and realtors unnecessarily stressed out because of a loan denial that never should have been.
Scenario: Borrower is buying a home for $990K and wants a$500K mortgage. He has great credit and millions of dollars invested with a large, well known bank. He enjoys a private banking relationship with this bank and believes they will bend over backwards for him. Problem: Upon reviewing his documents, I noticed that, although his total compensation was about the same as prior years, his company had recently changed the way he was paid. I explained to him that, private banking relationship or not, “his bank” would not count all of his income and would deny his loan. However, I had another solution. He didn’t believe me and applied to his bank. Result: His “private banker” assured him, “No problem!” Weeks went by. No updates. The borrower called his bank numerous times and was told, “Everything’s fine! I’ll call you next week.” His calls were never returned. Weeks turned into months. He learned of his loan denial not from a call from his private banker, but from a form letter in the mail. Consequenses: He lost the house, lost face with his realtor, lost confidence in his private banker, and wasted a few thousand dollars on attorney, property inspection, and appraisal fees. However, when he found another property, he took my advice and worked with me. Sixty days later, he was the happy owner of a new home.
Despite the new banking regulations and mortgage shakedowns, the big banks still employ slick-talking and barely-competent mortgage salespeople, still saying anything to get the business…and still failing to deliver.
Who will review your financial situation, uncover potential issues, and address them before they become large problems at a bank? Why would you entrust the largest investment of your life to anyone but the most competent and qualified Mortgage Planner? And guess what? The rates and fees you’ll receive are probably about the same as if you went to “your bank.” The big difference? Your loan will actually CLOSE.
In this crazy lending environment, it’s critical that you work with the right people who know what they’re doing and can get the job done. Working together, we can ensure that your transaction goes smoothly and stress-free.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
Most of the phone calls I make telling a potential borrower that they do not qualify aren’t fun. In fact, none of them are. Refinancing a mortgage has a major financial impact for borrowers, and when that it isn’t possible, the conversation usually turns towards Modification. I have consulted several people on this topic that have resulted in a positive outcome. Here is what I know:
Some local, portfolio lenders MAY adjust your rate by filling out a form. But if your loan is held by Fannie, Freddie, or a large bank, they won’t adjust just by asking. You need the following:
First, you must be delinquent. Next, you must be able to show that you have cash flow. Why would a bank reduce the mortgage if you can’t even pay that? For example, if you used to bring in $8,000 per month, and now bring in $5,000 per month, the lender will formulate what your new affordable payment would be, and they work off of that. What is your house worth? If that value has dropped, then they will take that into account.
Most important, get the right advice. Do your research…and look out for the scam artists that prey on people’s misfortune.
Over the years, I’ve had several deals that where “transactional”, the client was very specific on what he/she wanted and was not interested in my advice or guidance. The client also negotiated very hard on the fees and rate. Some of those loans closed, and others I passed on due to the over-negotiation of the client.
Lately I’ve been calling all my past clients to show them the savings they can obtain by refinancing with today’s low rates. My “deal of choice” right now is going from a 30 to a 20 year loan, the amount of savings over time is substantial. This is where the RELATIONSHIP comes into play. We save the client on closing fee’s, we absorb what we can based on the repetitive business, and we work on smaller margins as our way of saying “thank you”.
My point is that when you work someone that is a broker, banker, agent, or advisor, work the relationship, not the transaction. Those with integrity that put your best interest first will prove over time that maintaing a win-win relationship will always prove beneficial over time. I have very happy clients right now, and that is the goal.
On June 18th , The Wall Street Journal published an article written by Alan Greenspan, entitled, U.S. Debt and the Greece Analogy. Don’t be fooled by today’s low interest rates. The Government could very quickly discover the limits of its borrowing capacity.
In the article, Greenspan said low interest rates give the misleading perception that the U.S. has a large capacity to borrow. “The present low inflation and low rate environment has fostered a sense of complacency that can have dire consequences. (i.e. – The Greece analogy.)” He continues that only politically toxic budget cuts and/or significant inflation – meaning higher interest rates – can close the deficit. (He added that tax increases would only sap economic growth.)
Greenspan predicts, “Low long-term interest rates could continue for months, or even well into next year. But just as easily, long-term rate increases can emerge with unexpected suddenness. Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose by almost four percentage points.”
Mr. Greenspan’s sobering comments should not be taken lightly. The bottom line is that there are no fundamental reasons why mortgage rates should remain as low as they are. A “perfect storm” of factors has come together making for an incredibly low rate opportunity. But it won’t last long and can change very quickly.
If refinancing is on your mind, CONTACT ME NOW to determine if it makes fiscal sense. And if you’re thinking of buying a home, I can’t imagine the opportunities being better than now. Call me to review your qualifications and obtain a referral to a superior realtor who can make it happen for you.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
This past week, Fannie Mae announced policy changes designed to penalize borrowers who don’t work with their servicers and pursue alternatives to foreclosure. Borrowers, who default or decide to walk away from their properties, will be barred from obtaining a FNMA backed mortgage loan for seven years from the date of foreclosure! Freddie Mac and FHA are also considering stronger policies.
Troubled borrowers who work with their lenders, providing information to assess their situation, can be considered for foreclosure alternatives, such as a loan modification, a short sale, or a deed-in-lieu of foreclosure.
The problem is only a small percentage of homeowners are qualifying for these alternatives! Despite the programs put forth by the White House and lenders, the criterion for help is so restrictive, it’s determined that most homeowners are making too much income – or not enough! So what’s a homeowner having financial difficulty to do? Although the doublespeak from Washington might sound pleasant in a press release, the reality is that there are no bailouts available to most homeowners.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
Obtaining a mortgage rate can be like a visit to the amusement park. Sometimes we ride the calm and boring choo-choo-train. Everything is stable and predictable. Other times we’re riding the roller-coaster with a blindfold on; screaming in horror as we plunge down steep drops followed by unexpected sharp rises, all while praying for the ride to end.
For the past few weeks, we road the choo-choo while geo-political and economic factors from around the world kept pressure on declining interest rates. But this past week was a roller-coaster. We saw economic data that turned out to be better than anticipated while other data worse than expected. While talking heads on MSNBC predicted a double-dip recession on the horizon, others preached that the economy will continue to improve. So interest rates, fell, then rose, then fell, then rose again.
The reality is there’s no solid conviction in either view. The uncertainty in the markets will likely keep volatility at extreme levels, with reactions in either direction when news deviates from what is expected.
So if you’re buying or refinancing, what does this mean to you? Quite bluntly, GET OFF THE FENCE AND DO SOMETHING ALREADY!
Human nature encourages home owners to time the market, waiting for rates to hit absolute bottom before they refinance. And history has consistently proven they miss the mark because they waited too long.
The same is true for buyers. Home buyers look, and shop, and procrastinate, because they believe that rates will drop more or home prices will continue to fall. And sometimes they do. But what about the lost opportunities? Buyers never measure the costs of tax deductions never taken and home equity not accumulated. In fact, the only ones that come out ahead are their landlords!
It’s time to take action. But did you notice that I never once advised necessarily locking a rate?? Consult your Mortgage Planner to personalize and tailor lock advice to your unique situation and transaction.
If you’re planning on buying a home, don’t wait for the economy to be rosy. The opportunities will be gone. And if you’re a homeowner thinking of refinancing, talk to a Mortgage Planner and determine if there’s a benefit. If there is, then APPLY NOW. Continuing to procrastinate means more months of higher payments and the likelihood that rates will rise before you pull the trigger.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
Realtors and real estate attorneys have contacted me, expressing their concerns and asking how to protect their clients. Therefore, as an additional service to realtors and attorneys, I’ve addressed below the most common questions I’ve received:
Is this credit requirement applicable to ALL mortgages?
As of now, it just applies to conventional mortgages sold to Fannie Mae. However, I suspect that Freddie Mac and FHA will follow suit.
Could buyers use this second credit check as a way to sabotage their qualifications if they get cold feet and want out of the deal?
I suppose they can if they wanted to. However, if a realtor builds trust and a strong relationship with their buyer, has that buyer consult with a qualified Mortgage Planner early in the relationship well before they find a home, and coordinates activities with that Mortgage Planner to ensure that their client is happy, WOWed, and loyal, then the odds of working with a squirrely buyer are minimized.
Not sure how to accomplish this? Call me and I’d be happy to discuss how I cross-sell my realtor partners and help them develop strong relationships with their buyers (and sellers!), keeping them happy and loyal.
Is there anything that can be added to the contract of sale to prevent a buyer from killing their own deal?
Most real estate attorneys place a mortgage contingency clause in their contracts of sale. However, if a buyer receives a commitment, and then the lender subsequently rescinds due to this second credit check, would the mortgage contingency clause still be in effect? Since the wording of this clause can vary from contract to contract and from attorney to attorney, it’s up to the attorneys to choose appropriate verbiage, as well as interpret how it can be enforced.
Subtle issues like this only reinforce the fact that buyers and sellers should be working with qualified real estate attorneys on their transactions. This would be a perfect example of how working with the wrong attorney could jeopardize a transaction and potentially cost everyone time, money, and aggravation.
If you don’t have a good real estate attorney on your team, please call me. I’d be happy to make a recommendation.
Can anything else be done to prevent deals from falling apart?
Realtors and real estate attorneys should advise their buyers to consult a qualified Mortgage Planner before they find a house and NOT just after signing contracts. Buyers should be advised not to apply for any new credit until after they’ve closed on their home purchase. Buyers should be very cautious in utilizing their existing credit. In addition, I would respectfully suggest that attorneys consider adding a clause to their contracts to the effect of, “borrowers agree that they have not and will not apply for new, or utilize existing credit, to the extent that it might adversely effect their mortgage qualifications.”
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
As of June 1st, mortgage giant Fannie Mae is requiring lenders to pull an updated credit report on all borrowers, just prior to closing, in order to confirm that nothing has adversely affected the borrower’s qualifications. Although many lenders already pull second credit reports right before the closing, Fannie Mae (FNMA) now makes this mandatory across virtually all mortgage lenders and products sold on the secondary mortgage market. The June 1 changes are part of a new effort by FNMA to cut down on slipshod underwriting by lenders and fraud by borrowers.
Under FNMA’s Loan Quality Initiative, lenders are now required to confirm that all debts and liabilities incurred up to the date of the mortgage closing are included in the qualification process. The last-minute credit report will determine whether a borrower has obtained – or even shopped for – new debt between the date of the loan application and the closing. If borrowers have made applications for credit of any type – for furnishings and appliances for the new house, a car, a new credit card – the closing could be put on hold pending additional research by the lender. These last minute credit checks could result in a closing delay, pricing adjustments, or at worst, loan approval cancellations!
Additional debt could raise your debt-to-income ratios and jeopardize your approval. It could lower your credit scores, potentially affecting your interest rate. It could even reduce your credit scores below the minimum required for your loan product, effectively killing your transaction!
Therefore, if you are buying or refinancing a home, DO NOT apply for any loans or credit and DO NOT make any purchases on credit, between contract and your closing, without checking with your mortgage advisor first.
With guidelines and industry dynamics ever changing, it’s now more important than ever to have a quality team of advisors to guide you. Make sure your team includes a professional, knowledgeable, and competent Mortgage Planner, Realtor, and Real Estate Attorney. Otherwise your quest for a dream home could turn into a nightmare.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
One element of the FHA home mortgage product is the attraction of a sellers concession. The Federal Housing Administration is planning this summer to reduce the maximum percentage from 6% to 3%. Under current rules, you can use this structure to pay all closing costs and even some repairs, based on the price of the home.
On a $400,000 home, concessions can reach $24,000. That is a big number for those struggling to come up with the entire down payment and closing fees. It seems the FHA is lowering the limit in order to reduce their risk in the marketplace. Smart realtors are informing their clients NOW.
Most Americans have the goal of owning their home free and clear. The “benefits” of eliminating their mortgage as quickly as possible have been programmed into them for generations. Many prefer 15 year mortgages versus 30 year terms, and they eagerly accelerate paying off their mortgage by sending in extra principal payments whenever their budgets allow.
Unfortunately, most Americans don’t realize just how flawed – and even dangerous – this financial strategy can be!
Unemployment today is at a 20-year high. What happens if you lose your job? Do you have the cash reserves to carry you through until you regain employment? Having equity in your home means nothing if you can’t afford your housing payments. Many people losing their homes today are learning this hard lesson. They have plenty of equity in their homes, but can’t access it because they can not qualify for a loan. However, if you have a strong cash position, when times are tough, you have options. And when times are good, your money is working for you.
By taking a shorter-term mortgage or prepaying principal, you are saving large amounts of interest. That’s true. But most people forget that mortgage interest is typically tax deductable. If for example, you have a 5% interest rate on your 30 year fixed mortgage, depending on your tax bracket, your equivalent, after-tax interest rate might only be 3.3%.¹ Even in today’s tumultuous market, it is possible to earn a tax-free 3.3% on your money. By paying the minimum on your mortgage and investing the balance, your money can be working for you. Your money can be earning more that the interest you are paying!
The financial goal for many people should NOT necessarily be to pay off their home as quickly as possible. Instead, it should be to build a wealth plan that optimizes the use of their assets, equity, and tax deductions. By taking full advantage of the tax laws, you can minimize your tax liability, while maximizing your wealth accumulation. When done properly, the result will be an investment portfolio that’s earning income for you, while large enough to pay off your mortgage if you chose to.
If you would like to explore these concepts of Debt and Equity Management, let’s invest 15 minutes in a phone consultation. I’d be happy to discuss this with you and coordinate with your financial advisor in creating your plan for wealth accumulation.
¹Consult your tax advisor for your specific situation.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
Most people understand the importance of planning for their future. Yet many don’t invest time to ensure the future they desire.
When people fail to work with a Mortgage Planner, the results are often much more costly than they can anticipate. I’ve seen borrowers, over time, lose tens of thousands of dollars in lost investment opportunities, lost tax deductions, and higher interest charges, with the cumulative effects resulting in a lifestyle goal never attained. And it all could have been avoided with one pre-emptive consultation.
With continuing volatility and uncertainty in the real estate and credit markets, there are dozens of potential issues that can adversely affect your ability to buy a home:
Have you checked your credit? Are there blemishes on your credit in need of repair? Are there errors on your report or accounts that aren’t yours? It can take months to rectify these issues – precious time YOU WILL NOT HAVE if you start thinking about it only after you’ve found a home.
Has your credit and scores been analyzed by a Mortgage Planner? Checking your own credit online or through a paid service is dismally insufficient. While these credit reports will provide you with raw data, are you aware how mortgage lenders will interpret this information? Do you have enough trade lines? Is your credit activity sufficient to meet underwriting guidelines? And what about your credit scores? Are you sure the scores you received are even legitimate? Beware of counterfeit credit scores!The only scores accepted in the industry are the FICO score from Trans Union, the Fair Isaac score from Experian, and the Beacon score from Equifax. Most credit scores reported through subscription services are NOT legitimate, industry-accepted, scores. They are worthless to you – and to a lender.
Where’s your down payment coming from? Your savings? A gift? A 401k loan? Is all of your savings tied up in the equity of your current home? And what reserves will you have after the closing? Every one of these circumstances can prevent you from buying a new home – unless you work with a Mortgage Planner to properly structure the transaction ahead of time.
What do you do for a living? Are you self employed? Commissioned? Are you salaried but working in a field that’s experiencing turmoil? Are you planning to retire or change jobs within the next 12 months? Each of these factors can be detrimental if not anticipated before-hand.
Will the house you’re looking for, the price-range, the mortgage loan, and even the loan amount, all integrate seamlessly with your lifestyle, your needs and your financial goals? A mortgage is yet another tool that should be integrated into your financial planning and family protection. Most every qualified Financial Planner will recommend that your investments, insurance, and leveraged assets (your mortgage) be integrated so that they work together, accelerating you toward your financial goals.
When it comes to Mortgage Planning, an ounce of prevention can save you thousands of dollars in cures. Working together before you find a new home, we can ensure your transaction goes smoothly, your mortgage complements your financial plan, and that you truly enjoy your new home for years to come.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
Whenever the Government promises to “fix” a problem, it’s usually cause for concern. Recent changes to the real estate industry have all been implemented with the best of intentions, in an effort to “protect the consumer.” But it seems that most politicians are unfamiliar with the Law of Unintended Consequences.
For example:
May 2009: New York’s Attorney General Andrew Cuomo strong-armed Fannie Mae, Freddie Mac, and therefore, the entire mortgage industry, into accepting the Home Valuation Code of Conduct. Mortgage lenders and brokers were no longer allowed to utilize proven and competent appraisers. INTENTION: Cuomo claimed this would “protect” consumers and homeowners from unscrupulously inflated market values. RESULT: Local appraisers and small appraisal companies have seen their revenue plummet due to unnecessary middle-man Appraisal Management Companies taking their cut. The quality of appraisals has declined tremendously with suppressed values and blatant errors now commonplace. BOTTOM LINE: Consumers are paying more money for shoddy appraisals. Since appraisals are no longer portable, consumers must often start over with a new lender and another appraisal, thus, incurring additional expenses.
January 2010: The newly designed Good Faith Estimate is implemented. INTENTION: Congress claimed this new GFE will “benefit the consumer” by preventing over-charges and making the GFE easier to understand. They claimed the new GFE will “save consumers an average $700” by making it easier for borrowers to compare fees. RESULT: Most consumers are dumbfounded by the new forms and even many attorneys are having difficulties interpreting the fee schedule. BOTTOM LINE: Mistakes and inaccuracies have caused closings to be adjourned and at times, cancelled altogether, resulting in more delays, cost, and stress on borrowers. And guess what? Unscrupulous mortgage salespeople have found new ways to circumvent the GFE and overcharge borrowers.
Present Day Congress: In their effort to pass financial reform, the Senate Banking Committee recently approved a bill requiring issuers of mortgage backed securities (MBS) to retain 5% of the credit risk. In effect, it would force lenders and even loan officers to have “skin in the game” and personally invest in each loan! INTENTION: The Senate Banking Committee claims this will “protect the consumer” by preventing lenders from making loans homeowners can’t afford. RESULT: A study completed by JPMorgan Chase predicts that if this bill were to become law, it could potentially increase mortgage rates by as much as 3%, thus destroying the revival of private-label MBS markets and the fragile real estate recovery. BOTTOM LINE: Committee Chairman Christopher Dodd (D-Conn.), has so far turned a deaf ear to all industry concerns. Although every Republican voted against the bill, it passed the Banking Committee on a party line vote of 13-10.
Will the bill become law? It’s too soon to tell. But you can be sure of one thing: Government cures quite often miss their target. Instead of curing the disease, they kill the patient.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
Here are, in my professional opinion, the RIGHT questions to ask a broker PRIOR to discussing the current rates:
WHAT DOES IT TAKE TO QUALIFY FOR THIS LOAN? - Income, Credit, Assets, Debt, and Employment are the key factors to determine your eligibility for different programs. Different banks have different rules.
HOW LONG WILL THIS LOAN TAKE? - Every bank is different, and this is a CRUCIAL point. Don’t get fooled by a rate that seems so low, odds are the rate lock period is short, and you WILL pay extension fees come closing time if your rate expires. Your broker should know the turn-time at each bank they represent. Some banks are 3 weeks, some are 60 days.
WHAT ARE THE REAL CLOSING COSTS? – Your broker is required to provide you with a Good Faith Estimate. The forms are all numbered, in order, to help you compare costs. Remember, these are estimates, and certain numbers will change, but due to new laws and regulations, certain items can NOT change.
WHAT DOCUMENTS SHOULD I HAVE READY? - 2 months of pay, 2 months of asset statements (all pages), 2 years of tax returns, and a copy of your purchase contract at a minimum. Remember, the more you disclose to your broker, the better advice you will receive early on, to avoid any time delay.
WHAT CAN DELAY MY LOAN? - How long did it take you to return the application? Do you have an issue with your credit? Have you changed your income/assets/credit since you applied? Is your condo/coop eligible? If homework is done ahead of time, you should not see any specific delays.
You are not doing yourself justice by calling 10 people and comparing a “rate”. So many factors go into what determines your final, locked in rate, that I can say that the customers that understand the process and what is needed to ensure a timely closing….experience less delays and denials. Look for a reputable broker…those that have clean licenses are more likely to deliver. And asking for a referral never hurt….
For the past year, unique and extreme economic conditions helped maintain mortgage rates at historically low levels. But it seems the party’s now over. Read More…
Today’s difficult real estate market faces many challenges:
A large inventory of unsold homes has caused price stagnation.
Distressed sales are putting downward pressure on market values in certain neighborhoods.
Sellers still resist coming to terms with their neighborhood’s drop in values.
Many buyers looking for a “steal” are slamming into this seller resistance, making agreements more difficult.
Financing has become more difficult, with stronger credit, lower debt to income ratios, and larger down payments often required.
These challenges demand new approaches and new solutions that meet the needs of bothbuyersandsellers. One solution I’ve found successful is a seller-funded permanent rate buydown. This occurs when a seller’s credit is used to pay points, which reduces the buyer’s interest rate. This simple strategy can produce a significant monthly savings for the buyer, all while retaining the seller’s equity in the property.
Dollar for dollar, buydowns cost a seller far less than the standard price reduction, yet benefit the buyer by reducing his monthly payments far more than an equivalent price cut.
Consider this example:
A $500,000 house with a $15,000 price cut (assuming 80% financing) would only save a buyer $64 per month. However, that same $15,000 credited as a buydown (keeping the purchase price at $500,000), would reduce the purchaser’s interest rate by a full 1% and save him $237 per month! This payment is as if the buyer purchased the home for $445,000!
Interest rate buydowns offer a WIN-WIN solution to buyers, sellers, AND realtors!
Sellers make their homes stand out with a unique financing package, making their homes significantly more affordable than competing houses.
Sellers protect their equity with higher closing prices.
Homes sell faster. Sellers and Realtors typically see a shorter time on the market.
Realtors earn potentially higher commissions with sales agreements closer to full asking price.
Buyers benefit from a below-market interest rate.
Buyers enjoy monthly payments as if their home was purchased for far less.
Utilizing a buydown makes it possible for a buyer to purchase a home with the monthly payment he seeks while allowing the seller to net the equity he desires. Negotiating is faster and easier since the seller is more agreeable to these terms. If you would like more details regarding buydowns or on successfully marketing a property utilizing buydowns, please contact me. Working together, we can ensure your transaction goes smoothly, benefiting all.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
Over the last few weeks, many of our lenders have improved their lending guidelines. 80% loan to value for loans up to $2,000,000 are now available at some of the major banks, not just the portfolio lenders and community banks. This is a tremendous step forward, and here is why:
Most of the major lenders (Chase, Wells, Bank of America, Citi) have been selling the vast majority of their loans to Fannie Mae, Freddie Mac, and FHA. Now they are starting to service the loans themselves, and booking the loans on their balance sheet. Since the agencies listed above don’t buy loans greater than $729,000, the availability of jumbo/super jumbo loans has been very low.
This shows confidence is coming back to the lenders, which in turn will open up the credit flow. It also shows that the lenders believe that home values have somewhat stabilized. Let’s see if they are right! In the interim, contact your mortgage broker to see if you can now qualify for a mortgage.
A quick market update:Existing-home sales have fallen for the third month in a row, and all roads point to another dip in the housing market.The Tax Credit plan has really failed to make an impact, and the level of inventory is at the highest since September of 2009.Now, if buyers and seller can’t come together, we could see another major price drop the second half of 2010.Now combine that with higher mortgage rates, and the outcome is not pretty.Let’s hope now that the health care program is done, Obama can focus on job security, as that is the main problem we are faced with.Job stability + steady income = home sales.
Everything seems to be going smoothly. The purchase contracts were signed. The mortgage was approved. The closing is scheduled. Then you get the call that the mortgage has been canceled. The borrower must start from scratch with a new lender!
It’s a nightmare come true for home buyers, realtors, and real estate attorneys. And it’s happening more often than you think – because the homebuyer decided to use the wrong mortgage professional.
With the introduction of the Good Faith Estimate 2010, lenders are now obligated to honor the closing cost estimates they disclose. (Learn more about it in my article, GFE 2010 - The Good, The Bad, and The UGLY. Bank fees are held to zero tolerances. If bank fees are even a penny more than what was disclosed, the lender must eat the difference. Most other third party fees (like title charges) are held to a 10% tolerance. If at closing, the actual title or government fees (which aren’t even charged by the lender!) exceed the initial estimate by more than 10%, the lender must pay the difference.
Initially, one would think this is wonderful! Sleazy mortgage “sales people” can no longer under-disclose, and then charge more at closing! But look at some actual examples of the unintended consequences, as shared with me by frustrated realtors and attorneys:
A home buyer purchases a $1.5M home with a $500K mortgage. He shops for rates and applies for a mortgage with a well known, national bank. The loan is approved, everyone is ready to close – until the bank’s compliance dept. cancels the loan. The “salesperson” forgot to disclose the mansion tax. Oops. Do you think the bank is going to eat that $15,000 expense?
A home buyer decides to shop for a mortgage online and finds a “great deal” with an out-of-state lender. The mortgage is approved but they won’t schedule a closing. Then the buyer gets a phone call from his mortgage “salesperson.” “Mr. Smith, we won’t be able to close your loan. You see, out here in Oklahoma, it only costs about $400 to close escrow. But y’all in NY use bank attorneys and they charge about $900. Plus, NY has this thing called a mortgage tax that we didn’t know about. Since we didn’t disclose it, we would have to pay it. And my manager won’t let that happen. Sorry. Y’all have a good day now.”
But wait! It gets worse! Even if you are working with a competent mortgage professional who discloses perfectly, who will make sure the lender is disclosing correctly??? Most lenders employ data entry clerks, earning minimum wage, to generate and mail disclosures to borrowers. One mistake or typo on a rate or fee and your loan is dead in the water. Do you have anyone reviewing your disclosures to make sure your lender doesn’t make a mistake? (My clients do.)
In today’s mortgage environment, it’s no longer about rates and costs. It’s about competence. Rates and fees are reasonably consistent from lender to lender. But only a trusted mortgage planner will provide the competence, care, and advice to get the job done right. Don’t entrust your most expensive investment to a smooth-talking “salesperson.” Stick with the professionals.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
So, you contacted your bank and applied for an Obama Administration Loan Modification on your mortgage.Guess what happens to your credit score?DOWN.Up to 100 points!Yes, it’s better than the average of 150 points if you enter foreclosure, but be aware that an Obama Modification will also have a negative impact on your score.Most homeowners feel that once they modify the loan, everything is now perfect.Quite the contrary.In fact, if you are working on a modification, then be sure to finish any credit card applications or car loans prior to applying.It will take at least 12 months to see an increase of your credit score after the modification is complete, at a minimum.I always advise my clients, be sure to keep your entire financial outlook in mind when making any decision that could affect your credit.
Great article in Businessweek (http://www.businessweek.com/lifestyle/content/mar2010/bw20100316_552243.htm). Marc Roth is the Founder and President of Home Warranty of America. He sells to builders, Real Estate Agents, Title companies, etc. I would say he knows the business. This article touches on what loans really do exist, and where to go. He says start with a mortgage broker (now how did you know I was going to promote this?).
What really is important to note is that he mentions that although the bank pays the broker a commission, the rate is either the same or better than the bank can provide. MORE important, is that you will know where you stand with the loan before you have all the paperwork. That is the key to this post. As brokers, we don’t just hand in applications and then see if they get approved. We do all the leg work FIRST, to ensure a successful closing. If the loan doesn’t fit at bank A, it may at bank B. That is where the broker should earn their keep.
I am often asked, “what loans are really available”? Here is an example of a few loans we closed or have been approved at our lenders in the last 2 weeks. This should give an accurate overview of what rates really do exist:
15 Year Loan @ 4.625% for $391,000.
7 Year Interest Only ARM, Stated Income @ 5.5% for $600,000.
15 Year Loan @4.5% for $1,400,000.
5 Year Interest Only Loan @5.08% for $3,000,000.
30 Year REFI PLUS @ 5% for $207,500
5 Year Commercial Loan @5.75% for $2,000,000.
30 Year @ 5.875% - Investment Property, Cash out.
15 Year Loan @ 4.375% for $370,000.
30 Year Loan @5.25% for $320,000
Have a great weekend, and for those in the NY metro area, stay dry!
On January 26, 2010, The FHA stepped up enforcement actions, essentially shutting down six mortgage lenders by immediately and permanently revoking their licenses to issue FHA loans. Long Island lender, TopDot Mortgage was among those terminated in the FHA’s crackdown. Another local, Lend America, was shut down in December.
“FHA takes its oversight role very seriously and will move swiftly and decisively to protect borrowers from unscrupulous lenders,” (emphasis added by me) said FHA Commissioner David Stevens. “Any lender who refuses to comply with FHA requirements will simply no longer enjoy the privilege of participating in FHA programs.”
Trust me. There will be more.
The mortgage industry has changed. Yet banks and lenders still employ scores of “mortgage salespeople,” loaded into boiler-room phone centers, talking to prospective borrowers who call in from around the country. In these environments, even the highest level of government regulation will not prevent abuses and violations.
Mortgage salespeople are order-takers, not trusted advisors.
Mortgage salespeople don’t have the financial background to properly advise their borrowers.
Many mortgage salespeople don’t care whether the loan is appropriate for their borrower. They see a commission check, not a long-term client.
Mortgage salespeople have been known to say and do anything in order to make bad loans close and protect their commission. (Who’s protecting YOU?)
FHA Commissioner David Stevens said that TopDot Mortgage “demonstrated a pattern of utter disregard for how we do business and its behavior not only put the FHA …at risk, but placed their own customers at greater risk of foreclosure.”
Your mortgage and your home are likely the most expensive and complex investments in your life. Why would you entrust this to someone merely selling a mortgage? Why would you seek help from anyone less than The Best Mortgage Professional?
And guess what? The rates and fees you’ll receive from a competent and qualified Mortgage Planner are probably the same as if you used one of those other lenders. The big difference? Your loan will actually CLOSE.
In this crazy lending environment, it’s critical that you work with the right people who know what they’re doing, who provide accurate advice and guidance, and who get the job done. Working together, we can ensure that your transaction goes smoothly and stress-free.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
As of January 1, 2010, the latest government revision to the banking industry has been the redesign of the Good Faith Estimate (GFE). In years past, there have been many GFE designs used by different banks, mortgage lenders, and mortgage brokers, each looking different and disclosing information as they saw fit. In addition, as we all know, there were many abuses with less scrupulous mortgage salespeople baiting with a low estimate of closing costs, and then switching at the closing with higher points and fees.
With the release of GFE 2010: GOOD NEWS: The new GFE clearly explains whether your rate can rise, if your payment can change, and whether the loan has a prepayment penalty and/or balloon payment. This is a great feature! Now a consumer will know if the mortgage is really a fixed rate or an adjustable. The new GFE clearly shows the loan amount, term, and rate. It clearly states when and under what circumstances any of these disclosed loan features can change.
BAD NEWS: Brokers and Lenders CANNOT change any fees once the GFE is disclosed except under very limited circumstances.
At first this sounds like a wonderful feature! Even though this prevents slick sales people from adding points to the deal prior to closing, it also prevents borrowers from changing the terms! For example:
You’ve told your bank that you prefer to pay zero points. Once disclosed, if you change your mind and wish to buy down your rate with a point or two, you no longer can do so. The reverse is also true. Maybe you planned to pay points in order to get a lower rate, but now find yourself short on cash and want a zero point loan. No can do.
Your mortgage broker plans to take your loan to “Bank A” who charges $450 to underwrite. But while processing your loan, your broker and you decide to go with “Bank B,” as the rate is .25% lower, but they charge $600 to underwrite. Guess who has to pay the difference? (Need a hint? His picture is at the top of this newsletter.)
THE UGLY: GFE 2010 is forcing lenders and brokers to overstate fees across the board in order to cover all possible contingencies. The bank fees, such as processing and underwriting, as disclosed, will be inflated to cover the possibility of moving your loan to another, higher cost but lower rate lender. And Origination Fees, as disclosed, will appear to be almost twice as high as the actual cost!
My advice? I strongly suggest having a conversation with your mortgage professional in order to review your true costs, versus how they will read on your GFE.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
For many, 2009 proved to be a year of turmoil, financial hardship, change, and reinvention. The real estate industry came to a screeching halt as the US tinkered on the brink of economic depression. As the economy backed away from the precipice, many homeowners took advantage of low rates and refinanced their debt, while some home buyers began to poke their heads out and start to look for bargains.
As the economy struggles to slowly pull itself out of a recession, what will 2010 have in store for us? Hopefully, the happenings of 2009 have finally proven to us all that no one can accurately predict the future with any reliable accuracy. No one can consistently predict where the stock market, interest rates, or the weather will be six months or a year from now.
However, this year, Santa left a Crystal Ball under my tree (yes I’m Jewish – but go along with me anyway, won’t you?). You’re in luck, because I’ve taken the liberty to ask the questions that have been on all of our minds:
Will the US economy once again see economic prosperity?
The economy goes through economic cycles. Although the actions this past fall and winter by the Federal Reserve surely prevented another Depression, Recessions, Recoveries, and Prosperities are natural progressions of the economic cycle, despite any tinkering by the current administration. 2010 will see slow and steady improvement, but no parties until 2011 or 2012.
Will home sales increase and the real estate industry recover?
As unemployment hopefully declines, more home buyers will gain the confidence to buy new homes. Realtors will once again be able to feed themselves.
What will interest rates do?
Interest rates can not remain at the artificially low rates we have seen recently. As the economy improves, we will see rates rise. It is likely that, by year’s end, interest rates will be 1% to 3% higher than what we are seeing today. In fact, some predict rates approaching 6% in the first quarter!
Will the Yankees win the World Series?
My Crystal Ball was a bit cloudy on this. With their track record, though, another ring on their finger is a distinct possibility.
What about the Mets?
Unfortunately, you don’t need a crystal ball to answer this one.
We’ll have to wait and see whether my Crystal Ball proves to be mystical or as useless as a “Magic 8-Ball.” But one thing is for certain. America will continue to be a land of capitalism and opportunity. The government won’t present good fortune to us on a silver platter. If we want 2010 to be a better year, we have to make it happen for ourselves.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
Fannie Mae and Freddie Mac, the nation’s two largest sources of mortgage money, are under federal control. Lenders throughout the US continue to be declared insolvent. Many of America’s largest institutional banks received federal TARP money just to stay afloat.
The worst might be behind us; but banks remain overly cautious about lending. The media still reports stories about borrowers denied mortgages, who a few years ago, would have easily qualified.
Yet, I commonly hear borrowers telling me how confident they are about being approved. Haven’t you heard? The banking industry is in the midst of a credit crisis. Are you sure YOU won’t have a problem? Read More…
1. TIGHTER GUIDELINES: Since the housing bubble burst, risk continues to grow for lenders.As a result, lending standards and rules will continue to remain tight.I don’t expect the guidelines to loosen in 2010, in fact, I think some lenders will take a more conservative approach.
2. DOWN PAYMENT: Usually, to get the best rate, you needed to put more money down.Over the last few years, that hasn’t been true.Once the housing market stabilizes, expect down payment requirements to shrink up a bit, but don’t expect the best rate.20% down will give you your best options.
3. FICO SCORES: This is the key.Having a score above 730 will give you the best pricing for FHA backed loans.Be sure to monitor your score on a regular basis, and if you plan on obtaining a mortgage this year, call me to discuss the do’s and do not’s of credit.It’s urgent to plan ahead, especially if you are going to be leasing a car or adding debt.
4. FHA: If you can’t qualify under conventional methods, FHA back loans may provide relief.However, these loans usually carry higher fees and can add substantial rate increases depending on FICO scores.The amount of loans the FHA is writing is increasing, but so are the defaults.Keep an eye out for changes.
6. WHO IS BUYING THE DEBT?: We expect rates to rise in the second half of 2010 as the governments asset purchase program is set to expire at the end of the first quarter 2010. If private money doesn’t invest in mortgages, then the government will hopefully intervene and continue to purchase.Look for 30YR rates to head north of 5.5%.
7. JUMBO LOANS: Rates are at very favorable levels for jumbo loans.Banks that write these mortgages hold the note, so expect guidelines to remain stiff, and require substantial down payments. Proof of income and assets will be a key requirement. However, expect rates to remain attractive.
8. FED RATE HIKE: We all know it’s coming, but when?My gut is after summer of 2010.If you have an equity line tied to Prime, you’ll continue to enjoy super low rates, but that will eventually start rising.With rates at all time low’s, it’s a good time to
Gregory C. Frank, President of Blackstone Mortgage Corporation
Coops are a unique form of homeownership, prevalent in New York City and certain communities throughout Long Island. With coops, the “homeowner” does not actually own the property. Instead, the building is owned by a cooperative corporation and the “homeowner” owns shares in that corporation. Each unit has designated shares. Although these homeowners don’t truly own real estate, they still enjoy, with minor differences, all of the benefits of traditional homeownership.
When purchasing a coop, prospective buyers should be aware of two potentially major obstacles: Read More…
I suspect many a real estate mogul got their start playing the board game classic Monopoly. It has a new look this year. This time rather than just houses and hotels, players can also build industrial buildings, railroads and sports stadiums, many in 3D versions in the center of the board.
This being a game, players can also put up bonus buildings that protect their properties or “hazard buildings” that lower the value of opponent’s properties. Not sure what the real world equivalent of those would be, maybe a night club.
Parker Brothers launched Monopoly during the Great Depression and it was a huge hit in those tough times. This year though, going bankrupt and losing property seems a little too close to home.
I suspect many a real estate mogul got their start playing the board game classic Monopoly. It has a new look this year. This time rather than just houses and hotels, players can also build industrial buildings, railroads and sports stadiums, many in 3D versions in the center of the board.
This being a game, players can also put up bonus buildings that protect their properties or “hazard buildings” that lower the value of opponent’s properties. Not sure what the real world equivalent of those would be, maybe a night club.
Parker Brothers launched Monopoly during the Great Depression and it was a huge hit in those tough times. This year though, going bankrupt and losing property seems a little too close to home.
Environmentally-friendly construction practices have gotten a lot of hype over the past few years but do they really pay off as an investment? A new study found that tenants in green buildings experience increased productivity and fewer sick days. The research also found that that green buildings have lower vacancy rates and higher rents than non-green counterparts.
The study, conducted by the University of San Diego and commercial real estate broker CB Richard Ellis Group, found that tenants in green buildings such as the Behnisch Architekten-designed Unilever offices in Hamburg above are more productive based on two measures: the average number of tenant sick days and a productivity change. Respondents reported an average of 2.88 fewer sick days in their current green office versus their previous non-green office. About 55% of respondents indicated that employee productivity had improved.
Based on the average tenant salary, an office space of 250 square feet per worker and 250 workdays a year, the decrease in sick days translated into a net impact of nearly $5.00 per square foot per year. The increase in productivity translated into a net impact of about $20 per square foot. The study also showed that green buildings have 3.5% lower vacancy rates and 13% higher rental rates than the market.
The work was based on surveys of 154 buildings under CBRE's management, totaling more than 51.6 million square feet and housing 3,000 tenants in ten markets across the U.S. The study defined a green building as those with LEED certification at any level or those that bear the EPA ENERGY STAR ® label.
Another report out in the past week concluded that constructing new green buildings or retrofitting existing structures with energy efficient air conditioning, solar panels and the like will support 7.9 million U.S. jobs and pump $554 billion into the American economy over the next four years. The study, by the U.S. Green Building Council and Booz Allen Hamilton, determined that green construction spending currently supports more than 2 million American jobs and generates more than $100 billion in gross domestic product and wages.
The economic impact of the total green construction market from 2000 to 2008, the study found, was $178 billion. It created or saved 2.4 million jobs and generated $123 billion in wages.
The U.S. Green Building Council certifies LEED buildings and obviously has an interest in the movement, but Rick Fedrizzi, chief exec of the group said something remarkably down to earth in releasing the report: “Our goal is for the phrase ‘green building’ to become obsolete, by making all building and retrofits green – and transforming every job in our industry into a green job.”
Environmentally-friendly construction practices have gotten a lot of hype over the past few years but do they really pay off as an investment? A new study found that tenants in green buildings experience increased productivity and fewer sick days. The research also found that that green buildings have lower vacancy rates and higher rents than non-green counterparts.
The study, conducted by the University of San Diego and commercial real estate broker CB Richard Ellis Group, found that tenants in green buildings such as the Behnisch Architekten-designed Unilever offices in Hamburg above are more productive based on two measures: the average number of tenant sick days and a productivity change. Respondents reported an average of 2.88 fewer sick days in their current green office versus their previous non-green office. About 55% of respondents indicated that employee productivity had improved.
Based on the average tenant salary, an office space of 250 square feet per worker and 250 workdays a year, the decrease in sick days translated into a net impact of nearly $5.00 per square foot per year. The increase in productivity translated into a net impact of about $20 per square foot. The study also showed that green buildings have 3.5% lower vacancy rates and 13% higher rental rates than the market.
The work was based on surveys of 154 buildings under CBRE's management, totaling more than 51.6 million square feet and housing 3,000 tenants in ten markets across the U.S. The study defined a green building as those with LEED certification at any level or those that bear the EPA ENERGY STAR ® label.
Another report out in the past week concluded that constructing new green buildings or retrofitting existing structures with energy efficient air conditioning, solar panels and the like will support 7.9 million U.S. jobs and pump $554 billion into the American economy over the next four years. The study, by the U.S. Green Building Council and Booz Allen Hamilton, determined that green construction spending currently supports more than 2 million American jobs and generates more than $100 billion in gross domestic product and wages.
The economic impact of the total green construction market from 2000 to 2008, the study found, was $178 billion. It created or saved 2.4 million jobs and generated $123 billion in wages.
The U.S. Green Building Council certifies LEED buildings and obviously has an interest in the movement, but Rick Fedrizzi, chief exec of the group said something remarkably down to earth in releasing the report: “Our goal is for the phrase ‘green building’ to become obsolete, by making all building and retrofits green – and transforming every job in our industry into a green job.”
He’s back. After seeing his New Jersey casino empire slide into bankruptcy for a third time, real estate baron Donald J. Trump has returned to the table.
As part of a deal cut with bondholders and announced today, Trump will receive a 10% stake in a newly recapitalized company, which owns three casinos in Atlantic City that carry the Trump name.
In exchange Trump and his daughter Ivanka, both former board members, agreed to drop a lawsuit they had against the company. Trump will be free to use his name on other gambling ventures, just not in five neighboring states.
Trump left the board of Trump Entertainment Resorts in February. It is struggling under $1.7 billion in debt. "I have always felt a tremendous responsibility to New Jersey, and especially to Atlantic City," he said after cutting this new deal.
Others parts of Trump’s empire—wobbly though it may be—continue to grow. The Trump Waikiki hotel opened this week in Hawaii and the Council on Tall Buildings and Urban Habitat just recognized his Trump International Hotel and Towers in Chicago as the sixth largest building in the world thanks to a new way of measuring skyscrapers. Previously they were measured starting with the front entrance, but since many buildings have multi-level entrances, the new standard is the lowest pedestrian entrance.
He’s back. After seeing his New Jersey casino empire slide into bankruptcy for a third time, real estate baron Donald J. Trump has returned to the table.
As part of a deal cut with bondholders and announced today, Trump will receive a 10% stake in a newly recapitalized company, which owns three casinos in Atlantic City that carry the Trump name.
In exchange Trump and his daughter Ivanka, both former board members, agreed to drop a lawsuit they had against the company. Trump will be free to use his name on other gambling ventures, just not in five neighboring states.
Trump left the board of Trump Entertainment Resorts in February. It is struggling under $1.7 billion in debt. "I have always felt a tremendous responsibility to New Jersey, and especially to Atlantic City," he said after cutting this new deal.
Others parts of Trump’s empire—wobbly though it may be—continue to grow. The Trump Waikiki hotel opened this week in Hawaii and the Council on Tall Buildings and Urban Habitat just recognized his Trump International Hotel and Towers in Chicago as the sixth largest building in the world thanks to a new way of measuring skyscrapers. Previously they were measured starting with the front entrance, but since many buildings have multi-level entrances, the new standard is the lowest pedestrian entrance.
I once told my colleague Dean Foust, who was writing an article about the Hooter’s restaurant chain, that a planned Hooter’s casino in Vegas was a sure thing. “I’d invest in that,” I said. Scantily-clad women, beer, gambling, what could go wrong?
Alas, the latest results for 155 East Tropicana, the entity that owns Hooter’s Las Vegas, shows that in Vegas there are no sure things. The company lost $14.5 million for the first nine months of this year on revenues of $35 million. Among the results, a 20% decline in food and beverage sales. That’s a lot fewer chicken wings.
A Securities and Exchange Commission filing says the company has received a notice of default from its lenders and is actively trying to restructure its $147 million in debt.
The filing says “the company does not believe that cash on hand at September 30, 2009 of $5.6 million and expected cash flows will be adequate to meet the total financial obligations.”
Hooter’s Las Vegas suffered problems fundamental to all bad real estate investments—a second-rate building in a crummy location. Half its 696 rooms were closed in the third quarter due to plumbing issues. And as Union Gaming analyst Bill Lerner notes, road construction in front of the off-the-Strip property discouraged walk-in visitors.
Even football great Dan Marino punted. His restaurant inside Hooter’s will be renamed the Mad Onion in December.
Maybe the frat boy crowd has less money to gamble. Or maybe people don't want to go to an establishment in Vegas that they can visit in their own home town.
In my own defense I don't think Hooter's management did a great job marketing the casino. I once saw ads for it targeting families. Clearly not the right demographic.
I once told my colleague Dean Foust, who was writing an article about the Hooter’s restaurant chain, that a planned Hooter’s casino in Vegas was a sure thing. “I’d invest in that,” I said. Scantily-clad women, beer, gambling, what could go wrong?
Alas, the latest results for 155 East Tropicana, the entity that owns Hooter’s Las Vegas, shows that in Vegas there are no sure things. The company lost $14.5 million for the first nine months of this year on revenues of $35 million. Among the results, a 20% decline in food and beverage sales. That’s a lot fewer chicken wings.
A Securities and Exchange Commission filing says the company has received a notice of default from its lenders and is actively trying to restructure its $147 million in debt.
The filing says “the company does not believe that cash on hand at September 30, 2009 of $5.6 million and expected cash flows will be adequate to meet the total financial obligations.”
Hooter’s Las Vegas suffered problems fundamental to all bad real estate investments—a second-rate building in a crummy location. Half its 696 rooms were closed in the third quarter due to plumbing issues. And as Union Gaming analyst Bill Lerner notes, road construction in front of the off-the-Strip property discouraged walk-in visitors.
Even football great Dan Marino punted. His restaurant inside Hooter’s will be renamed the Mad Onion in December.
Maybe the frat boy crowd has less money to gamble. Or maybe people don't want to go to an establishment in Vegas that they can visit in their own home town.
In my own defense I don't think Hooter's management did a great job marketing the casino. I once saw ads for it targeting families. Clearly not the right demographic.
With the First Time Home Buyer Tax Credit Program set to expire at the end of November, President Obama has signed legislation extending the $8,000 credit to cover sales contracts signed by April 30, 2010. These sales must close by June 30, 2010. For those serving in the military and deployed outside the United States, the credit has been extended through June 2011.
The legislation also includes a new $6,500 tax credit for homebuyers who have previously owned a home, if that home was their primary residence for five consecutive years out of the last eight years. Home buyer income limits for both the $8,000 credit and the $6,500 credit have also been expanded. Individuals earning up to $125,000 and couples earning up to $225,000 now qualify for the maximum credit. Above these limits, the credit decreases for single buyers earning up to $145,000 and $245,000 for couples filing jointly. However, under the new program, to qualify for a credit, the cost of the home being purchased is limited to $800,000.
While the Home Buyer Tax Credit has certainly been politically popular, has it really contributed to a housing market recovery? Or, would the inevitable economic cycle along with the market forces of supply and demand have encouraged these buyers to purchase anyway? The jury is still out and it will be some time before we know whether our tax dollars were well spent.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
The Milken Institute came out with its annual list of cities that are best able to create jobs. The top ten were culled from a list of the nation’s 200 largest cities. All have managed to avoid the worst of the economic meltdown driven by falling housing markets and job losses in manufacturing and global trade.
The 2009 top 10 performers
1. Austin-Round Rock, TX
2. Killeen-Temple-Fort Hood, TX
3. Salt Lake City, UT
4. McAllen-Edinburg-Mission, TX
5. Houston-Sugar Land-Baytown, TX
6. Durham, NC
7. Olympia, WA
8. Huntsville, AL
9. Lafayette, LA
10. Raleigh-Cary, NC
Texas cities dominate the list. The free-marketers at the Milken Institute already love the Lone Star State with its lack of zoning laws and no state income tax. Communities such as Houston, Austin, Killen and not too far Lafayette, Louisiana never saw a big run up in home prices and they have the still strong energy sector supporting their economies.
The Milken folks noted that the biggest decliners on list included multiple cities in Florida and California where housing related jobs continue to disappear. Michigan cities are also among the nation’s weakest performers, with heavy losses in durable goods and automotive manufacturing.
The Milken Institute came out with its annual list of cities that are best able to create jobs. The top ten were culled from a list of the nation’s 200 largest cities. All have managed to avoid the worst of the economic meltdown driven by falling housing markets and job losses in manufacturing and global trade.
The 2009 top 10 performers
1. Austin-Round Rock, TX
2. Killeen-Temple-Fort Hood, TX
3. Salt Lake City, UT
4. McAllen-Edinburg-Mission, TX
5. Houston-Sugar Land-Baytown, TX
6. Durham, NC
7. Olympia, WA
8. Huntsville, AL
9. Lafayette, LA
10. Raleigh-Cary, NC
Texas cities dominate the list. The free-marketers at the Milken Institute already love the Lone Star State with its lack of zoning laws and no state income tax. Communities such as Houston, Austin, Killen and not too far Lafayette, Louisiana never saw a big run up in home prices and they have the still strong energy sector supporting their economies.
The Milken folks noted that the biggest decliners on list included multiple cities in Florida and California where housing related jobs continue to disappear. Michigan cities are also among the nation’s weakest performers, with heavy losses in durable goods and automotive manufacturing.
Bloombergis reporting that condo owners of the still underconstruction Cosmopolitan Resort on the Vegas strip have sued the owner, Deutsche Bank, to get their deposit money back.
The suit illustrates the varying rules for getting down payments back even in projects with major problems. Deutsche Bank foreclosed on the $3.9 billion project. It’s offering buyers in the West Tower 74% of their deposit money back. Nevada law allows developers to keep 15% of a buyer's down payment.
In court filings, condo buyers claim they have suffered through construction delays that now prevent them from closing. Building interiors were modified ten times and problems with drainage require 24 hour pumping of water beneath the building. Buyers claim the delays have eliminated their ability to get loans because real estate prices have collapse so much.
My Mom always said buy a condo when it’s under construction because you’ll get a discount. Of course, those "pre-completion prices" come with a big risk.
Bloombergis reporting that condo owners of the still underconstruction Cosmopolitan Resort on the Vegas strip have sued the owner, Deutsche Bank, to get their deposit money back.
The suit illustrates the varying rules for getting down payments back even in projects with major problems. Deutsche Bank foreclosed on the $3.9 billion project. It’s offering buyers in the West Tower 74% of their deposit money back. Nevada law allows developers to keep 15% of a buyer's down payment.
In court filings, condo buyers claim they have suffered through construction delays that now prevent them from closing. Building interiors were modified ten times and problems with drainage require 24 hour pumping of water beneath the building. Buyers claim the delays have eliminated their ability to get loans because real estate prices have collapse so much.
My Mom always said buy a condo when it’s under construction because you’ll get a discount. Of course, those "pre-completion prices" come with a big risk.
Trillions spent on propping up banks, buying mortgages, tax credits and new programs designed to lower payments and prevent foreclosures. And yet a new survey from Move Inc., the parent of Realtor.com, says Americans are growing increasingly dissatisfied with how Washington is handling the housing mess.
The October 2009 survey found that the federal government’s approval rating by consumers on housing issues has slipped since March 2009. By a six-percent margin, Americans said they don’t think the government is doing enough to stabilize the housing market (48.2% compared to 42.2% five months ago). According to the survey, consumers still want low interest rates (31.4%) and action by the government to help homeowners prevent foreclosures (28.5%), the same two top priorities expressed by survey respondents in March.
The survey found that public participation in the programs to prevent foreclosures is much lower than anticipated. In March 2009, several days after the details of the Making Home Affordable program were announced; Move’s survey found that 17.6 percent of those interviewed said they intended to participate in the Administration’s program. Now only 8.8 percent said they actually did participate.
The number of consumers interested in investing in real estate has doubled since March. One out of eight (12.1%) homebuyers today plan to purchase a home as an investment property, compared to 5.6 percent seven months ago.
Fear of foreclosure is fading. In March 52.5 percent of all survey respondents said they were concerned that they or someone they know may face foreclosure in the next 6 to 12 months. That number dipped slightly to 45.1 percent in October.
The survey of 1,000 people was conducted the third week of October.
Trillions spent on propping up banks, buying mortgages, tax credits and new programs designed to lower payments and prevent foreclosures. And yet a new survey from Move Inc., the parent of Realtor.com, says Americans are growing increasingly dissatisfied with how Washington is handling the housing mess.
The October 2009 survey found that the federal government’s approval rating by consumers on housing issues has slipped since March 2009. By a six-percent margin, Americans said they don’t think the government is doing enough to stabilize the housing market (48.2% compared to 42.2% five months ago). According to the survey, consumers still want low interest rates (31.4%) and action by the government to help homeowners prevent foreclosures (28.5%), the same two top priorities expressed by survey respondents in March.
The survey found that public participation in the programs to prevent foreclosures is much lower than anticipated. In March 2009, several days after the details of the Making Home Affordable program were announced; Move’s survey found that 17.6 percent of those interviewed said they intended to participate in the Administration’s program. Now only 8.8 percent said they actually did participate.
The number of consumers interested in investing in real estate has doubled since March. One out of eight (12.1%) homebuyers today plan to purchase a home as an investment property, compared to 5.6 percent seven months ago.
Fear of foreclosure is fading. In March 52.5 percent of all survey respondents said they were concerned that they or someone they know may face foreclosure in the next 6 to 12 months. That number dipped slightly to 45.1 percent in October.
The survey of 1,000 people was conducted the third week of October.
The real estate market continues to send mixed signals. Home sales are rising. They were up 11% in the third quarter from the same period last year to a 5.3 million-a-year annual pace.
The sales are coming thanks to a lot of financial incentives. Thirty year mortgage interest rates remain near record lows at 5.1%. Uncle Sam continues to write $8,000 tax credit checks to first time home buyers. “The buying conditions this year are the most favorable on record dating back to 1970,” says Lawrence Yun, chief economist for the National Association of Realtors.
Nearly one-third of those sales though are foreclosed homes trading at distressed prices. They are dragging down prices nationally. The Realtors association reported today that prices fell in 123 out of 153 cities tracked in the third quarter.
What about the thirty cities where home prices rose? They are places better known for affordability and stability than surging prices.
The largest single-family home price increase in the third quarter was in the Cumberland area of Maryland and West Virginia at $122,100, up 19.2 percent from the third quarter of 2008. Next was the Davenport-Moline-Rock Island area of Iowa and Illinois, where the median price increased 14.3 percent to $115,600, followed by Oklahoma City, at $144,100, up 9.1 percent from a year ago.
The biggest sales gain between the second and third quarters was in North Dakota, up 42.3 percent; followed by Rhode Island which rose 26.5 percent; and Pennsylvania, up 25.6 percent.
It's likely that buyers in rural areas that didn't see a tremendous surge in prices see the low interest rates and tax incentives as a good buying opportunity.
Here's the Realtors' Lawrence Yun's take.
“The wide range of market performance and reversals around the country, ranging from double-digit gains to double-digit losses in both sales and prices, underscores just how local real estate truly is,” Yun said. “The wide changes and mix of numbers also indicates a market in transition, hopefully to one that is becoming more balanced and stable.”
The real estate market continues to send mixed signals. Home sales are rising. They were up 11% in the third quarter from the same period last year to a 5.3 million-a-year annual pace.
The sales are coming thanks to a lot of financial incentives. Thirty year mortgage interest rates remain near record lows at 5.1%. Uncle Sam continues to write $8,000 tax credit checks to first time home buyers. “The buying conditions this year are the most favorable on record dating back to 1970,” says Lawrence Yun, chief economist for the National Association of Realtors.
Nearly one-third of those sales though are foreclosed homes trading at distressed prices. They are dragging down prices nationally. The Realtors association reported today that prices fell in 123 out of 153 cities tracked in the third quarter.
What about the thirty cities where home prices rose? They are places better known for affordability and stability than surging prices.
The largest single-family home price increase in the third quarter was in the Cumberland area of Maryland and West Virginia at $122,100, up 19.2 percent from the third quarter of 2008. Next was the Davenport-Moline-Rock Island area of Iowa and Illinois, where the median price increased 14.3 percent to $115,600, followed by Oklahoma City, at $144,100, up 9.1 percent from a year ago.
The biggest sales gain between the second and third quarters was in North Dakota, up 42.3 percent; followed by Rhode Island which rose 26.5 percent; and Pennsylvania, up 25.6 percent.
It's likely that buyers in rural areas that didn't see a tremendous surge in prices see the low interest rates and tax incentives as a good buying opportunity.
Here's the Realtors' Lawrence Yun's take.
“The wide range of market performance and reversals around the country, ranging from double-digit gains to double-digit losses in both sales and prices, underscores just how local real estate truly is,” Yun said. “The wide changes and mix of numbers also indicates a market in transition, hopefully to one that is becoming more balanced and stable.”
The Realtors' spokesman tells me that the new credit will start tomorrow, not today.
"We rechecked the effective date for the repeat buyer," spokesman Walt Malony said in an e-mail. "The effective date is 'after the date of enactment.'Today is date of enactment, so the fun begins tomorrow, Nov. 7."
Judging from all of your questions, tomorrow is going to be a confusing day for buyers, sellers, and the real estate agents, brokers, and attorneys advising them.
The Realtors' spokesman tells me that the new credit will start tomorrow, not today.
"We rechecked the effective date for the repeat buyer," spokesman Walt Malony said in an e-mail. "The effective date is 'after the date of enactment.'Today is date of enactment, so the fun begins tomorrow, Nov. 7."
Judging from all of your questions, tomorrow is going to be a confusing day for buyers, sellers, and the real estate agents, brokers, and attorneys advising them.
Update:Just spoke with somebody at Sen. Chris Dodd's office. According to the senator's banking committee staff, you can qualify for the credit even if you signed a purchase contract before today's date. The important thing is that you close on the home between today and June 30, 2010 (Your contract must be signed by April 30, 2010). Keep the questions coming, I'll try to answer as many as I can.
Dozens of you have written in with good questions about the tax credit. I'm working on finding answers, especially to one recurring question. To qualify for the $6,500 credit is it necessary to sign the purchase contract after the measure is signed into law today or can a homeowner who closes on a home after today also meet the requirements? I've asked the White House to clarify.
In the meantime, I just received a press release from CMPS Institute, a training, examination, certification and ongoing membership program for financial professionals who provide mortgage and real estate equity advice.
It clarifies a few things. Read on.
More Homebuyers Qualify for Tax Credit
Ann Arbor, MI November 6, 2009 – Congress just passed an expanded version of the $8,000 first time home buyer tax credit that was set to expire on November 30. “The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules,” said Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers. “Although the tax credit remains at $8,000 for home buyers that have not owned a primary residence in the last three years, it has been expanded to include a $6,500 tax credit for home buyers that have lived in their current primary residence for at least five consecutive years out of the past eight years. Under the old rules, move-up home buyers did not qualify.” Consider these three examples:
Example 1:
Jane purchased a home in 2002, lived there for 5 years as her primary home, moved out in 2007, and turned that home into a rental property. If Jane decides to buy a new primary residence today, she would qualify for the $6,500 tax credit based on the fact that she lived in the same residence as her primary home for at least five consecutive years out of the past eight.
Example 2:
Harry purchased a home in 2004, and lived there for the past 5 years as his primary home. If Harry decides to buy a new primary residence today, he would qualify for the $6,500 tax credit based on the fact that he lived in the same residence as his primary home for at least five consecutive years out of the past eight.
Example 3:
Nicole purchased a home in 2006, and lived there for the past 3 years as her primary home. If Nicole decides to buy a new primary residence today, she would not qualify for the $6,500 tax credit based on the fact that she did not live in the same residence as her primary home for at least five consecutive years out of the past eight.
The tax credit applies to homes purchased for less than $800,000 before May 1, 2010. “If you sign a binding contract to purchase a home before May 1st, you would need to close on the transaction before July 1, 2010,” Nicholas said. “It works kind of like a gift certificate that can be redeemed for cash. You simply file a form with the IRS right after you buy your home, and the IRS will send you a check for the full amount of your credit.”
The income limitation for single tax payers went up from $75,000 under the old rules to $125,000 under the new rules. For married tax payers, the income limitation went up from $150,000 to $225,000. “This means that more people will qualify for the credit – especially in parts of the country with higher costs of living,” Nicholas said. “This should help stimulate parts of the housing market that may not have been impacted by the old version of the credit.”
There are many creative ways of structuring your home purchase transaction in ways that maximize the benefits of the credit. Here are a few examples:
· The credit applies to 1-4 unit homes as long as you live in one of the units as your primary residence – you could live in one unit and rent out the others
· If two unmarried individuals buy a home, and only one of the individuals qualifies for the credit based on their income or past home ownership status, the individual who qualifies for the credit can claim the full credit. (Note: In the case of married couples, both spouses must qualify for the credit.)
· The credit applies even if you have co-signers on your mortgage loan
Update:Just spoke with somebody at Sen. Chris Dodd's office. According to the senator's banking committee staff, you can qualify for the credit even if you signed a purchase contract before today's date. The important thing is that you close on the home between today and June 30, 2010 (Your contract must be signed by April 30, 2010). Keep the questions coming, I'll try to answer as many as I can.
Dozens of you have written in with good questions about the tax credit. I'm working on finding answers, especially to one recurring question. To qualify for the $6,500 credit is it necessary to sign the purchase contract after the measure is signed into law today or can a homeowner who closes on a home after today also meet the requirements? I've asked the White House to clarify.
In the meantime, I just received a press release from CMPS Institute, a training, examination, certification and ongoing membership program for financial professionals who provide mortgage and real estate equity advice.
It clarifies a few things. Read on.
More Homebuyers Qualify for Tax Credit
Ann Arbor, MI November 6, 2009 – Congress just passed an expanded version of the $8,000 first time home buyer tax credit that was set to expire on November 30. “The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules,” said Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers. “Although the tax credit remains at $8,000 for home buyers that have not owned a primary residence in the last three years, it has been expanded to include a $6,500 tax credit for home buyers that have lived in their current primary residence for at least five consecutive years out of the past eight years. Under the old rules, move-up home buyers did not qualify.” Consider these three examples:
Example 1:
Jane purchased a home in 2002, lived there for 5 years as her primary home, moved out in 2007, and turned that home into a rental property. If Jane decides to buy a new primary residence today, she would qualify for the $6,500 tax credit based on the fact that she lived in the same residence as her primary home for at least five consecutive years out of the past eight.
Example 2:
Harry purchased a home in 2004, and lived there for the past 5 years as his primary home. If Harry decides to buy a new primary residence today, he would qualify for the $6,500 tax credit based on the fact that he lived in the same residence as his primary home for at least five consecutive years out of the past eight.
Example 3:
Nicole purchased a home in 2006, and lived there for the past 3 years as her primary home. If Nicole decides to buy a new primary residence today, she would not qualify for the $6,500 tax credit based on the fact that she did not live in the same residence as her primary home for at least five consecutive years out of the past eight.
The tax credit applies to homes purchased for less than $800,000 before May 1, 2010. “If you sign a binding contract to purchase a home before May 1st, you would need to close on the transaction before July 1, 2010,” Nicholas said. “It works kind of like a gift certificate that can be redeemed for cash. You simply file a form with the IRS right after you buy your home, and the IRS will send you a check for the full amount of your credit.”
The income limitation for single tax payers went up from $75,000 under the old rules to $125,000 under the new rules. For married tax payers, the income limitation went up from $150,000 to $225,000. “This means that more people will qualify for the credit – especially in parts of the country with higher costs of living,” Nicholas said. “This should help stimulate parts of the housing market that may not have been impacted by the old version of the credit.”
There are many creative ways of structuring your home purchase transaction in ways that maximize the benefits of the credit. Here are a few examples:
· The credit applies to 1-4 unit homes as long as you live in one of the units as your primary residence – you could live in one unit and rent out the others
· If two unmarried individuals buy a home, and only one of the individuals qualifies for the credit based on their income or past home ownership status, the individual who qualifies for the credit can claim the full credit. (Note: In the case of married couples, both spouses must qualify for the credit.)
· The credit applies even if you have co-signers on your mortgage loan
Move Inc., parent of Realtor.com, the online listing service for the National Association of Realtors, came out with its third quarter earnings yesterday. Sales were down 11% to $53 million. Although the company has been able to boost its cash flow through cost cutting and more efficient management, it is still a tough environment. Realtor.com depends largely on real estate agents advertising their listings on the site.
Move CEO Steven Berkowitz said the company didn’t see the usual spike in listings last Spring. Many homeowners are holding off putting their house on the market in this crummy sales year. As for the agents, Berkowitz said the company had seen a “significant decrease” in their number. Of those that are in still in business, they are spending less on marketing.
What gives Berkowitz hope is more potential home buyers coming to the site and staying longer, even its just to window shop.
“They are doing more shopping. They are doing more comparison shopping. They are spending more time looking rather than buying. It is no different than a lot of what is happening in retail in a lot of stores where the high end stores people are walking through the store and shopping but they are not buying.”
The company says it’s updating many of its service offerings, which it needs to. Realtor.com is just about the only real estate search site that doesn’t link to Google's street views so you can see what the neighborhood looks like without driving out there. Get a move on Move Inc!
Move Inc., parent of Realtor.com, the online listing service for the National Association of Realtors, came out with its third quarter earnings yesterday. Sales were down 11% to $53 million. Although the company has been able to boost its cash flow through cost cutting and more efficient management, it is still a tough environment. Realtor.com depends largely on real estate agents advertising their listings on the site.
Move CEO Steven Berkowitz said the company didn’t see the usual spike in listings last Spring. Many homeowners are holding off putting their house on the market in this crummy sales year. As for the agents, Berkowitz said the company had seen a “significant decrease” in their number. Of those that are in still in business, they are spending less on marketing.
What gives Berkowitz hope is more potential home buyers coming to the site and staying longer, even its just to window shop.
“They are doing more shopping. They are doing more comparison shopping. They are spending more time looking rather than buying. It is no different than a lot of what is happening in retail in a lot of stores where the high end stores people are walking through the store and shopping but they are not buying.”
The company says it’s updating many of its service offerings, which it needs to. Realtor.com is just about the only real estate search site that doesn’t link to Google's street views so you can see what the neighborhood looks like without driving out there. Get a move on Move Inc!
Update: Just heard from White House spokeswoman Jen Psaki. The start date for the new $6,500 credit for existing homeowners will take effect as soon as Obama signs the bill into law tomorrow (Nov. 6). Sorry for the confusion. And thanks to "Dean" whose comment alerted me to my error. (In case you're curious, this is the actual text of the bill. The credit extension was attached to a larger bill to extend unemployment benefits).
My last post was flooded with comments from readers asking whether the expanded credit will apply to them even though they closed on a home purchase earlier this year (or last year or the year before...). The answer: "No."
It might seem unfair. But the new credit will take effect only after President Obama signs the measure into law tomorrow. Buyers will have until April 30 to sign purchase contracts and must close on the house by the end of June.
Under the new $10.8 billion plan, first-time buyers would continue to get $8,000 for buying a home. But existing homeowners will now be able to claim $6,500 credit for selling their current home and buying a new one, as long as they resided in the home they're selling for at least five of the past eight years.
Income limits will also expand to $125,000 a year for individuals, and $225,000 a year for married couples. Sounds like a good deal right? Not judging from the flood of comments we've gotten from existing buyers who bought during the past several months. They feel gypped.
A commenter identifying himself as "Jim" said he bought a home during the Great Recession and was miffed that he didn't get a tax credit because he wasn't a first-time buyer. Now he's angry.
"If they are handing out free money, give it to those who actually risked their capital," he wrote a couple hours ago. "I am against this credit altogether ... The government deciding who gets money and who doesn't is TYRANNICAL."
I sympathize with the comments. My parents only sold their Westchester County, N.Y. home of 30 years only a week ago and bought a much-less-expensive house one 15 miles away. They certainly would have qualified for the $6,500 credit and I'm afraid to break the news to them.
But the point of the credit is to stimulate home sales, not to hand out spending money (Though it will indeed stimulate some consumer spending). As I mentioned in my last post, it could be even less effective and efficient than the previous credit. If that's the case, it's best to put some limits on cost. Congressional analysts estimate that the six-month extension and expansion of the credit will cost taxpayers $10.8 billion. Can you imagine the price tag if it was made retroactive to the beginning of 2008?
Update: Just heard from White House spokeswoman Jen Psaki. The start date for the new $6,500 credit for existing homeowners will take effect as soon as Obama signs the bill into law tomorrow (Nov. 6). Sorry for the confusion. And thanks to "Dean" whose comment alerted me to my error. (In case you're curious, this is the actual text of the bill. The credit extension was attached to a larger bill to extend unemployment benefits).
My last post was flooded with comments from readers asking whether the expanded credit will apply to them even though they closed on a home purchase earlier this year (or last year or the year before...). The answer: "No."
It might seem unfair. But the new credit will take effect only after President Obama signs the measure into law tomorrow. Buyers will have until April 30 to sign purchase contracts and must close on the house by the end of June.
Under the new $10.8 billion plan, first-time buyers would continue to get $8,000 for buying a home. But existing homeowners will now be able to claim $6,500 credit for selling their current home and buying a new one, as long as they resided in the home they're selling for at least five of the past eight years.
Income limits will also expand to $125,000 a year for individuals, and $225,000 a year for married couples. Sounds like a good deal right? Not judging from the flood of comments we've gotten from existing buyers who bought during the past several months. They feel gypped.
A commenter identifying himself as "Jim" said he bought a home during the Great Recession and was miffed that he didn't get a tax credit because he wasn't a first-time buyer. Now he's angry.
"If they are handing out free money, give it to those who actually risked their capital," he wrote a couple hours ago. "I am against this credit altogether ... The government deciding who gets money and who doesn't is TYRANNICAL."
I sympathize with the comments. My parents only sold their Westchester County, N.Y. home of 30 years only a week ago and bought a much-less-expensive house one 15 miles away. They certainly would have qualified for the $6,500 credit and I'm afraid to break the news to them.
But the point of the credit is to stimulate home sales, not to hand out spending money (Though it will indeed stimulate some consumer spending). As I mentioned in my last post, it could be even less effective and efficient than the previous credit. If that's the case, it's best to put some limits on cost. Congressional analysts estimate that the six-month extension and expansion of the credit will cost taxpayers $10.8 billion. Can you imagine the price tag if it was made retroactive to the beginning of 2008?
Waiting for a bus on my way to work I picked up a copy of the real estate sections of The Korea Times, a local newspaper serving the Korean community in Los Angeles. That’s right the real estate sections. There were two, a total of 32 pages of real estate coverage and advertisements in one day’s newspaper. This at a time when falling circulation and ad revenue forced the Los Angeles Times to fold its separate real estate coverage into the business section.
From the ads it seemed the target was real estate investors. There were advertisements from agents that highlighted the income the properties throw off. That's something you don't typically see in mainstream newspapers. There were also brokers pitching 1031 exchanges, a way for real estate investors to defer taxes on sales.
I used to live in LA’s Koreatown neighborhood so I know a lot of money flowed into real estate development during the boom, some of it from South Korea. I’m sure a lot of folks lost money in the past few years. But those fat real estate sections—even though I couldn’t read most of what was in them—reminded me how entrepreneurial immigrants can be, particularly those from Korea.
Lacking in many cases the language skills to get jobs in Corporate America, Korean-Americans start their own businesses. LA has recently seen an explosion in Korean BBQ taco trucks, for example. Others still see real estate as a way to get their piece of the American Dream.
Waiting for a bus on my way to work I picked up a copy of the real estate sections of The Korea Times, a local newspaper serving the Korean community in Los Angeles. That’s right the real estate sections. There were two, a total of 32 pages of real estate coverage and advertisements in one day’s newspaper. This at a time when falling circulation and ad revenue forced the Los Angeles Times to fold its separate real estate coverage into the business section.
From the ads it seemed the target was real estate investors. There were advertisements from agents that highlighted the income the properties throw off. That's something you don't typically see in mainstream newspapers. There were also brokers pitching 1031 exchanges, a way for real estate investors to defer taxes on sales.
I used to live in LA’s Koreatown neighborhood so I know a lot of money flowed into real estate development during the boom, some of it from South Korea. I’m sure a lot of folks lost money in the past few years. But those fat real estate sections—even though I couldn’t read most of what was in them—reminded me how entrepreneurial immigrants can be, particularly those from Korea.
Lacking in many cases the language skills to get jobs in Corporate America, Korean-Americans start their own businesses. LA has recently seen an explosion in Korean BBQ taco trucks, for example. Others still see real estate as a way to get their piece of the American Dream.
President Obama could sign the $10.8 billion homebuyer tax credit extension and expansion plan into law as soon as next week. The Senate this evening voted 98-0 in favor of the extension. The House is expected to approve it within days.
But a new report from Goldman Sachs suggests that the six-month extension might do little for the fragile housing market and could be even less effective than the soon-to-expire credit for first-time buyers that cost taxpayers about $8.5 billion and lasted nearly a year.
The Congressional proposal would give buyers until April 30, 2010 to sign purchase contracts and another 60 days to close. And it will no longer be just for first-time buyers. Homeowners who have lived in their current home for five of the last eight years can claim $6,500, under the new law, which would only apply to houses purchased after the current tax credit expires Nov. 30. Income limits will be more generous: $125,000 a year for individuals, $225,000 a year for married couples.
But Goldman Sachs economist Alec Phillips says, in a report released to clients Nov. 3, that the expanded program won't raise home prices and sales much and likely won't significantly trim the supply of unsold homes.
"The extension of the current credit will probably result in some incremental first-time buying but not as much as the last one," Phillips said in a phone interview today. "The expansion to the other population of buyers [existing homeowners] will provide a small boost to prices, but no more than 1%."
According to Phillips' calculations, all but about 200,000 of the 1.4 million first-time buyers who claimed the credit this year would have purchased a home even without the incentive. And the credit resulted in boosting home prices only by about 1%(Phillips assumed in his calculation that home prices rose in part because sellers built a large portion of the credit into their asking prices).
The pool of first-time buyers who still need an incentive to get off the fence is likely small because many of them have already taken advantage of the now-expiring credit. Existing homeowners who qualify for the new $6,500 credit could spur additional sales. But the supply of unsold homes will remain unchanged because most homeowners will have to sell their existing home in order to buy a new one (The credit only applies to principal residences).
This doesn't mean that the credit is useless, only that it is inefficient. For one thing, it could stimulate the economy by giving consumers more money to spend. (Economist Simon Johnson argued in the Washington Post last week that the tax credit is both inefficent as a homebuyer incentive and as a economic stimulus).
"We were not arguing that [the expanded credit] would have no effect," Phillips said. "Just will the effect be as great as last one?"
President Obama could sign the $10.8 billion homebuyer tax credit extension and expansion plan into law as soon as next week. The Senate this evening voted 98-0 in favor of the extension. The House is expected to approve it within days.
But a new report from Goldman Sachs suggests that the six-month extension might do little for the fragile housing market and could be even less effective than the soon-to-expire credit for first-time buyers that cost taxpayers about $8.5 billion and lasted nearly a year.
The Congressional proposal would give buyers until April 30, 2010 to sign purchase contracts and another 60 days to close. And it will no longer be just for first-time buyers. Homeowners who have lived in their current home for five of the last eight years can claim $6,500, under the new law, which would only apply to houses purchased after the current tax credit expires Nov. 30. Income limits will be more generous: $125,000 a year for individuals, $225,000 a year for married couples.
But Goldman Sachs economist Alec Phillips says, in a report released to clients Nov. 3, that the expanded program won't raise home prices and sales much and likely won't significantly trim the supply of unsold homes.
"The extension of the current credit will probably result in some incremental first-time buying but not as much as the last one," Phillips said in a phone interview today. "The expansion to the other population of buyers [existing homeowners] will provide a small boost to prices, but no more than 1%."
According to Phillips' calculations, all but about 200,000 of the 1.4 million first-time buyers who claimed the credit this year would have purchased a home even without the incentive. And the credit resulted in boosting home prices only by about 1%(Phillips assumed in his calculation that home prices rose in part because sellers built a large portion of the credit into their asking prices).
The pool of first-time buyers who still need an incentive to get off the fence is likely small because many of them have already taken advantage of the now-expiring credit. Existing homeowners who qualify for the new $6,500 credit could spur additional sales. But the supply of unsold homes will remain unchanged because most homeowners will have to sell their existing home in order to buy a new one (The credit only applies to principal residences).
This doesn't mean that the credit is useless, only that it is inefficient. For one thing, it could stimulate the economy by giving consumers more money to spend. (Economist Simon Johnson argued in the Washington Post last week that the tax credit is both inefficent as a homebuyer incentive and as a economic stimulus).
"We were not arguing that [the expanded credit] would have no effect," Phillips said. "Just will the effect be as great as last one?"
LoopNet.com, a Web site for commercial real estate listings, took a poll of 1,000 its members in the last two weeks of October. LoopNet members include real estate investors, brokers and owners. The results suggest that unlike those in the rebounding housing market, commercial real estate players are a little more gloomy.
When Will the Commercial Real Estate Market Recover?
In July a vast majority (66%) expected the volume of commercial real estate transactions to rebound in 2010. Now that number has decreased to just over 50%. Instead there has been a sharp increase (up 13% to 46%) in those expecting the recovery won't occur until 2011 or later. Investors are more pessimistic, with a median expectation of recovery timing that is approximately one quarter later than that of brokers or commercial property owners.
Have Commercial Real Estate Prices Hit Bottom Yet?
More than half of all respondents expected to see future declines of 11% or more. All three groups surveyed expect values to drop further. Owners are the most optimistic, with nearly 20% saying prices have already bottomed.
When Will Commercial Real Estate Sales Prices Hit Bottom?
Expectations for when pricing will bottom mirror that of when transactions will recover: The second quarter of 2010 was the most common choice, but more than 10% said 2012.
What are the Biggest Barriers to Commercial Real Estate Market Recovery?
Lack of access to debt financing is the #1 barrier to market recovery, according to survey participants. High asking prices were the #2 reason cited by investors and brokers, while owners considered this less of an issue. Uncertainty about future cash flows remains a significant factor.
Treasury Secretary Timothy Geithner told the Economic Club of Chicago last week that commercial real estate would not be a drag on the nation’s banking system the way housing markets have been. "That's a problem the economy can manage through even though it's going to be still exceptionally difficult," he said.
LoopNet.com, a Web site for commercial real estate listings, took a poll of 1,000 its members in the last two weeks of October. LoopNet members include real estate investors, brokers and owners. The results suggest that unlike those in the rebounding housing market, commercial real estate players are a little more gloomy.
When Will the Commercial Real Estate Market Recover?
In July a vast majority (66%) expected the volume of commercial real estate transactions to rebound in 2010. Now that number has decreased to just over 50%. Instead there has been a sharp increase (up 13% to 46%) in those expecting the recovery won't occur until 2011 or later. Investors are more pessimistic, with a median expectation of recovery timing that is approximately one quarter later than that of brokers or commercial property owners.
Have Commercial Real Estate Prices Hit Bottom Yet?
More than half of all respondents expected to see future declines of 11% or more. All three groups surveyed expect values to drop further. Owners are the most optimistic, with nearly 20% saying prices have already bottomed.
When Will Commercial Real Estate Sales Prices Hit Bottom?
Expectations for when pricing will bottom mirror that of when transactions will recover: The second quarter of 2010 was the most common choice, but more than 10% said 2012.
What are the Biggest Barriers to Commercial Real Estate Market Recovery?
Lack of access to debt financing is the #1 barrier to market recovery, according to survey participants. High asking prices were the #2 reason cited by investors and brokers, while owners considered this less of an issue. Uncertainty about future cash flows remains a significant factor.
Treasury Secretary Timothy Geithner told the Economic Club of Chicago last week that commercial real estate would not be a drag on the nation’s banking system the way housing markets have been. "That's a problem the economy can manage through even though it's going to be still exceptionally difficult," he said.
The Senate is expected this week to pass an extension of the credit that was originally going to expire Nov. 30. Buyers who sign a purchase agreement by April can now claim the credit.
The extension will apply to higher income buyers. Previously the credit was available to individual filers making $75,000 a year or less. For couples the limit was $150,000. The new income limit will be $125,000 for individuals and $225,000 for couples.
There's also something in for move-up buyers. Previously you couldn't claim the credit if you owned a home in the past three years. Now, if your last home was your primary residence for at lease five years, you can claim $6,500 in credit if you buy a new home. The new house can't cost more than $800,000 though.
Just in time to kick Washington into action, the National Association of Realtors reported that pending home sales jumped 6% today. That’s the eighth month in a row of sales increases and the longest rising streak since 2001. "What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,” said the association’s chief economist Lawrence Yun.
I’ve a written before about the role psychology has in home purchases. No where is that topic more relevant than in what we’re seeing with the tax credit. I participated in an Internet interview last week on the housing market on the Financial Fitness Show . Jim McQuaig, a mortgage broker in Reston, Virginia, said he recently completed financing for a woman buying a $430,000 home who said the $8,000 tax credit was the incentive.
Imagine that, one of the largest purchases of your life and you’re moved to do it by a tax credit worth less than 2% for the purchase price!
Seven-time Tour de France champion Lance Armstrong is going into commercial real estate. According to a news release today:
Armstrong ... has joined with longtime agent Bill Stapleton and business manager Bart Knaggs to form CSE Realty Partners, a privately-held real estate investment company based in Austin, Texas. The trio, responsible for directing more than 20 successful enterprises since 1995 ... have recruited 20-year real estate industry veteran Lance Sallis to lead the new company.
As if that's not enough athletic ability for one real estate company, the team will also include Patrick Jeffers, a former NFL wide receiver who played for the Denver Broncos Super Bowl XXXII Championship team.
Armstrong is a natural-born entrepreneur. He's also co-founded businesses ranging from hotels to artist management to live events to a bicycle shop to LiveStrong.com.
Note to the Austin real estate community: Do not, repeat not, accept an invitation to play these guys in any "friendly" game you can think of.
Posted Under: Business Week
This post was written by Peter Coy on October 30, 2009 Comments Off
Economist and writer Katerina Alexandraki has launched a creative idea for easing the housing crunch this holiday season. She’s asking Wall Streeters getting big bonuses to contribute them to folks in danger of losing their homes.
Wall Streeters are expected to get a lot of heat this bonus season, both for creating the loose lending standards and securitization of loans that fueled the housing bubble and now for making a killing with stocks and distressed assets surging in value thanks largely to the trillions of dollars in government support. Check out the Web site for Katerina's campaign, which she called Bonus for Homes.
Katerina hopes to distribute the money to low-income earners and the unemployed., specifically folks who were victims of predatory lending or who are facing foreclosure. She describes it as “a private-sector initiative to address the anomaly that, while everyone, from top to bottom, public and private, is to blame for the financial crisis, some of us have fared much better than others.”
She’s looking for volunteers to contribute or to nag their fellow high-earners. Of course you could just as easily donate to local housing-related charities. Maybe even with company matching funds!
Majority Leader Harry Reid's office just sent me an outline of the Senate Democrats' plan to extend and expand the home buyer tax credit. Much of this was covered in my previous blog post. But there's one new detail that hasn't been reported elsewhere. It will cost $10.8 billion. That's a bit more expensive than the existing credit, which will have cost taxpayers about $8.5 billion by the time it expires Nov. 30.
Some more details:
*The credit is available for homes that go under contract by April 30, 2010 and close within 60 days after that.
*It will be attached to a bill to extend unemployment benefits, but it's unclear when that bill will be voted on.
* First-time buyers (those who have not owned a home for three years) can claim an $8,000 credit. Homeowners who buy a new principal residence after living in their current home for at least the last five years can claim up to $6,500.
*Income limits: $125,000 a year for individuals, $225,000 a year for married couples.
* The proposal will include anti-fraud measures, including minimum age requirements and additional authorities for the IRS.
I ran the $10.8 billion figure by Moody's Economy.com chief economist Mark Zandi, who hasn't yet come up with a cost figure for the current proposal. But he said "that sounds in the ball park."
Landscape architect Ken Smith has precisely the right idea for how to build Orange County Great Park, the ambitious urban park planned for the site of the El Toro Marine Corps Air Station south of Los Angeles in Orange County, Calif. The park was supposed to be financed by real estate development, but homebuilder Lennar Corp., which took control of the base in 2005, has put construction on hold because of California's massive housing bust.
Smith's idea: Build just a little of it, attract some crowds, garner interest and support, and then go from there. According to an article in The Los Angeles Times by Paloma Esquivel, the bicoastal Smith was inspired in part by New York City, where builders of a park along the Hudson River built a constituency for the project by putting in temporary trails for jogging, biking, and roller-skating.
Not that Smith has much choice--no one's going to sit down tomorrow and write him a check for the $1.3 billion that he thinks will eventually be needed to build "the first great metropolitan park of the 21st Century."
Pragmatically, Smith started out by building a Preview Park on a tiny piece of the 4,700-acre former military base. Its main attraction is an iconic crowd-pleaser, a big, orange, helium balloon that gives park visitors panoramic views from an altitude of 400 feet. More than 100,000 people have flown in the balloon--not a bad way to engender optimism for the bigger project.
In August, according to an article in the Orange County Register, the city of Irvine, Calif., and Lennar agreed that Lennar would commit $58 million over the next five years for infrastructure and maintenance in the park, and would give the city 135 more acres of park land. The article quotes Emile Haddad, Lennar's former chief investment officer, whose new company, Five Point Properties, recently took over management of the Great Park. "We're trying to set this thing to be successful based on the world we live in today," Haddad said. (Meaning: A post-bust world.)
Then, earlier this month, the park's board of directors approved $65 million worth of construction on 200 acres, including sports fields and gardens but not a planned lake.
Orange County Great Park isn't exactly great yet. It isn't even exactly a park. But you do what you can.
Posted Under: Business Week
This post was written by Peter Coy on October 29, 2009 Comments Off
FDIC Chief Sheila Bair spoke at the Town Hall Los Angeles this morning, sharing her thoughts on financial markets and some of the policy issues she faces as one of the nation’s top banking authorities. Formerly a professor of regulatory affairs at the University of Massachusetts, Bair speaks in a rapid fire style. So I’ll put her comments in bullet points.
On the economy as a whole
Bair said the Administration was winding down some of the emergency programs introduced in the wake of the crisis such as the TARP funding. “Things are getting better,” she said. “It’s time for government to get out and let the markets work.”
They’ll be more bad news though.
“Banking is a lagging indicator. They’ll go through the process of cleaning up their balance sheets for at least two quarters past the end of the recession.” There are now 416 trouble banks, 106 that have failed this year. Bair said banks will see $100 billion in losses over the five year period beginning in 2008. About $60 billion has been recognized already.
And more changes are coming.
“There’s a difference between free markets and a free-for-all,” she said. Bair supports legislation proposed by Rep. Barney Frank that would create a government-run recovery fund, financed by private industry, that would take over investment banks and insurance companies deemed “too-big-to-fail.” The process would work in much the same way the FDIC takes over failed banks. In such cases, shareholders and lenders would take more of a hit than they did in the cases of bailouts such as AIG. “I want the market to understand there will be losses,” she said.
On the unpopular decision to bail out big banks.
“Everybody did what we had to do, a lot of us didn’t like it,” she said. Bair said she wants to see the quasi-governmental agencies Fannie Mae and Freddie Mac redesigned. “We either nationalize them or privatize them, but this hybrid approach didn’t work.”
IndyMac, no mas
She told a vocal group of folks who had invested more than the insured limit in IndyMac CDs that they wouldn’t be getting any more money—“there are virtually no assets left.” She said that if folks wanted to increase their recoveries in bank failures they’ll have to get Congress to change the laws.
Why loan officers don’t return calls
I asked the Chairwoman after her talk if the PPIP program would be expanded to purchase bad assets from good banks. She said yes. I also asked her take on why there have been so many complaints about banks taking so long to approve loan modifications. “They didn’t staff up,” she said. “There is still to too much of an inclination to just not do it. Investors are still unwilling to do modifications. We tried to streamline it, to make it about pay stubs and tax returns. That’s what you need.”
The future of banking
When asked if the FDIC was slow in allowing new banks to be insured, she conceded it was. “The old model of brokered deposits funding commercial real estate, we have a lot of problems with that.” She also said she hoped federally insured institutions will have learned something from the crisis and avoid exotic financial instruments and focus instead on the basics. “We’re going to get away from models and math and make loans based on getting to the know the borrower. It’s not who comes up with the best financial engineered product or who made the most fees anymore.”
FDIC Chief Sheila Bair spoke at the Town Hall Los Angeles this morning, sharing her thoughts on financial markets and some of the policy issues she faces as one of the nation’s top banking authorities. Formerly a professor of regulatory affairs at the University of Massachusetts, Bair speaks in a rapid fire style. So I’ll share some her comments in bullet points.
On the economy as a whole
Bair said the Administration was winding down some of the emergency programs introduced in the wake of the crisis such as the TARP funding. “Things are getting better,” she said. “It’s time for government to get out and let the markets work.”
They’ll be more bad news though.
“Banking is a lagging indicator. They’ll go through the process of cleaning up their balance sheets for at least two quarters past the end of the recession.” There are now 416 trouble banks, 106 that have failed this year. Bair said banks will see $100 billion in losses over the five year period beginning in 2008. About $60 billion has been recognized already.
And more changes are coming.
“There’s a difference between free markets and a free-for-all,” she said. Bair supports legislation proposed by Rep. Barney Frank that would create a government-run recovery fund, financed by private industry, that would take over investment banks and insurance companies deemed “too-big-to-fail.” The process would work in much the same way the FDIC takes over failed banks. In such cases, shareholders and lenders would take more of a hit than they did in the cases of bailouts such as AIG. “I want the market to understand there will be losses,” she said.
On the unpopular decision to bail out big banks.
“Everybody did what we had to do, a lot of us didn’t like it,” she said. Bair said she wants to see the quasi-governmental agencies Fannie Mae and Freddie Mac redesigned. “We either nationalize them or privatize them, but this hybrid approach didn’t work.”
IndyMac, no mas
She told a vocal group of folks who had invested more than the insured limit in IndyMac CDs that they wouldn’t be getting any more money—“there are virtually no assets left.” She said that if folks wanted to increase their recoveries in bank failures they’ll have to get Congress to change the laws.
Why loan officers don’t return calls
I asked the Chairwoman after her talk if the PPIP program would be expanded to purchase bad assets from good banks. She said yes. I also asked her take on why there have been so many complaints about banks taking so long to approve loan modifications. “They didn’t staff up,” she said. “There is still to too much of an inclination to just not do it. Investors are still unwilling to do modifications. We tried to streamline it, to make it about pay stubs and tax returns. That’s what you need.”
The future of banking
When asked if the FDIC was slow in allowing new banks to be insured, she conceded it was. “The old model of brokered deposits funding commercial real estate, we have a lot of problems with that.” She also said she hoped federally insured institutions will have learned something from the crisis and avoid exotic financial instruments and focus instead on the basics. “We’re going to get away from models and math and make loans based on getting to the know the borrower. It’s not who comes up with the best financial engineered product or who made the most fees anymore.”
It's increasingly likely that Congress will extend and expand the popular home buyer tax credit, which will expire next month. CNN.com reported today that a compromise proposal based on bills that have already been introduced could pass the Senate as early as this week (assuming that it is attached to a bill to extend unemployment benefits).
The compromise bill would likely open the program to some existing homeowners. The expiring tax credit is limited to buyers who have not owned a home for the last three years.
* First-time buyers could continue to claim up to $8,000. But existing homeowners who have lived in their home for five years could receive up to $6,500 if they trade up to a larger principal residence.
* The full credit would be limited to buyers who earn less than $125,000 a year and for married couples with annual incomes up to $225,000.
* The credit could only be used for homes selling for $800,000 or less.
* Contracts must be signed by April 30, 2010 and sales must close by June 30.
Mark Zandi, chief economist for Moody's Economy.com (MCO), told me recently that he supports the extension because the housing market could take a big step back without it. But he agreed with critics that it is one of the most inefficient ways for the government to support housing.
According to Zandi, only 22% of about 1.8 million buyers who will claim the soon-to-expire credit would not have bought a home but for the incentive. Expanding the credit to include previous homeowners and extending the credit through June will cost about $30 billion, on top of about $8 billion that would have already been spent, he said.
The compromise bill outlined here might be cheaper because it seems to more narrowly define the existing homeowners who can take advantage of the credit.
Home prices rose 1% in August from the seasonally-adjusted July level -- the third month in a row of increases, according to S&P/Case Shiller home price index.
The 20-city index was down 11.3% on a year-over-year basis but the drop is only that severe because prices are measured against values in August 2008, before the economic meltdown pushed up unemployment and dragged down home prices. A few months from now we'll be comparing prices to post-Sept. 15, 2008 prices and the year-over-year change could very well be in positive territory.
But the $8,000 tax credit for first time buyers that is set to expire Nov. 30 has made it difficult to evaluate the seasonally-adjusted gains posted during the summer. Buyers were rushing to take advantage of the program and that drove sales. If the Congress doesn't vote to extend the credit, sales could drop in coming months.
Regular readers of this blog may remember that I bought a bank-owned home as an investment property last March. Here’s an update.
I lost my first tenant in September. He stopped paying rent when his income dried up. I knew I was taking a chance on him when he couldn’t quite scrape together the full down payment the day before he was to move in. Buying a house and leasing to him was a double bet on the housing recovery since he sold cabinets for a living and, as he told me, new cabinets were just about the last thing people ordered in a recession.
I leased to him anyway because he’d worked at the same job since 1992 and since he was breaking up with his girlfriend and didn’t have to give another landlord notice he could move in immediately. I didn’t have to wait a month for my first rent check. In retrospect I should have screened him out.
A friend of mine who rents out a duplex he owns says that after the first time you get burned by a tenant you’re always a stickler for the rules. I did lose a month’s rent in the end, but that’s a month I would have lost in the beginning anyway. He left the house quickly and spotless—to move in with his sister in Alaska. He showed the place to a couple of prospective tenants when I couldn’t make it there. He even left behind a lawnmower and a bottle of champagne, which I gave to the new tenants. I believe that it pays to be nice to people. A cynic would say I was lucky that I didn’t have to evict him.
I leased the house quickly on Oct. 1 to a young couple just moving to California from Kentucky. Again I took a little risk since I didn’t have the down payment check in hand until the day they moved in. They could have changed their mind and I would have been out another month's rent. But they said they really wanted the house and I verified her credit and their employment. She works for Home Depot, he at a hot rod shop.
One mistake I won't make again: I'll never leave the utilities in my name and ask the tenants to switch them to their name. I got stuck paying a few water bills. This time I turned all the utilities off before the new tenants moved in and told them they had to sign up for themselves.
As some readers suggested when I first started writing about this investment there were some unplanned expenses, $1,800 for a new garage roof, $800 for a new garage door. Those were repairs I could have postponed but hey I have no intention of being a slumlord. One of the benefits of this whole experience is that I took a house that was run down and needed work and made it much cuter. That feels good.
I put another offer on a house recently. It’s kind of addicting.
I had an idea for a new business. It’s a website where medical patients can go to find the cheapest surgeon. Need open heart surgery or your gall bladder removed? Surgeons will compete, underbidding each other until the surgeon with the lowest fee wins your business.
Would you trust this surgeon to operate on you? No? Why not? The surgeon claims he can deliver. Shouldn’t you trust him and let him try? If he screws up, you can always choose another surgeon – right?
This is, of course, a ludicrous idea. Yet this is exactly how thousands of people “shop” for a mortgage. Your mortgage and your home are likely the most expensive and complex investments in your life. Why would you entrust this to the lowest bidding paper-pusher? Why would you seek help from anyone less than the best mortgage professional?
And guess what? The rates and fees you’ll receive from a competent and qualified mortgage professional are probably about the same as if you used one of those “discount” companies. The big difference? Your loan will actually CLOSE.
In this crazy lending environment, it’s critical that you work with the right people who know what they’re doing and can get the job done. Working together, we can ensure that your transaction goes smoothly and stress-free.
Since 1992, Warren Goldberg has helped thousands of clients own their homes, refinance their mortgages, restructure their debts, and invest in real estate. Warren is known for his wide knowledge of mortgage products, mortgage guidelines, and wealth-creation strategies.
(Read more of Warren’s bio at www.WarrenGoldberg.com.)
Government investigators revealed today that fraud is rampant in the First-Time Homebuyer Tax Credit program. Over 100,000 taxpayers have tried to cheat the system, the IRS says. Some of filers for the credit were just four years old.
The program allows people who haven’t bought a home in the past three years to claim up to an $8,000 tax credit, based on the home purchase price and their income level. It is credited with helping lift the housing market, and Realtors and other real estate industry groups are lobbying for its expansion and extension.
But government watchdogs say unscrupulous tax filers are using it to rip off the IRS to the tune of hundreds of millions of dollars. Linda Stiff, a deputy commissioner at the IRS, says the agency has uncovered over 160 schemes related to the credit and is investigating over 100,000 possibly fraudulent filers.
J. Russell George, a Treasury Dept. inspector general, told the House Ways and Means Committee that 19,300 filers had claimed a deduction on a home they hadn’t even purchased, claims worth $139 million. Some 74,000 filers claimed a credit but aren’t entitled to one because they owned a home within the past three years.
Another 580 people filing for the credit were under the age of 18. Normally, one must be over that age to purchase a home. Bloomberg.com reported that the Treasury’s George told the committee that more than one of the filers was just four years old.
There are other concerns with the program. Some 3,200 filers used an Individual Taxpayer I.D., not a Social Security number. The taxpayer IDs are usually used by people whose immigration status does not allow them to work in the U.S. Non-resident aliens are not allowed to claim the tax credit.
Another 45,800 filers appeared to have not claimed the full amount they are due. In many cases they claimed $7,500 which was the credit last year. This year the credit rose to $8,000.
The IRS’ Stiff testified that the agency in May began more aggressively screening returns to catch people who hadn’t actually bought a home, had previously owned one or who didn’t earn enough to justify a tax credit.
The General Accounting Office reports that over 1.4 million people have filed for the credits in 2008 and 2009, costing the government $10 billion in lost revenue. The total amount of the program is limited to $13.6 billion.
The worst mortgage loans were made in 2006, according to research by data provider MDA DataQuick. And those loans are begining to blow up now. According to DataQuick’s numbers, the lenders with the most foreclosure related filings in this year's third quarter in California—-a hot bed of dicey loans were:
Countrywide (now Bank of America) with 7,583 default filings.
Washington Mutual, 5,146.
Wells Fargo, 4,425.
Bank of America loans not made by Countrywide accounted for 1,979 more filings and World Savings, now a part of Wells Fargo, had an additional 4,237. The numbers show the extent to which just a handful of big banks are bearing the burden of the mortgage crisis.
While World Savings, formerly Golden West Financial, had the highest percentage of loans from that 2006 period default at 11.9%, its stinky loans were nothing compared to the subprime orginators' dismal record. Here are some of the numbers for them:
The default percentage at ResMAE Mortgage was 73.9 percent, Ownit Mortgage 69.5 percent, BNC Mortgage 61.4 percent, Argent Mortgage 59.9 percent and First Franklin 59.4 percent.
Some of this bad news is circular because First Franklin was acquired by Merrill Lynch which was subsequently bought by Bank of America. If you’re having trouble getting a loan officer from B of A on the line, now you know why, he's busy!
The overall number of mortgage default notices filed against California homeowners fell last quarter compared with the prior three-month period. A total of 111,689 default notices were sent out during the July-through-September period, down 10.3 percent from the prior quarter, but still up 18.5 percent from the third quarter 2008. DataQuick cites changes in lender foreclosure policies and an uptick in the number of mortgages being renegotiated.
The firm says lenders may have intentionally slowed down the pace of foreclosures. “If so, it’s not out of the goodness of their hearts,” said John Walsh, DataQuick president. “It’s because they’ve concluded that flooding the market with cheap foreclosures in this economic environment may not be in their best financial interest.”
Don't expect a rebound in home construction anytime soon.
New building permits for single-family homes fell 3% in September, the Commerce Department said today. Builders are likely anticipating a drop in demand with the expiration of the $8,000 first-time home buyer credit on Nov. 30 and are planning accordingly.
The good news is that single-family home starts increased 3.9% in September. And the annual rate for all starts, including apartment construction, has remained relatively steady since June, rising just 0.5% last month to a seasonally-adjusted annual rate of 590,000 units.
The annual rate of home starts increased 17% since the start of the year. But it fell 29% since September 2008 and is now well below historic norms. Paul Ashworth, Senior U.S. Economist for Capital Economics in Toronto, said the annual housing start rate would have to more than double to reach the historic average of about 1.5 million units.
California Governor Arnold Schwarzenegger signed a flurry of bills designed to reign in abuses in the mortgage market today.
The new laws eliminate the use of negative amortization features in “high-priced loans,” which are those charging more three percentage points above a U.S. Treasury bond of the same duration.
Neg am (also known as pay option or pick-a-payment loans) allowed borrowers to skip payments and roll some of their interest costs on to their principal. It was a gimmick popular during the boom because it made a borrower's monthly payments lower. But it only increased the amount they owed. Note: the ban appears to only apply to “high-priced” loans the definition of which sounds a lot like subprime loans.
The new laws also:
Cap mortgage prepayment penalties at 2% for the first year and 1% after that, also in high-priced loans.
Establish standardized licensing requirements for all loan originators.
Make it a felony to commit fraud in connection with a mortgage application.
Require lenders to provide prospective reverse mortgage borrowers with a clear and informative disclosure statement and checklist pertaining to the risks of those loans.
Prohibit a seller of residential property from requiring the buyer to use an escrow service company or purchase title insurance chosen by the seller and would also prohibit a seller of residential property from disapproving the use of a title or escrow company chosen by the buyer.
Require mortgage loan documents to be translated into the language the verbal negotiations were conducted. Mortgage documents would be translated into Spanish, Chinese, Tagalong, Korean and Vietnamese languages.
There's more empty space in U.S. office buildings, shopping malls and industrial parks, says CBRE Econometric Advisors. The good news the rate of increase is slowing.
"Like with job losses, the worst period of vacancy increases is behind us," says Jon Southard, Director of Forecasting at CBRE. "Still, this is of little comfort when 'less bad' only adds to record high vacancy rates in many markets and property types."
The office vacancy rate increased .6% to 16.1%, at the end of the third quarter. This was the eighth consecutive quarter of rising vacancy rates.
The suburban vacancy increase was slightly higher, than the increase for downtown areas. Downtown areas' relative outperformance in this recession continued, CBRE says, with a cumulative increase of 2.6% through the third quarter. By contrast, suburban vacancy rates have risen by a total of 4.3%, thanks largely to the subprime crisis hitting some suburban markets as early as mid-2007.
The trouble getting tenants is a national problem with 46 out of the 57 markets recording rising vacancy rates. Fort Worth, Austin and Houston stood out as relatively good performers. The natural resources, high-tech firms, and banks' conservative lending practices in Texas helped that local economy so far in this recession, the report said.
Vacancy in industrial space stood at 13.5%.
Retail availability stood at 12.3%. The economic crisis' negative effects on neighborhood and community centers is dwindling, CBRE said.
When Andy Bush went to market with the Walnut, a condo complex in Boulder, Colorado, he figured the buyers would be young single professionals and empty nesters. Instead many of the development’s first takers fit a different demo—the second home buyer eyeing retirement.
They come from New York, Kansas City, the San Francisco Bay area. They like the laid back, college town, mountain vibe of Boulder, but also its proximity to Denver, the sports and cultural institutions, the international airport.
Boulder ain’t cheap: One bedrooms at the Walnut start at $500,000. Larger units go up to $5 million. But the idea is that in these leaner, less frivolous times when people are working longer and part time into their golden years, they are less likely to choose more remote second home markets such as Vail or Big Sky, Montana.
Bush hopes to do more of such projects in creative class cities such as Austin and Charleston, which he calls the “new retirement communities.”
Is my rate going to get better with a higher FICO score? The short answer is YES! There are really two types of banks today, the larger institutions that are backed by the government and sell loans to Fannie/Freddie under the FHA program, and the smaller, local savings and thrift banks referred to as “portfolio banks”. These lenders write loans from their deposits, and usually do not sell them.
Let’s discuss FICO Scores and Rates for the first category. Guidelines have recently changed, so you will be rewarded even more for good credit and penalized for bad credit. For example, if you have a FICO score above 720, the price adjustment just increased, resulting in a lower rate. However, if your score is between 620-and 679, the adjustment just got worse, resulting in a higher rate.
Now, this may sound crazy, but 85LTV loans have actually been pricing BETTER than 80% loans. However, remember that you’ll need to pay PMI. Contact your mortgage broker for more details. For most portfolio banks, they have certain FICO score minimums to qualify, so for most the difference between a 700 FICO and a 750 FICO won’t give you a better rate. You may need a 680 or better to qualify, and once you do, that pricing remains the same.
The real estate industry is justifiably worried about what will happen to home sales if the $8,000 credit for new home buyers is allowed to expire on Dec. 1. After all, car sales plunged when the Cash for Clunkers program ended. Realtors have been lobbying pretty hard to extend the credit and broaden it to all home buyers.
Realtor.com just came up with a list of houses you can buy for $8,000. The site says there are about 200 such listing nationwide, of the four million the site tracks.
Such properties will likely need work. And closing costs will be about $2,500, but that shouldn’t be a deal breaker. Look at that five bedroom, bank-owned beauty in Detroit up above! At 2,000 square feet that’s $4 a square foot, land included. Come on, someone’s going to make money on that.
ADDENDUM: Some astute readers noted that Realtor.com got a little ahead of itself in compiling the list. The tax credit is 10% of the purchase price of the home up to a maximum of $8,000. So for an $8,000 house, the credit would only be $800.
Home price numbers have ended their free-fall, but a lot housing experts are still concerned about a possible double-dip.
Integrated Asset Services, which tracks troubled properties, says its House Price Index fell .2% in August. It’s the second down month in a row for the index, which saw a 2.8% rise in this year’s first quarter.
The slowdown, however slight, is ominous, says Dave McCarthy, president and CEO of Integrated Asset Services. That’s because there’s a “shadow inventory” of foreclosed properties that remain unlisted and unsold that could throw a monkey wrench in the housing recovery. “We know there’s a sizable inventory of bank-owned homes out there that will be listed at some point, and that could ignite a new wave of stress in the housing market,” McCarthy says.
According to Integrated, several of the nation’s hardest-hit areas may already be feeling the strain. The index reports two of the country’s most distressed counties--San Joaquin in California (Stockton) and Lee in Florida (Fort Myers)--both of which were down nearly 50% from their high-water marks, fell another 7% in August.
Integrated’s numbers are very similar to those reported by real estate info site Zillow.com. It’s numbers, released today, say housing prices nationally were down .1% in August, versus July. Zillow was only slightly less downbeat than Integrated on prices going forward. “Nationally, we may see September turn in a positive month-over-month change in home values but, thereafter, values are expected to start dropping again, and we expect them to keep dropping until sometime in the spring of this coming year, at which time we will have reached a true bottom in home values nationally,” Stan Humphries, the firm’s chief economist says.
Humphries is particularly concerned about the expiration of the $8,000 first time home buyer tax credits on Dec. 1. Without them, buyers may be less anxious to buy.
The Southern California market, which led the nation into the boom and the bust, is still showing signs of improvement, says researcher MDA DataQuick. September was the 15th month in a row with a year-over-year sales gain, although last month’s was the smallest of those increases, the company says.
The median price paid for a Southern California home was $275,000 last month, the same as in August and down 10.9 percent from $308,500 in September 2008. It was the smallest year-over-year decline since November 2007. The region’s overall sale price has held steady on a month-to-month basis since the 7-year low of $247,000 hit in April of this year. The median price peaked at $505,000 in mid-2007.
Mortgage interest rates are trending steadily downward. The research firm HSH reports that jumbo loans—those for higher-priced homes—dipped below 6% for the first time since September of 2005. This week the average for a 30-year jumbo loan is 5.96%.
The news comes along with mixed signals for the high-end home market. The Wall Street Journal reported today that more high-end homeowners are being foreclosed on. The top tier of homes now account for 30% of foreclosed homes, up from 16% three years ago, according to Zillow.com
Despite the lower rates, a lot of buyers are having trouble getting qualified for larger loans. According to real estate agents, lenders are denying loans because the homes aren’t appraising for the prices that sellers want to sell and buyers are willing to pay. Appraisers have been getting tougher about their standards. In some cases there aren’t enough comparable sales to paint an accurate picture for an appraisal. “The luxury segment is seeing a lot of appraisal problems," says Las Vegas Realtor Rob Jenson.
Still, the blended rate on all 30-year loans, jumbo and conforming, has dropped to 5.35%, says HSH. In June it was 5.92%
Applications for new home purchases have jumped 13%. For refinances they are up 18%, according to the Mortgage Bankers Association. “Hopefully, those refinances will serve to recast balance sheets for households looking for extra cash to spend and/or to further pay down outstanding obligations,” writes HSH vice president Keith Gumbinger.
Big builder KB Home revealed in a Securities Exchange Commission filing that the federal regulator is examining the company's accounting. The stock fell about 6% today.
The filing doesn't offer much information. A spokesperson says: "KB Home strives to operate its business with the utmost transparency and integrity, and in accordance with generally accepted accounting principles. While the SEC has not specified the subject matter and we cannot speculate on it at this time, we understand that part of the SEC's mandate is to conduct these sorts of investigations, which it has done with hundreds of public companies over the past few years."
KB is still dealing with the legal fallout of some of its previous business practices. In 2006, then ceo Bruce Karatz resigned in a scandal involving the back dating of stock options. He later paid $7 million to settle charges with the SEC, but the company is still wrestling with shareholder suits regarding the matter. In 2005, KB paid $3.2 million to settle complaints its mortgage unit was qualifying buyers for government loans who didn't meet the criteria.
Here's the full text of the mention in Friday's SEC filing:
On October 2, 2009, the staff of the SEC notified the Company that a formal order of investigation had been issued regarding possible accounting and disclosure issues. The staff has stated that its investigation should not be construed as an indication by the SEC that there has been any violation of the federal securities laws. The Company is cooperating with the staff of the SEC in connection with the investigation. The Company cannot predict the outcome of, or the timeframe for, the conclusion of this matter.
Scenario: First Time Buyer purchasing a condo. Good Income. Good Credit. All around strong borrower. But he needs a $570,000 mortgage and 85% financing.
PROBLEM: He spoke to one bank and was told, “No Problem!”…then was denied. He spoke to another bank. “Piece of cake!” they said…then was denied. Over and over, he was told, “You can’t get PMI.” Read More…
The excellent cover story last year by my colleagues Chad Terhune and Robert Berner laid out the fact that the nation’s housing market was becoming ever more dependent on the Federal Housing Administration and yet some of the same scoundrels who made risky subprime loans were now originating new loans, this time with the federal government’s backing.
Now the actions of those wolves are beginning to show. Last week the FHA announced that its capital levels may dip below the dangerous 2% level. In hearings on Oct. 8 before the House Financial Services Subcommittee on Housing and Community Opportunity, Edward Pinto, an independent financial consultant and former Fannie Mae exec, testified that the agency may need a major taxpayer bailout within the next two to three years.
The FHA now insures more than 25% of the mortgages in the country. That’s up from just 3% in 2006, as it picked up much of the slack from all the lenders that went out of business. But as Pinto noted, the FHA’s numbers are worrisome. The agency’s percentage of loans in foreclosure has nearly doubled over the past ten years to 4.4%. Its volume of loans has quadrupled since 2006, while its top loan limit climbed to $729,000 from $362,000 in the past year. The agency accounts for 90% of the so-called high loan to value loans, those where home buyers have less than 10% of the purchase price as a down payment. The less money homebuyers have at risk, the more likely they are to default.
Pinto said the FHA needs to drastically change its lending requirements, raising downpayments, lowering loan limits and requiring lenders to insure a part of the loan to keep them honest.
Even the go-go cheerleader for the industry, the Mortgage Bankers Association is calling for Congress to put on the brakes. David G. Kittle, Chairman of the association, testified that lenders originating FHA loans need more rigorous licensing and registration requirements, as well as net worth and minimum bonding requirements. “Net worth requirements serve to assure that a originator has a stake in the industry,” he said.
David H. Stevens, Assistant Secretary for Housing and FHA Commissioner, conceded that the agency expects higher losses than previously estimated. He noted that the FHA has not loosened its underwriting standards and in fact has experienced a significant improvement in credit quality of newly insured borrowers, from an average FICO score of 633 two years ago to 693 today. He wants to hire the agency's first Chief Risk Officer. He’s also boosting net worth requirements of mortgage originators from $250,000 to $1 million. I also understand the FHA is changing some of its terms for borrowers, for example, not letting them roll their closing costs onto the balance of the loan, a trick that further reduced their equity in the home.
A lot of people, including Republican lawmakers who want to give the President grief, are asking, where exactly is that $787 billion passed in February through the American Recovery and Reinvestment Act? Here’s the City of Denver’s answer.
The city, the State of Colorado and developer Forest City Enterprises recently jointed forces to build a new highway interchange for I-70 that will serve the master planned of community of Stapleton, which Forest City is developing.
Denver was one of the first cities whose stimulus projects were approved. Non-Denver readers may remember Stapleton as the site of the city’s old airport. The project isn’t expected to be completed until 2013, illustrating that while the stimulus funds have arguably been slow to start, they’re likely to continue to create jobs for years to come.
The complicated financing of the project—which will involve three bridges, 3,600 cubic yards of concrete and 890,000 pounds of reinforced steel—also shows why it seems like it’s taking a while for the federal funds to trickle down into real life local projects.
Of the $70 million overall price tag only $12 million is actually coming from the big stimulus bill. The largest share, $30 million, is coming from city and state sources. Another $9 million is being paid by traditional federal highway funds and $19 million is being kicked in by the developer.
The U.S. government has been helping to prop up housing sales by keeping interest rates artificially low and by offering $8,000 to renters who purchase homes. A new report by Capital Economics in Toronto suggests that the government has succeeded in giving a needed boost to the market, but the recovery would likely continue with or without the incentives. (The deadline for first-time buyers to take advantage of the $8,000 tax credit is fast approaching. To get the credit, buyers must close by Nov. 30. The National Association of Realtors and the National Association of Home Builders, which say the housing market is doomed without the incentive, are lobbying Congress to extend the credit and expand it to include all buyers).
The "government's initiatives have kick-started the housing market, but they do not explain all of the recovery," Paul Dales, U.S. Economist at Capital Economics wrote in an Oct. 6 paper. "... the housing recovery is not going to come to a complete halt if the government incentives are not extended."
According to Dales' analysis, the $8,000 tax credit helped convince about 225,000 first-time buyers to make purchases they otherwise wouldn't have. That's about 30% of the increase in home sales since January. So, Dales concludes that the other 70% of increased number of home sales likely happened because home prices have fallen to more affordable levels and because interest rates are low.
"The pace of the recovery is likely to slow and it will be many years before either activity or prices climb back to their previous peaks," Dales wrote.
Irvine, Calif.-based real estate consultant John Burns has a more pessimistic view. He wrote recently that without "government intervention, home prices will plummet, banks ... will continue to lose money, and the economy has virtually no chance of increasing overall employment in 2010."
Burns estimates that 6.94 million mortgages are already delinquent and many of those properties will go back on the market as deeply-discounted foreclosures or short-sales in 2010 and 2011. Others, including Dales, argue that lenders will be cautious about dumping foreclosures on the market because that would drive down prices quickly. It would be more prudent to dribble the listings out slowly.
But Burns says lenders will have so many distressed properties on their books that they will have to start selling sooner rather than later.
"While both the media and stock investors believe that housing has bottomed," Burns wrote, "they are unaware of the massive supply of homes that are already in the foreclosure process that will certainly drive home prices down even further when they're sold."
A story in this week’s magazine follows up on our blog posting from two weeks ago about banks getting tougher on folks looking to sell their homes for less than what they owe and get the lender to eat the difference—a process known as a short sale.
We mentioned in the magazine article that the U.S. Treasury is expected to issue rules soon aimed at streamlining the short sale process. Housing industry consultant John Burns tips us off to some of the new rules. The Treasury Dept. will offer subsidies, $1,000 to the mortgage servicer and $1,500 to home sellers to encourage short sales. The fees, he notes, are designed to incentivize the servicer for the extra work and get the seller to leave the house quickly and in good condition.
Of course, servicers and sellers aren’t the real reason short sales take so long and often fall apart. The problem lies with the lenders or mortgage investors who, justifiably, don’t want to take the kind of hit that is often necessary to sell a house in today’s market.
Government incentives or not, short sales are likely to be a big factor in the real estate business going forward. That’s because the pool of bank-owned homes is shrinking and many of the people selling today are in distress and trying to get out from under a mountain of mortgage debt.
Short sales were about 12% of all sales in August, versus 18% for bank-owned homes, according to the National Association of Realtors. But that ratio has changed since earlier this year. At their peak in March, bank-owned sales were 31% of the market vs. 18% for short sales. “We’ve gone through the subprime foreclosures,” says Thomas Popik, director of research at survey firm Campbell Communications. “The next wave is short sales by people who lost their jobs.”
I've been reading a bunch of stories about the two-story Lego house erected in England for a BBC show called "Toy Stories." It was just demolished despite the owner's last-minute scramble to save it.
Building the home, with the help of 1,000 volunteers and 3.2 million plastic bricks, was quite a feat. The Lego sink, shower, toilet, chairs, bed, and even bedroom slippers were supposed to be fully functional. But can you imagine sleeping on a Lego bed (I guess it would be fine as long as you didn't go with a Lego mattress)?
Apparently the show's presenter, James May, offered to give away the house for free because the wine estate where it was built wanted its land back. Sadly, he couldn't find a taker. Plans to move it to Legoland in Windsor, England fell through because of the cost of transport.
May is now appealing to the public to return the house's Lego cat, Fusker (modeled after May's own cat). It was stolen from the house before it was knocked down.
The Lego house might be gone, but it lives on in this tribute song. The Youtube clip has some great photos of the outside and inside of the house).
30 Year Fixed Mortgage Rates are 4.625% - 4.875%. Time to really pay attention and review your fixed costs, as refinancing could help save serious money monthly, as well as over time. Review your income, assets, and credit, and make some long term decisions about housing. If you have ever thought about buying investment properties, you may never get another chance to buy low AND finance at all time bottom numbers. All signs point to higher rates, and when they move, it’s likely that they will move fast. If you have an Adjustable Rate Mortgage, it’s also a great time to lock into a Fixed Rate Loan.
Hope Now, the consortium of banks, mortgage companies and credit counselors hoping to stem the housing crisis, released its August numbers. New foreclosure starts dropped by more than 25% to 224,000. The number of people who actually lost their homes in foreclosure sales was down 16% to 75,000.
Hope Now says the numbers show its program to workout loans is working. ”Our data suggests a correlation between the drop in foreclosures and the increase in work-out solutions to help at-risk borrowers,” said Faith Schwartz, the group’s executive director.
Look deeper into the numbers though. Repayment plans that merely give the borrower an opportunity to catch up on past due payments vastly outnumber loan modifications, where borrowers actually see their interest rates or principal reduced.
Loan modifications are viewed as a more permanent fix because they reduce the monthly payments. Presently repayment plans outnumber loan mods at Hope Now lenders by nearly three-to-one. And the gap is widening. In July the ratio of payment plans to load mods was closer to two-to-one.
If the economy comes back, many of the 3.2 million borrowers with payment plans may get caught up again. If not, they’ll just fall behind again. Hope Now, pay later.
We spend a lot of time here on the HotProperty blog gauging the health of the real estate market and pointing to clues about where it might be heading.
But today, we need your help. Tell us about the nagging questions you have about the housing market (example: How hard it really is to get a loan or what's the best way to go about securing one? What might a housing recovery look like? Is this a good time to buy an investment property?)
We'll collect the best questions and try to answer them in a week or two. No question is too small. But we’ll be looking to answer questions that will be helpful to a large number of readers and, preferably, haven’t been answered in previous stories.
So send questions early and often to prashant_gopal@businessweek.com. We've closed the comments on this post because we'd like you to e-mail us directly. If you'd like your name to be included in the story, please send it to us along with a phone number where we can reach you during the day.
Look forward to hearing from you.
UPDATE:
Thanks to those who have already sent in questions. One request, try to word your questions in a way that they're relevant to a larger audience. In other words, rather than spelling out your personal housing situation, ask me a broader question. Here's an example of a great question we received: Does the traditional rule of thumb that housing shouldn't cost more than 2.5 times annual income still apply today?
The Jumbo Mortgage Market is facing significant challenges. In this prolonged financial crisis, many banks are reluctant to lend in the higher-end of the housing market. Read More…
New home sales, after four months of robust gains, only inched up 0.7% in August, the Commerce Department reported Sept. 25.
The government's monthly new home sales report, which has a wide margin of error, is relatively unreliable. But it follows disappointing results for existing home sales and housing starts.
Existing home sales dropped 2.7% in August on a seasonally-adjusted basis -- the first decline in five months, the National Association of Realtors reported Sept. 24. And single-family home housing starts dropped 3% in August from the previous month when adjusted for seasonal variations.
Patrick Newport, and economist with IHS Global Insight, said it's not clear why sales wouldn't increase more, especially with the $8,000 federal tax credit for first-time buyers set to expire at the end of November. Buyers should be rushing to take advantage of the incentive before it vanishes (Some of them, of course, might be aware that Congress is mulling over the idea of extending and even expanding the credit to include all buyers).
"Three independent sources [new home sales, housing starts, and existing home sales reports] are telling us the market weakened in August," said Patrick Newport, an economist with IHS Global Insight. "I'm just not sure what is happening."
But Zach Pandl, an economist at Nomura Securities, isn't concerned about monthly fluctuations. He expects the last-minute rush of buyers using the tax credit to boost sales in September.
The good news is that inventories of unsold new and existing homes continued to drop in August, Pandle said.
"Overall, I don't think much has changed here," said Pandl, who says the housing market is now strong enough to stabilize even without the $8,000 credit. "It's unreasonable to expect a smooth upward march. It's going to be a choppy, challenging recovery."
The analysts at the investment firm Sandler O’Neil recently did a tour of the Manhattan apartment market with some of the biggest publicly-traded management companies including Avalon Bay and Equity Residential.
The news is that rents are off approximately 15%, much as in other parts of the country. The vancancy rate is up to 6%. In the past, Manhattan apartment buildings were almost always fully leased.
New tenants are demanding at least one month free rent. In some cases landlords are also paying the real estate agent’s fee—typically a month and a half’s rent. Tenants in New York used to get stuck paying that in the past.
The concessions are keeping traffic high, Sandler O’Neil says, as some chronic "deal shoppers" look for the best rent. The lower rents have also attracted some tenants from the Boroughs and New Jersey to move to Manhattan. Some tenants have traded down to smaller units or taken on a roommate to reduce their expenses.
Keep in mind we’re still talking about expensive apartments. A 1 bedroom that rented last year for $4,400 is only down to $3,700 now.
The stimulus package is well, stimulating. According to the Associated Builders and Contractors trade group, the nation's construction backlog for July rose 8.9 percent to 6.1 months. The backlog is a measure of how much work construction companies have. The increased business is all coming from infrastructure projects, not new housing developments or factories.
“The stimulus passed in February is turning into contracts, actually money being spent,” says the trade group’s chief economist Anirban Basu. “It’s mostly road resurfacing, water and sewer projects. That’s the fastest way to get money out the door.”
Basu figures about $131 billion of the $787 billion in stimulus money that Congress approved is going toward infrastructure. Some states, including Texas and California, have jumped on the funding opportunities faster than others.
All this is about jobs. President Obama is saying nearly one million jobs have been saved through the increased government spending.
“One can debate if the rate of return is what it ought to be,” Basu says. “Would it make more sense long term to be repairing our air traffic control system, building nuclear power plants or high speed rail?”
Well, let’s look on the bright side. Fewer potholes.
I heard recently from a reader who said the bank she had a mortgage with wanted her to continue to pay off part of the loan even after she sold her house for less than what she owed—a process known as a short sale.
Banks have always been able to pursue deficiency judgments against borrowers who didn’t pay everything back, but they didn’t do so aggressively so far in this housing slump.
Rick DeBruhl, the consumer affairs reporter at the NBC affiliate in Phoenix, sent us this report he did recently. The homeowner is being asked to pay $75,000 of the $200,000 difference between what he owes the bank and what his house is worth. Rick says he is hearing of more cases like this recently.
What’s interesting too about this case is that the bank, One West, is the entity formerly known as IndyMac. The private equity firms that bought IndyMac from the federal government agreed to continue the homeowner-friendly policies initiated by the FDIC after it took over IndyMac. Now that no longer appears to be the case.
Such prominent analysts as Meredith Whitney are raising alarms about the prospect of a deepening slump despite recent signs of improvement in home sales, prices, construction, and inventory levels.
Just as optimists see signs of life in the market, it's just as easy to point to the danger signs.
As my colleague Chris Palmeri wrote yesterday, even though total housing starts, including apartments, rose slightly last month, single-family home starts, which make up most of the market, actually fell for the first time since January. The Mortgage Bankers Association's index of loan applications for the week ending Sept. 11 dropped 8.6% on a seasonally-adjusted basis.
And the widely watched S&P/Case-Shiller 20-city home price index, which cheered Wall Street with its back-to-back increases in May and June -- the first month-over-month jumps since 2006 -- only seemed to spark more debate.
Daniel Alpert, Managing Partner at Manhattan boutique investment bank Westwood Capital, says that home prices could fall another 14% by the time the slump is over.
To understand why, it helps to divide the metros into two separate categories, rather than to lump all of them together, he argues. According to his analysis, home prices in 13 of the 20 metros included in the Case Shiller index could continue to drop: Denver, Washington D.C., Atlanta, Chicago, Boston, Detroit, Minneapolis, Charlotte, New York, Cleveland, Portland, Texas and Seattle. The former bubble markets where prices fell early and fast are likely closer to the bottom, he said. They are: Phoenix, Los Angeles, San Diego, San Francisco, Miami, Tampa, and Las Vegas.
In the seven bubble markets, where foreclosures have already pulled down prices to attractive levels, sales soared 29% in the second quarter compared to the same period last year. On the other hand, home sales in the 13 metros, which saw neither huge price runups during the boom nor massive declines afterward, dropped 22%.
Home prices across the country were artificially boosted during the boom by creative mortgage products and easy credit. And now prices in markets such as New York and Seattle need to fall some more to reach historic affordability levels, he said.
"It was very easy to look at housing crisis nationally for two years," Alpert said. "The housing crisis -- at first --looked like it was everywhere. As it bottomed out, you have to look at individual markets again."
The housing news continues to be mixed. The Commerce Dept. released its monthly numbers on new housing starts, showing an increase of 1.5% to 598,000 units, the highest level in nine months. Builder KB Home announced it was re-entering the Mid-Atlantic region, which it had left in 2007.
Peel behind the numbers, however. Single-family homes, which make up 85% of the starts, actually fell, the first decline since January. It was only the big jump in multi-family construction that allowed the overall number to rise.
Meanwhile, yesterday, the Mortgage Bankers Association reported that’s its index of loan applications fell 8.6% for the week ending Sept. 11. That number is seasonally adjusted for the normally expected slow down in back to school season. On an unadjusted level, applications fell 18%.
Perhaps that's why shares of homebuilders fell on today's "good" news. “The claim that housing is out of the woods is greatly exaggerated,” said Jeffrey Gundlach, the chief investment office of money management firm TCW recently.
I've been reading a bunch of stories about the two-story Lego house erected in England for a BBC show called "Toy Stories." It was just demolished despite the owner's 
