TARP WATCHDOG?!?!? JUST MODIFY THEM ALREADY

I just read this article on www.Housingwire.com and noticed some really awful changes to the HAMP (Home Affordable Modification Program) plan. I'd like to try and make some sense of what needs to happen in order to get things moving in the right direction.

1. We all need to get over this Principal Reduction Fairy that is floating in the sky telling everyone that they can get that type of modification. I've heard as little as 2% to as high as 15% actually get principal reduction and when I dig deeper and actually ask specifics they get even more vague. Some count deferred principal payment or even waiving late fees as principal reduction (both of which are not principal reduction last time I checked). This is the last thing in the world the investors want to happen and they will fight tooth and nail to make sure you don't get it. They would rather lose money on your monthly modified payment than take a discount on the principal owed them.

2. The banks either need to beef up their modification departments or loosen their modification guidelines so they can approve the mods quicker. Most every modification now is requiring a payment plan to make sure the owners can afford the new modified payment and rightfully so. Each one that I've ever heard of says 3 months of payments and they can modify it, but what's really happening is people are making 5,6,7 payments before the bank asks for all of their information again to see if they qualify. Doesn't the fact that they've made that many payments mean they can afford it?!?!? AAAGGGHHH!!! Anyway, I just think a little more common sense should be used for this part of the modification process. It either works or it doesn't.

3. The numbers do not reflect the actual amount of mods that are helping people. This has to do more with #2 above, but by saying that there are only 230k permanent mods out there because of this program is like saying the rental property down the street from me only has 1 family living in it, when based on the amount of noise coming from that house there are at least 3 families if not more (sorry... had to compare it to something in my life and that was the first thing that came to mind). If the banks just sped things up a little bit, I dare say we'd be in the 50% approval rate of permanent modifications.

BUSINESS NICHE FOR FHA CONDOS

I've briefly touched on Condo Associations and how hard it is to actually lend on a condo if it has not already been approved by FHA. For those of you that live in an area with multiple associations, trying to find out about a particular one without driving there personally and interviewing the occupants is close to impossible. The closest thing that I've found online is Neighborhood Link which does a decent job, but unless the association has already identified itself with this website it's not there. If you were to perform a search on HUDs website for FHA Approved Condo Associations (click here) you will find a lot of information regarding each HOA, but one thing that I noticed that the search was missing were actual addresses.

Now you can probably figure out where the association is for a handful of the results based on the name, but for the 37 results that I received from my local area search only 1 came back with an actual address. The system just needs a few tweaks to it to make it more efficient, but for the time being there is a business niche that exists based on this lack of information. If someone were to create a website and provide the information it would make my life a lot easier when I'm showing property so I don't waste my client's time who are going FHA.

CONDOS, FHA AND INVESTORS

Many investors that left the Real Estate market to focus on other endeavors are starting to come out of the woodwork and put their money back into U.S. Housing and for good reason. The Investor realistically is the only entity that is going to get us out of this mess. The FHA waiver of their 90 day flipping rule is helping also, but the one market within Real Estate that is in desperate need of repair is Condominiums. Within the past 6 months FHA has completely changed the rules for the way these properties are funded and insured. I've read study after study regarding FHA as it pertains to Condos and people not only in California but nationwide are saying the same thing. If a complex isn't already FHA approved or grandfathered in then they won't even bother. Here are some of the guidelines that FHA is requiring from the associations in order to insure the loans:

-Investor Ownership- No more than 10% of the units can be owned by one investor. So a small complex (9 units or less) has to be 100% Owner Occupied.
-Delinquent HOA Dues- No more than 15% of the units can be late on their Dues. Large and small projects are being affected by this.
-Owner Occupied Ratio- 50% or more of total units must be Owner Occupied.

There is also a requirement on how much in reserves an association has to keep in regards to their annual budget. The list goes on and on, and with the majority of loans going FHA we have to play by their rules. They've tried to make the search easy to see if an association is already approved, click here for the search, but if you live in an area with a plethora of associations it's hard to pin down which association you're actually looking at. Unless you're looking to buy and hold I would stay away from Condos.

One financial market that is seeing an increase in Condo funding is Hard Money. Private Party Lending requires a large down payment but in many cases with HOAs involved this is the only way someone can claim the title of homeownership. For the time being, we're looking at bumpy roads ahead for Condos and funding.

LACK OF INVENTORY LEADS TO FRUSTRATED BUYERS

The California Real Estate Market is seeing a lack of inventory and it's leading to a lot of frustrated buyers and an increase in values. Though based on my previous posts I think that we are experiencing a false bottom, it is the market that we're living in. That being said it doesn't mean that it's a bad time to buy. If you are a buyer and are planning on staying in your home for a while it's still a good time to buy. For those of you waiting for "approval" on the Short Sale you submitted months ago, keep looking and don't be afraid to submit backup offers. For every Short Sale transaction that I've ever done the original buyer has backed out after approval and a backup offer has been accepted in its place. I have yet to have a Short Sale transaction go through with the original buyers. Have your agent call on "pending" properties in the MLS. I can't tell you how many times I've had clients slip in right after the listing agent found out the previous buyers for his listing walked.

If you're a seller and you want out, sell now! It's a seller's market to be sure and now would be the time to capitalize on the multiple bids coming in. I've had some calls recently of potential sellers asking what they should do with their property and I tell them that unless they want to keep it and cash flow the property now is the time to sell. I'm not a hard salesman and I let people make their own decisions with what they want to do, but with the strongest words that I can say, do yourselves a favor and sell now! There is a shadow inventory that has everyone buzzing in the industry and my guess is that we will start to see that inventory come through towards the tail end of this year.

To give you an example... I have someone very close to me in my life (let's just call them Grandparents) that have just added onto their already big house in LA County. It's a beautiful home on a decent sized lot and for all extents and purposes they are in the perfect position to sell their house, make a bunch of money and put a large down payment on an equally sized if not bigger house in a different county. It is a sellers market and one can capitalize greatly on that fact because it is only a matter of time before the pendulum is swung the other way. To the ones mentioned in this post I LOVE YOU.... but you need to sell

INVESTOR TRENDS

I recently listened to a webinar given by Jeff Adams where he spoke of his system to getting properties at a discount and the strategies he has been using for the past little while. Through the many hours that I've spent in trainings, webinars, seminars, etc. I've seen a trend in fixing and flipping properties right now. My friend David Darling calls them "flixers" and people are making a good amount of money on this in the current market. It's funny to hear the people in these trainings talk about the ease of how it works, almost as if they forgot how hard it was to get their first deal done and the times they spent just barely scraping by to make ends meet. Don't get discouraged if things don't pan out right away. The gurus still have a low conversion rate based on the amount of people that call them saying they've got the deal of a lifetime for them.

The trend that I am seeing in the market is flipping, I would assume there is still a good 6-8 months of flipping that we are going to see. The recent suspension of FHAs 90 day flip rule is a big deal and it has opened up this flipping pattern to those that were on the fence about getting into this strategy to begin with. I'm just a little worried that it will turn into what I call the "punk pattern" where once something gets mainstream and everybody's doing it, the savvy investors will pull out and find the next new way to make money (my prediction... bulk REOs make a comback after this phase of investing has lost its sexiness).

So for the time being we'll see an increase in hard money loans and private investors looking to capitalize on this new phase of making money.

STICK WITH WHAT YOU KNOW

For the past couple of months I have been taking Steven K Scott's challenge to read the Book of Proverbs every day and today being the 27th of January I read Proverbs 27. While reading I came across Proverbs 27:8 "As a bird that wandereth from her nest, so is a man that wandereth from his place." There are many ways to interpret this scripture and I think that is what King Solomon had in mind when he writes, but it really resonated with me because of recent events in my life.

I am an entrepreneur at heart and I've started a dozen or so businesses and the only one that I've seen a tremendous amount of success in is Real Estate. Though I've loved every business that I've started, I understand this one the most. Everything about this business just feel natural and it seems like every time I venture away from real estate I start to lose money. It was a painful lesson to learn (financially) but I think that my lot in life will always be in real estate. Now there are so many different facets of this industry that I don't think I will ever get bored but it's taught me a great lesson. Wandering from what you know and are good at puts you in a vulnerable position.

Taking risks are a part of life. I understand that, but be smart about it. You can do more being an expert in a particular field than you can by just knowing a little bit about a lot of things, Ken Jennings being the exception to that last statement. Figure out what you're good at and what comes naturally to you and embrace it. Make a living out of it. It may take you a while and you may have to go through some less than desirable experiences to get there but just do it.

2 REASONS THE MARKET HASN'T HIT BOTTOM YET

I live in the Inland Empire in Southern California. The Real Estate market in which I live is so diverse that it changes from neighborhood to neighborhood. I read so many articles and studies of different areas of our country and am baffled at how different our Real Estate is compared to everywhere else. It answers to no one and follows it's own star. There are pockets of the IE that follow national trends but within a months time they can completely disregard that trend and do the exact opposite. There are many areas that I cover that are appreciating and with the FHA changing the 90 day flip rule, my guess would be that it would continue to appreciate if it weren't for 2 major factors.

Factor #1 The Foreclosure Moratorium: I'm not a big fan of it. It was almost comical to see how quickly the banks started to pay back their TARP funds when the current administration said "Alright now that we've given you $700 Billion, we want you guys to hold off on foreclosing and we'll tell you when you can start taking back your assets." It is my opinion, that if the government would have just stayed out of it we would have had a year of serious depression (June '07-June '08) and would already be on our way to a recovery. Instead of a quick depression period we are experiencing a lengthy recession. Realistically we're not even half way done with this recession, which pains me to say.

Factor #2 The Dreaded "Short" Sale: I could dedicate a whole week to writing about this factor but I wouldn't want to take my frustrations out on my keyboard (it would just end up adding to the already giant pile of eWaste). With 75% of the current properties for sale being distressed there is no wonder why banks aren't capable of handling the demand. I am negotiating several short sales and my longest one has been going on for 8 months (thank you Wells Fargo), though I've heard of some horror stories taking as long as 18 months to close. Like I stated earlier there are areas where I service that are appreciating, assuming it were a normal real estate market. How is a market suppose to get better with transactions closing based on offers written 6+ months ago?

Flipping is huge right now and the smart investors are doing that now because the majority of bulk REO deals have dried up. But do not fear, the days of bulk REO deals are headed to make a strong push towards the end of this year and well into 2011.