SHORT SALES SELL FOR MORE THAN REOS

Imagine that... short sales sell for more than actual REOs! For those of you who know me, I've been saying this for years and the banks are just now starting to catch on. This shouldn't come as a big surprise, though the numbers may be a little skewed because, let's face it, there are some beater REOs that the banks are selling as-is. The above article talks about the amount of short sales on the rise. In California they were up to 23% of all closed residential sales. Any BPOs that I do, I try to steer clear of using any short sale comps unless I absolutely have to. Ultimately though, it's not easy to find 3 solid active and 3 solid sold comparables to use in the report.

What I've noticed in my own personal business is that banks are starting to catch on. They recognize that the foreclosure process can get pricey and the longer it goes through the process the more values fall and in the end, the banks are losing a good 10% just in value depreciation because of time. Add on the fact that the fees of a locksmith, preservation company, attorney, etc. aren't getting any lower, it makes sense to sell the short sale and get the asset off their books. One short sale I have took 2 weeks to get approval (once we had an offer of course), we're in escrow now and should close by the end of the month. Short sales are doable and banks are getting quicker at approving and moving forward with the sales than ever before.

SHORT SALE AND FORECLOSURE HAVE SAME IMPACT ON FICO ENTER STRATEGIC DEFAULTER

I was reading a blog by the Fair Isaac Corp (yes they have a blog) and it talked about the impact of a foreclosure vs. a short sale on a credit report. Come to find out my advice to clients about the credit side of things wasn't entirely correct. Make no mistake a short sale still looks better than a foreclosure, but in the eyes of the credit bureaus? Not so much. Turns out they don't really care if it was a short sale or a foreclosure, your score is going to drop regardless and the magic number is 3. As in 3 years you have to wait until you can buy something again. Come to think about it, if you let a house go in 2008 and you spent the past 3 years paying everything on time and proving on paper that you are fiscally responsible, you could buy this year at rock bottom prices! Heck, you could even buy the same house that you lost close to 40-50% off. Which leads to the STRATEGIC DEFAULTER.

The STRATEGIC DEFAULTER flat out understands the game (it truly is a game). It's like the guy that gets through college doing 120 of the required 120 units to graduate, and if he did 123 units he would probably curse at his degree when it came in the mail and only remember the 1 class that he took by mistake thinking that he had to take it. I won't go on with my opinions on the world's view of college but FICO savvy people understand what's at stake. The government has made it way to easy for someone to walk away from their home with little to no repercussions financially and buy again for a lot less than what you originally owed on a property. Not only is there credit repair places that can get the short sale or foreclosure removed, but I had a guy that bought a new car and a newer, larger home and promptly stopped paying on his original home that was now worth 50% less than what he owed. He simply said, "why would I keep that home?" and though it's sad to admit, ethics and morals aren't playing a very high role in those making the decisions.

It's the world we live in and unless some kind of policy changes or we get an overhaul on individuals values we're going to continue to see these actions and this way of thinking, so everyone prepare and don't be shocked if we see foreclosures continue for quite sometime.

ECONOMY TO LIVE WITHIN ITS MEAN??? WHAT A GREAT IDEA!

So it's been a while... Not that anybody's reading this blog but it's more of my little part of cyberspace (owned by Google naturally) where I can vent, share and do as I please anyway right? So I was reading this article on www.inman.com that talked about our economy and spending and it got me thinking about my own upbringing and how much I've seen the government and economics change over my lifetime. It makes practical sense to not spend more than you make right? Well it should at least, Steve Martin even figured that out on SNL one time, but there are so many of us in the world that will do what our leaders are showing us. If our government is spending out of control, then it gives us, its citizens, a skewed view of reality. That's not to say that people can't make their own decision or be responsible for their own actions, but when I hear my 6 year old say something that he shouldn't, I need only to look in the mirror to find out where he's getting it.



Now to relate this to Real Estate... with all of the regulations now in the finance world, it's almost impossible to buy something that you can't afford. In fact I was at a training several years ago by First Magnus, and no they're not around anymore, and they were saying in early '07 that regulations were tight and the pendulum had swung... They should see that pendulum now... I recently had a client who said they wanted to wait until prices dropped even more. My advice to her was that we are already in 2003 price range and anytime you buy in the next couple of years is a great time. She was falling into the scare of the economy that so many others are doing. The picture above shows the dilemma we are running into. The majority of us are scared to spend anything, but one thing you can be sure of is that this real estate market will come back up and anytime you buy in the next couple of years will be a great time to buy.

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