I’m like everyone else. All I can do is take what I’ve been taught couple it with my experiences and what I’ve learned to make what to me appears to be an informed decision.

Therein lies the rub at least as far as this real estate debacle is concerned. I look at the foreclosure filings in my county and see they are up. I read articles that tell me other areas, with few exceptions, are also experiencing an uptick in foreclosure filings.

I combine the two pieces of information and come to the conclusion the foreclosure mess will be with us for the remainder of 2008 and likely throughout 2009. I also deduce, maybe incorrectly, that the turn around won’t happen until 2010, if then.

On the other hand, I also read articles that tell me this mess will bottom out in 2009. One of the reasons stated is that people are staying away from the real estate market today because they don’t want to buy an asset that might lose value right away.

Wouldn’t it stand to reason that if the mess isn’t predicted to turn around until 2009 anything you buy today will lose value? And if it doesn’t turn around, won’t you continue to lose value?

In fact, if I am right and this thing doesn’t turn around until 2010, today’s buyers will be in the same position their predecessors were in, i.e. owing more than the asset is worth. What is to prevent them from walking away? Does this mean the “turn around” will only be two or three months in duration?

I also factor the rising costs of such things as gas prices, groceries, utility bills, clothes and other life mainstays into the paradigm and for the life of me can not see how anyone can say, with a straight face, 2009 is the bottoming out year.

Let’s not forget that big brother is pumping tons of cash into the economy at break neck speed. For the economists in the audience, you already know this is inflation. For the rest of us, it is still called inflation.

Inflation is nothing more than robbing the citizens of their wealth and transferring that wealth to the government. There are many good sites that explain the principle more eloquently than I could so if you want to learn the mechanics, please visit one of them.

If what I said is true, this spiral can only continue one way. Again, if that is true, ALL of us will be living in homes worth far less than they were yesterday and indeed may even be worth less than their current mortgage balance. Heck, they may be worth even less than what we paid for them ten years ago. How about that for a kick in the pants?

Mind you, this won’t be because we were bad borrowers or because we didn’t obey the laws of economics or finance. We did but the 800 pound gorilla didn’t. Is there an answer?

If you weren’t born yesterday, you know there is an answer. You also know the answer is to change the players and not the game. The game was working just fine and sustained both people and economic growth in an orderly manner.

The players who need to be changed are the regulators. At least I think that is the first crew who should be sent to Exile Island. It is these guys who took the reins off sensible lending practices and looked the other way when every Tom, Dick and Harry in the lending business wrote their own rules instead of following established guidelines.

Rather than make this a 5 page post, I’ll stop here and ask that you to tell me what you believe is/are the answer(s).

Read PART II of this Post.

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Tags: home value, homes, house values, property valuations, real estate, real estate values

Do great rates and great service fail to impress you? Well you are not alone. We are in a time where you need to find out who can create value with their services and ideas. And what I mean by value is, attracting customers. A good number of investors plan to sell their property at some point and awareness of loan programs can help your potential sell.

Here are a few loans of value over the last few years:

• 100% purchase, non-owner, stated income, interest only
• 1% pay option ARM
• 100% cash out refinance
• 100% Jumbo Loans

There is great debate on whether these loans are good loans, but few can argue these loan did attract customers for Realtors, Builders, and Mortgage Companies.

What are the next generation of loans to attract customers?

• 3-2-1 buy-down
• PITI Abatement
• FHA/VA
• My Community
• Credit Repair

One might say that 2008 is the year of government backed mortgages. All the loans high lighted above are directly tied to the government through Fannie Mae, Freddie Mac or FHA/VA. Unfortunately the line is drawn right at $417,000 and some high cost areas have limits as high as $729,750.

3-2-1 Buydown
Sellers and Builders can use a temporary 3-2-1 and 2-1 interest-rate buy-downs as a sales incentive. In a 3-2-1 buy-down, the interest rate is reduced by 3 percent the first year, 2 percent the second year, and 1 percent the third year. A 2-1 buy-down lasts for two years, with a 2 percent reduction the first year and a 1 percent the second.

The 3-2-1 Mortgage Buydown

• This is a 30-year fully amortized mortgage.
• The interest rate increases 1% every year for the first three years.
• Then the interest rate is fixed for the remaining term.

Here is how it works. Your loan balance is $375,000 and the interest rate is fixed at 6.5% for 30 years. The seller incentive could buy down the interest rate by paying a lump sum of $16,764.

1. First-year interest rate is 3.5%, payable $1,684 per month.
2. Second-year interest rate is 4.5%, payable $1,900 per month.
3. Third-year interest rate is 5.5%, payable $2,129 per month.
4. Years four through 30, interest rate is 6.5%, payable $2,370 per month.

• First-year savings (as compared to $2,370 per month) is $686 per month or $8236.
• Second-year savings (as compared to $2,370 per month) is $470 per month or $5642.
• Third-year savings (as compared to $2,370 per month) is $241 per month or $2,892.

Add up the annual savings: $8,236 + $5,642 + $2,892 = $16,770. Therefore, it costs $16,764 to buy down the interest rate and payments for three full years. It costs approximately 4.5% of the loan amount to buydown.

Benefits of 3-2-1 Mortgage Buydown

• The borrower qualifies for this loan at the 3.5% interest rate and payment amount of $1,684 versus the real rate of 6.5% and the payment of $2,370.
• Instead of the payment jumping all at once, it goes up in smaller increments, about $200 each year, for the first three years.
• It keeps payments low for 36 months for borrowers whose income is expected to later increase. Perhaps a spouse is returning to work after a hiatus or a person expects to graduate and land a higher paying job with that newly earned degree.

The 2-1 Buydown Mortgage

• This is a 30-year fully amortized mortgage.
• The interest rate increases 1% every year for the first two years.
• Then the interest rate is fixed for the remaining term.

Here is how it works. Say your loan balance is $350,000 and the interest rate is fixed at 6.5% for 30 years. The seller’s incentive could buy down the interest rate by paying a lump sum of $8,063.

1. First-year interest rate is 4.5%, payable $1,773 per month.
2. Second-year interest rate is 5.5%, payable $1,987 per month.
3. Years three through 30, interest rate is 6.5%, payable $2,212 per month.

• First-year savings (as compared to $2,212 per month) is $439 per month or $5,268.
• Second-year savings (as compared to $2,212 per month) is $225 per month or $2,700.

Add up the annual savings: $5,268 + $2,700 = $7,968. Therefore, it costs $7,968 to buy down the interest rate and payments for two full years.

This loan program can help more individuals qualify from and income documentation stand point.

PITI Abatement
What is PITI Abatement?

• An incentive to the buyer to have the first 6 months of the mortgage paid by the seller.
• PITI Abatement program is a product designed specifically for home-buyers. You can give a 6% Seller Contribution that can be used for Principle, Interest , Taxes and Insurance payments.

What are the General Guidelines?

• Loan amounts up to $417,000
• Up to 100% of the purchase price (5% reduction for declining markets)
• Minimum score of 575
• Fixed Rates and ARMs
• Interest Only is available
• Income limitations may apply
• Closing costs can be paid by seller too
• No prepay penalty

What is the Realtor marketing element?

• 6 MONTHS PAID!
• BUY THIS HOME AND I WILL PAY YOUR FIRST 6 PAYMENTS
• 6 MONTH PAID MORTGAGE INCENTIVE
• BUY MY HOME AND I PAY CLOSING COST AND 6 PAYMENTS

FHA Loans

FHA loans have been helping people become homeowners since 1934. How do we do it? The Federal Housing Administration (FHA) – which is part of HUD – insures the loan, so your lender can offer you a better deal.

• Low down payments
• Low closing costs
• Easy credit qualifying

Benefits for your buyer·
Your down payment can be as low as 3% of the purchase price, and most of your closing costs and fees can be included in the loan. Available on 1-4 unit properties.

FHA has a loan that allows you to buy a home, fix it up, and include all the costs in one loan. Or, if you own a home that you want to re-model or repair, you can refinance what you owe and add the cost of repairs - all in one loan. Sellers and investors should be aware that FHA requires 90 days of season ownership of a seller in orders for a buyer to use a FHA loan.

What is the Realtor marketing element?

• FHA can provide 100% Financing when combined with gift, grant or down payment assistance program
• One loan with low fixed rate

  My Community Mortgage

  What is My Community Mortgage?

  • A conforming affordable housing program offering high loan-to-value/combined loan-to-value financing for income-eligible borrowers
  • Government backed mortgage program

  What are the General Guidelines?

  • Loan amounts up to $417,000
  • Up to 100% of the purchase price (5% reduction for declining markets)
  • Minimum score of 575
  • Fixed Rates and ARMs
  • Interest Only is available
  • Income limitations may apply
  • Closing costs can be paid by seller too
  • No prepay penalty
  • Allows “roommate rent” for income qualification

  What is the Realtor marketing element?

  • Automated underwriting = more approvals
  • Government backed loans available
  • Let us pay your closing costs

  Having all the tools to properly sell your property can be critical.

Tags: cash out, community first financial, home buyer, home loan, jumbo loan, loan, Mortgages, option-arm, refinance loan, troy schuricht

Good news, bad news time for real estate and the general economy this week.

The bad is, I am afraid, very bad, indeed.

Prices for single-family homes took a nose dive in the first quarter of 2008…down an enormous 14.1 percent from the year before.

Standard & Poor’s/Case Shiller report, according to Reuters, says this is at “a pace five times faster than the last housing recession.”

The chairman of S&P’s index committee tells the wire service, “There are very few silver linings that one can see in the data.”

You think?

And now, says the New York Times, the housing mortgage mess has spilled over into the auto industry in a very big way. Mostly because many people can’t borrow against their mortgage now.

Want proof?

Shares of General Motors Tuesday slid to a 27 year low!

Okay, now some good news…for consumers but maybe not so good for bricks-and-mortar brokers.

The U.S. Justice Department has just reached a deal with the National Association of Realtors in an anti-trust case.

Says the New York Times on its website, “government officials said (the deal) should spur competition among brokers and ultimately bring down hefty sales commissions.”

Told you this may not be such good news for brokers…though it is for consumers and, in particular, for Internet real estate brokers.

Under the terms of this settlement–the case goes back to 2005–Internet brokers will be able to use the multiple listing services that are used by other brokers and which were sometimes denied them.

A judge still must approve all this, of course.

Here comes the good news, bad news thing again—one expert predicts this deal will eventually result in a reduction of sales commissions of as much as 50 percent! Good for consumers, bad for some brokers.

The Times quotes one business professor as saying, “It’s pretty clear that there was an enormous amount of discrimination against brokers who were trying to use innovative business models. There are lots of entrepreneurs who have been looking for a green light in the form of this order to begin offering discounted rates. It has the potential to be a big step forward for consumers.”

Could this be the spark needed to breathe new life into the real estate market? (yes, I know there are really several markets depending upon where you live, but, in general, the real estate market nationwide is not doing all that well!)

I doubt it. Too many other things need fixing, too.

Having said that, anything that means lower rates for home buyers is bound to, over time, help improve the dismal picture we now have, and that has to be good news no matter how you look at it!

Tags: mortgage, mortgage broker, NAR, national association of realtors, real estate, real estate broker, realtor

The Settlement Statement, often referred to as the “HUD-1”, is a document that contains a detailed breakdown of the closing costs apportioned between the buyer and seller of property.

Typically, the closing agent (often a representative from the title company), gathers the pertinent information, completes the Settlement Statement and disperses the required funds once the buyer and seller have certified the accuracy of the statement by signing it.

The first page of the Settlement Sheet is broken down into a summary of the borrower’s (buyer) transaction on the left side and a summary of the seller’s transaction on the right. The second page is divided into those costs that are “paid from borrower’s funds at settlement” and those costs that are “paid from seller’s funds at settlement”. If buyer, seller and title agent agree that the statement is true and accurate, all parties sign and date the sheet toward the bottom of page two.

The following key sections of the HUD-1 should be thoroughly reviewed in any transaction:

Borrower’s Transaction:

Line 101 - Lists the contract price as stated in the Agreement of Sale

Line 103 - Total settlement charges to the borrower; this is obtained from adding up all of the costs on the second page and is also referenced in Line 1400.

Line 120 - This is the total amount due from the borrower inclusive of the contract price, costs listed on page two of the sheet and adjustments for taxes and other items paid by seller in advance.

Line 220 - States the total amount paid by or for borrower including deposit monies, principal loan(s) and Sellers Assist.

Line 303 - The figure here is the total amount of funds (in cash or certified check) that borrower needs to bring to settlement in order to close.

Lines 801-811- All of the costs associated with the loan such as origination fees, appraisal fee, credit report fee, processing fee, administration fee and flood certification fee are listed. If any of the fees are “lender retained”, which is indicated by the abbreviation LR, then this amount was subtracted from the amount of funds actually wired by the lender to the title company.

Lines 901-905 - Any amounts that are required by the lender to be paid in advance, such as daily interest, is set forth here. For example, if Buyer settles on May 20, 2008, the lender will likely require that the Buyer pay in advance daily interest on the loan through June 1, 2008.

Lines 1001-1009 - All reserves that the lender requires to be set aside in an escrow account such as hazard insurance, county taxes, and school taxes are set forth.

Lines 1101-1113 - Includes all charges associated with the Buyer’s title insurance such as the insurance premium, search fee, examination fee, endorsements, closing service letter and overnight wire fee.

Lines 1201-1203 - Details the recording fees charged by the county to record the deed and mortgage and sets forth the proportionate share of the real estate transfer taxes for Buyer and Seller.

Seller’s Transaction:

Lines 406-412 - Adjustments are made for items, such as taxes, that Seller has already paid in advance of settlement. For example, if settlement takes place on June 1, 2008 and Seller has already paid county taxes through the end of 2008, then Seller must be reimbursed from the date of closing (June 1, 2008) through the end of the year.

Lines 501-509 - Itemizes all reductions in the amount that Seller would otherwise walk away with from the settlement table, such as existing mortgages that must be paid off and Seller’s settlement charges (as listed on Line 1400 on page 2).

Line 603 - This is the total amount of funds that Seller nets on the transaction, which is typically dispersed by way of a check from the title agent.

Lines 701-702 - Sets forth the total commission that Seller must pay to the real estate agents involve in the transaction. This is typically the Seller’s single largest cost at settlement.

Lines 1201-1203 - The Seller is also responsible for a share of the real estate transfer taxes. In many jurisdictions, the transfer taxes are based on a percentage of the contract price and are split equally between Buyer and Seller.

It is always good practice to request that the title company (or closing agent) furnish a preliminary HUD-1 a day or two before closing so that there are no surprise costs at the last minute. Make sure to review the preliminary HUD-1 with your attorney or real estate agent and bring it with you to settlement. You should compare this draft with the final HUD-1 to insure accuracy of all costs to Buyer and Seller.

Tags: HUD, HUD-1, real estate, real estate investing, real-estate-deals, settlement statement

The importance of financing is so great it pays to leave nothing to chance and assumption. Knowing the local lenders and what they like to invest in is critical to finding the right lender for your investment project. Also, presenting a compelling case to the lender is important. These two aspects lay the foundation for creating a successful project.

This goes back to preparation and research. You might also want to research private financing, which entails knowing wealthy people, or knowing someone who knows wealthy people.

Having a good idea of what’s the favored investment in a local area will no doubt play a part in the choice of the investment project. But if you have followed advice and have become knowledgeable of your area, you should have a good idea about trends and the financing possibilities.

You have also, no doubt, become knowledgeable enough to exude confidence when you present a project to be financed. It also pays to have gathered support from influential people you know in the area who can vouch for you. Having references will allay doubt, unless you know the lender personally. It may be a process getting to the right decision maker, so you should be persistent and not give up at a first brush-off. Getting to know the assistant might be the first step, and it might take more than a few visits to get in the right door. Everything you learn from the first few failures will be important in devising a better plan.

Establishing rapport with those along the way will help clear the path — if what you present is compelling, you can advance, but the lower players will not likely stick their heads out if you seem unsure are don’t have a good presentation.

This is where having a good team already assembled helps . If you have chosen a well-known attorney and accountant, and have chosen property management (if it will be needed) and solid, quality contractors, then this shows that work has been done and others have looked at the project — it shows you are prepared and that you are a serious investor.

Having a good resume will be impressive, one that shows your skills and experience and why you would be good at this type of investment. Most lenders want to say Yes, but they want everything in place to be able to say Yes.

Make it as easy as possible for the lender by being co-operative and having others vouch for you — you might be good at selling yourself, but to a lender it will only be self-serving — a lender will be impressed if others who are influential and respected are selling you.

The bottom line is that the more you know about the right decision-making lender, the better you can plan a presentation that will be accepted favorably. Having all the numbers clearly crunched by an accountant, having all the legal ramifications covered by an attorney, all the construction aspects assessed bya contractor, all the management lined up and factored in, will present a strong case for acceptance — much stronger than if you go in alone and brag on yourself and idea and basically ask a lender to go on faith .

When an idea is reasonable, researched and the numbers make financial sense, AND you have a team behind you, the chances of getting financing are greatly enhanced — who knows, you may have lenders competing for the project, which would be even better.

Tags: Commercial Real Estate, financing, lender, presentation of the investment project, rea estate investment financing, real estate, Real Estate Investing

The real estate agent seems to be the eternal optimist. In the middle of the credit crunch, foreclosure crisis and general market malaise, he or she will be smiling broadly and proclaiming that this is a great time to buy. You could almost picture the agent showing a property that had been devastated by an earthquake, flooded by a hurricane and whisked away by a tornado and saying “It’s a steal, a little paint and new carpet and it’ll be good as new!” Lately I’ve been hearing real estate professionals here in Las Vegas saying that they are busier than they’ve been in a long time, just more puffing?

Houses being snapped up in a matter of days, multiple offers, bidding more than the listing price, - sounds like the real estate market circa 2005. However, that’s what I’m being told is happening today. This is the world of bank-owned homes, or REOs, in Las Vegas at the moment. This isn’t some pundit spouting numbers, or an economist manipulating data to support a pre-formed conclusion (see last weeks article), these are reports from the front lines. New homes still aren’t selling and typical resale listings are languishing on the market for extended periods of time, but the banks have slashed prices on their REO listings enough to spark an interest again.

The Raw Numbers

While I don’t have an axe to grind in this situation, I was sure that what I was being told was an aberration. With all of the negative news we keep hearing, how could the situation possibly be anything but bleak? I decided to look at a few key numbers that are readily available for the Las Vegas market. I would only look at single family homes since that is the bulk of the market here. I was interested in comparing the total number of homes on the market, number of homes under contract, and median price. I would also look at the days of supply, which is simply the number of homes listed divided by the average number of closings per day. I wanted to compare today’s figures to those from 2007.

Listings:

May 2007 19,411

May 2008 16,556

Down 15%

(Peak supply was 21,772, we are down 24% from that)

Under Contract:

May 2007 2,684

May 2008 5,735

Up 114%

Days of Supply:

Tags: Foreclosures, Housing, las vegas, las vegas real estate, vegas, vegas housing

BEWARE! BEWARE! BEWARE!
I am quite sure that many of you are staying abreast of the new laws regarding dealing with sellers and properties on their way into foreclosure status. On my side of the country it is especially critical to follow all guidelines of the pre-foreclosure business. Those who are choosing to take their chance are finding themselves in JAIL. These not so new but recently enforced laws have real estate investors chasing the same agents they kicked to the curb years ago.

In Maryland, we can not make contact with any home seller who is 60 days or later past due on mortgage payments. Only a real estate agent has the authority to make such contact. Now all of the sudden real estate investors in deep negotiations with sellers who are in similar situations must immediately cease fire.

I would jump out and say that 65% or more active investors have some dealings with pre-foreclosure homeowners. On top of that, 100% of real estate investing courses promise to keep students up to speed on the latest laws and regulations surrounding the field but the information is not being taught. Government officials and local newspapers are cracking down hard on these programs and these programs are becoming the blame for transactions gone wrong. There is one case in MD where a homeowner is attempting to sue a real estate investor, the buyer, and the program through which those persons acquired their real estate investing expertise. And it seems as though they have a very strong case when looking at all of the facts.

I have just a few tips to help save you investors some trouble before it comes.

1. When initiating your conversations with sellers, immediately ask whether payments are current. If the payments are not current, kindly request that they sign an authorization to release loan information to your company and its agents to obtain an accurate picture of their mortgage. There are many times when a seller does not disclose that they are behind in payments, being notified by attorneys, are already in foreclosure. Getting the scoop directly from the lender will keep your tail out of jail.
2. Put a QUALIFIED real estate agent on your team. Agents are the only persons who can hold a conversation with a seller regardless of the position they are in. Agents are the most important piece to your pre-foreclosure business. It is called “list it and I will be your first contract on it.”
3. Either get with the new rules or get a GREAT LAWYER! If you continue to operate your pre-foreclosure business in a fashion that ignores the rules, you may find yourself behind bars. “The Foreclosure Consultant” stipulations in the Maryland State Law are very stiff and penalty heavy. Check your local laws to see what applies and what doesn’t.
4. When your real estate direct mail campaigns go out, have your agent return the calls to screen who you can and cannot talk to.
5. If you take a course on real estate investing and someone promises to tell you how to negotiate short sales, ask if they are having a lawyer on site to explain the whats, whens, and hows of the law.

Blessings to your Real Estate Investing Business,

Milton B. Yates

Tags: foreclosure law, law, pre-foreclosure, real estate investing, Real Estate Law