DEAN GRAZIOSI: DEAN GRAZIOSI REVIEW – REAL ESTATE FEED BY DEAN GRAZIOSI

According to a federal report, more than 50 percent of home modification loans fell two or more months behind after just the first year in 2009.  The report covers approximately $6 trillion in loans or 64 percent of all mortgages in the United States.

Believe it or not, the news is not all bad. Only 40.7 percent of mortgages modified in the second quarter of 2009 were delinquent after nine months.  During the same period in 2008, 51.8 percent of mortgages were two or more months delinquent. While the trend is improving, the modification program cannot be deemed a success and goes a long way toward explaining bank resistance to various modification programs.

The Administration’s Home Affordable Mortgage Program has been slightly more successful than non-government assisted programs.  Under the Home Affordable Mortgage Program, payments are modified so as not to exceed 31 percent of pre-tax income.  This should allow homeowners who want to save their home an opportunity to succeed. 

For the most part, interest rate reductions were the chief modifications made to mortgages in the first quarter of 2010.  85.9 percent of mortgages were modified in this manner.  Term extensions were applied to 45.8 percent of the loans while principal reductions were applied to only 1.9 percent of the loans.

The Obama plan offers new incentives to lenders who want to use the principal reductions to avoid foreclosure action.  A troublesome trend is that 25 percent of homeowners who are underwater are willingly allowing foreclosure proceedings.  The damage to credit ratings is severe but homeowners see paying off a mortgage that exceeds the value of the property as a bad investment strategy.  By walking away, the damage is done and homeowner can begin to rebuild their credit.

The rate of completed foreclosures increased by 19 percent in the first quarter 2010.  Short sales increased by 9.2 percent but 120.4 percent in the past 12 months.  No matter how the figures are viewed, they are dismal.

On the brighter side, lenders are showing an increased willingness to work with troubled homeowners.  Modification approvals outweighed foreclosure initiations by 107 percent in the first quarter.  

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Homeowner’s Insurance is an inexpensive way to protect one of your largest investments. If you have mortgage, your lender will require you to purchase a Homeowner’s Insurance Policy. 

Homeowner’s Insurance is a contract between the owner and the insurance company.  In exchange for paying the premiums, the insurance company will pay the owner for damages caused by natural disasters or by human error.

Owners have protection against natural disasters like fire, lightning, wind or winter storms.  Damages caused by humans like theft and vandalism are also covered.  Most homeowner policies include liability coverage for persons that incur injuries on the property. The cost of legal defense in these instances is usually included in the coverage.

Homeowner Policies do not include coverage against floods or earthquakes.  If the property is located in an area where these natural disasters are common, the lending institution may insist that the owner acquire flood and/or earthquake insurance.  The cost of this coverage is more expensive than typical homeowners insurance.

As the mortgage company typically has a significant amount invested in the home, which is often more than the owner’s insurance, they will want their investment protected to the maximum amount.  Proof of this insurance will be required before the property will close.  Many mortgage companies will charge the homeowner for the insurance and then pay the premium themselves.

The premiums, like the real estate taxes, will be paid from the homeowner’s escrow account.  Proof of payment and coverage will be forwarded to the homeowner each year.  If the lender does not require premiums to be held in escrow, the mortgage company will send notice to the owner each year requiring a cop of the new coverage.

If the home s sold, the homeowner will receive a refund for the unused portion of the policy.  The same practice applies to unused real estate taxes that have been prepaid. 

Homeowner Insurance is provided at a reasonable rate.  The homeowner is free to seek competitive proposals for the insurance. The homeowner should make sure the coverage meets all the lender’s requirements and serves their best interests as well.

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Residential real estate investors are in for happy days ahead.  In fact, investors will soon enter heretofore impossible territory.  Conservative estimates drawn from the U.S. Treasury Department, Zillow and Radar Logic clearly illustrate that the government will soon have more than 3.1 million Real Estate Owned Properties to manage and sell.

As usual, the nation’s taxpayers will be paying for damages incurred by the country’s lax and irresponsible lending practices.  Remarkably, the proponents of these practices have tarnished the public confidence in financial institutions but have created millions of multi-millionaires along the way. 

The employees who developed the high-risk, low-doc loan packages worked for such companies as Goldman Sachs, Lehman Brothers and Bank of America, among others.  The typical Goldman Sachs employee earned a resounding $630,000 last year. 

Of course were it not for the American taxpayer which gave the company $10 billion in a direct loan and another $10 billion through an AIG loan repayment, the company would have closed the doors.  It is good to know that companies like AIG, which has cost the American taxpayer more than $180 billion so far, can afford to repay Goldman Sachs for what was clearly a poor investment while Goldman cannot help out any of the homeowners the company duped.  It is the classic example of American greed.

Now the federal government will be forced to come to the rescue again.  Other than the financial companies that packaged those dreaded low-doc loans and then sold them over and over again, the next group of winners stands to be residential investors.  The new-age investors who can learn to deal with the government’s cumbersome paper trails and slow decision making abilities stand to make big returns on relatively small investments.

The reason is that the U.S. government cannot afford to maintain these properties.  Frankly, investors may soon see favorable financing terms that will exceed their wildest expectations.  If you are an investor, get your REO presentation kit together.  If you have never invested in real estate before, this is the best chance you will ever have.

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You have done all your homework.  You know or sense that another broker or agent will be discussing the possibility of listing the property before a final decision is made.  The moment of truth has arrived.  At first, these meetings may have troubled you.  No longer.  Now, every listing we pursue shall be addressed in the same manner.

We will be true to our broker, true to our profession, true to ourselves and true to our client.  After all, they all go hand-in-hand.  Meanwhile our professionalism and handling of our marketing plan will blow the competition out of the water.  The seller will be so impressed that even if they take a meeting with another agent, they will be thinking about your presentation.

Good listing presentations begin with a relaxed, friendly disposition.  If you sense a price disagreement or are put off by the fact the seller will be consulting another agent, take that chip off your shoulder and concentrate on the job ahead.  Hey, this may well be the biggest asset in the family.  The seller is just trying to do what is best for their family.  It is up to you to convince the seller that what is best for their investment is to retain your services.

Your listing meeting begins well before you arrive at the residence.  In some cases, it may have begun months ago when you heard there was a possibility the home would come on the market.  Obtaining the perfect listing is often your ability to build both a personal and a professional relationship with the seller.  Brokers do not like to talk about it, but we know that is important.  There is a personal side to real estate and that is a side we enjoy.

You have built a personal and professional relationship wit the seller.  In fact, that is why you have arrived at the residence to make your listing presentation.  Because you have this relationship, you will always maintain your demeanor and will have the ability to present your case and marketing plan.

Before you arrive at the home, you have done your legwork and your homework.  You may even have confidentially consulted your office manager or other high profile agents in your office.  This is always a good idea.  You can never have too much input from knowledgeable experts.  

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As every real estate agent knows, the most difficult part of getting that new listing is establishing the right listing price.  If there was not a human side to every listing price, arriving at the fair market value is relatively simple.

Well, there is a human side to the listing price.  And, that component needs to be addressed.  Once in a rare while, the listing agent meets a seller who wants professional advice and truly acknowledges the fair market value.  However, those sellers are few and far between.

More often, the seller is aware of certain homes that have sold in he neighborhood and can build a street-savvy, hearsay case for their own selling price.  Rarely, is the seller’s idea of a listing price on the mark. 

The agent must now walk a delicate balance taking into account the fair market value and the personal feelings of their client, friend and seller.  That is the tricky part, isn’t it? 

At the same time, the agent must be professional, courteous, filled with integrity and accurate.  We all know that, historically, we have been surprised.  Sometimes, listings have sold for more than our data suggested.  Far more often, and especially in the current marketplace, listings have sold for less than was merited and below market value.

While there is no question that this is a buyer’s market, houses are selling.  And, properly priced homes sell for market value.  Brokers and their agents know that it is a buyer’s market and, don’t kid yourself, so do your sellers.

Even though a property’s fair market value may be less than your seller hopes, the agent’s responsibility is to provide an accurate fair market value analysis and a well-designed marketing plan that will accomplish that goal.  These two components go hand-in-hand and experienced agents know that one without the other does not work.

Yes, agents do take certain listings at above market value prices, but they have upheld their integrity and the integrity of their firm by advising the seller of the true market value.  If the seller chooses to disregard the recommended asking price and fair market value, the agent then has to make a decision. 

Many times, the agent will take the listing above market value with the agreement that a reduction will occur within a certain time frame.  We dislike admitting it, but we all know that happens.  This can actually be a strategy certain brokers and agents employ.  Yet, even that strategy will only work if the true market value has been discussed and substantiated.

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Effective February 1 2010,the FHA will implement its new condominium qualifying requirements for condominium associations.  In addition to complying with providing access to association books, the association must comply with collection policies and have no owner who owns more than 10% of the units.  There are other management responsibilities.

For new condominium associations to qualify for FHA or Fannie Mae financing:

·                     50% of the new units must be pre-sold before FHA financing can be approved

·                     50% of the units must be owner occupied

·                     Individual owners must purchase HO-6 insurance policies if the association policy does not cover interiors

·                     Re-certification is required every two years

These changes are designed to protect the investor, the lender and the FHA, who has suffered losses on the unregulated condominium market.

As no owner can own more than 10% of the units, no single owner can control the fate of the association.  The FHA’s 3.5% down payment requirement for approved FHA developments will generate new demand and should assure value stabilization for approved condominiums.

Combined with the extension and expansion of the homebuyer tax credit program, new and existing purchasers can apply the credit toward the down payment and closing costs.  Condominium associations that achieve FHA compliance can expect the stagnant condo market to turn very quickly.

From an investment standpoint, purchasers and sellers will do well to participate in their association’s compliance initiatives.  The reality is that real estate agents will be leaning toward handling approved condo developments compared to associations that do not comply.

Meanwhile commercial lenders will be requiring FHA approval commitments from their developers. These developers will want to approach lenders with their FHA approval in hand.  With the favorable down payment, demand is bound to increase.  Investors will do well to research a condo development’s status prior to investing.      

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The Real estate market is bad and it’s not going to be kind in the future. Many analysts believe that the situation is bound to get worse as the year progresses. The overall picture in the country shows that the foreclosure rates are increasing.

The other side of the coin, however, projects that the foreclosed sale is picking up; Arizona showed the biggest increase in the foreclosed sale price, which is up by 15.5 % in the start of November as compared to the previous month. Other states also witnessed modest growth, like California, which saw a 1.83 % increase; Nevada, Florida and Texas showed an upward movement of 1.45, 1.27 and 1.05% respectively.

Only three states saw the foreclosure sale prices go down, and not by much. These states were Maine, West Virginia and Washington, where the drop was 1.88, 0.72 and 0.6 percent respectively in the month of November when compared to October. What this essentially means is that it is a good climate for individuals who really want to buy their own homes and have been looking for a good opportunity to do so. The prices of the foreclosed properties are still well below the fair market prices, but are slowly rising.

The choice of diving into the real estate market is difficult to comment upon. At one end, the foreclosed properties are good investment propositions. The mortgage loan rates rose by two base points for the 30-year, fixed-rate option as well as the 15-year, fixed-rate from last week. So the 30-year and 15-year fixed-rate loan rates stood at 5.34 percent and 4.72 percent respectively. Whereas the 5-year fixed-rate mortgage loan actually saw a reduction in rates by 7 base points to be at 4.69 percent.

To indicate the future trend, the 30-year fixed-rate mortgage loan rates were 6.32 percent in the October 2008. This means that the interest rates are favorable for buying a new home for many thinking of having a place of their own. However, the average American is still not able to take advantage of this opportunity due to reduced employment opportunities and difficult cash flow situations.

Some believe that it is a nascent stage and one wouldn’t get this price advantage any time later. With the government tax credit program of $8,000 now ending in April, 2010, the low mortgage rates, and foreclosed properties up for grabs at a lower than fair price, we should see better buying trends for foreclosed properties if not the new ones.

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The facts are overwhelming.  Never before have so many real estate properties been either in foreclosure or been in delinquency.  Delinquent mortgages are mortgages that have missed one installment. 

Well-intentioned state governments have launched protective programs designed to save homeowners the heartbreak of foreclosure.  The statistics from these states are not reflected in the latest Mortgage Bankers Association delinquency and foreclosure report that states a whopping 13.16% of mortgages are non-performing. 

One might ask how experienced mortgage lenders created the current phenomenon.  The answer is recklessly.  Imagine approaching an auto dealership with no down payment, no job and no prospects for overcoming either of those shortcomings.  Incredibly, you are approved for a loan and are shortly driving away with a new car.  The beaming auto dealer could not be happier.  After all, he could notch up another sale.

Well, that is what happened in the freewheeling mortgage lending industry from 2001 to 2006.  By the time regulators caught on, the current crisis had emerged.  This crisis is far from over.  Due to new regulatory adjustments, the reality of the current real estate financing crisis is yet to be fully disclosed.  Thanks to new latitudes in the mark-to-market accounting, many banks are able to disguise the extent of the problem.

Real investors take note.  These institutions know they have problems and they know that the non-performing loan crisis is expanding not contracting.  Currently, prime mortgage failures are beginning to kick in and the depth of the problem has just touched the surface.

With national unemployment headed beyond 10%, prospects for more failure are stout.  This crisis has created a wide path of opportunity for real estate investors.  Real estate agents know where these distressed assets are and have connections to lenders that can provide great investment opportunities for qualified buyers.  Let’s face it.  Banks do not want to take over vacant real estate properties.  Banks want to sell these properties before they take title. 

With all investment, the goal is to buy low and sell high.  If you subscribe to that formula for success, contact a real estate agent today.  The time is now!

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The recession has taken a heavy toll on the building industry.  States once reliant on residential and commercial construction have extremely high unemployment rates and many projects were halted while in progress.  The focus of the government’s housing campaign has been to clear the decks of existing inventory and have combined in an all out effort to keep financially troubled homeowners in their homes.

As a result, building firms have been unusually idle, as housing starts have dwindled to record lows.  In previously strong new construction states like Florida, Arizona, Nevada and California, requests for building permits have been few and far between.

In November, new home construction rebounded from a six-month low.  Construction actually increased at an annual rate of 574,000 or 8.9% above October’s housing starts.  Even with the November progress, housing starts remained 12.4% below year-over-year comparisons of 655,000.

New construction was strongest in the northeast where housing starts were up 16.4%.  Housing starts rose 12.3% in the south, 3% in the Midwest and 1.9% in the west.  October had been surprisingly disappointing for builders as homeowners waited to see if the homebuyer tax credit legislation would be extend or modified.

Once the December 1^st cutoff was extended and the program expanded to include some existing homeowners, construction firms began to see some light at the end of the tunnel.  These firms are hoping that Congress will take note and broaden the 2010 homebuyer tax credit.  The 2009 bill was extended to cover homes closed before the end of June.

The November startups gave builders hope.  However, the industry remains mired in high unemployment.  The industry’s suppliers have also been affected and inventories are at alarmingly low volumes.  Prices for building lots and for land for new developments are favorable but most construction is not speculative.

In 2009, housing starts peaked in the summer with July setting the bar.  Normally, new starts are lower in the winter months.

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As in any market, the investor must stay on top of market conditions and know the industry trends.  Real estate market investors follow local and national mortgage trends, commercial and residential real estate trends and must stay abreast of all government Federal Reserve and Treasury department initiatives.  For the informed investor, the residential and commercial real estate markets are loaded with opportunity.

In a recent report from Trulia.com, one of every four homeowners with a property listed as of August 1, 2009 have reduced their asking price at least once since putting the property on the market.  24.4% of homes currently for sale reduced their price in July.  This marked an increase from the 23.6% of homeowner reductions in June.

The average discount was 10% of the asking price or $40,173 of a median priced home.  Trulia co-founder, Pete Flint, said, “Competition heats up in the summer as more inventory comes onto the market. Sales are increasing but prices are still falling.”

For new real estate investors these are encouraging signs.  As markets continue to trim supply, demand begins to mount.  There is still time to get in on the low end but as the National Association of Realtors affordability index indicates, the time is right.

With low purchase prices, reasonable interest rates and government incentives all in place, investors are poised to add real value to real estate portfolios.  Trulia estimated that housing asking prices for current listings have declined by $27.8 billion since the homes came on the market.  $700 million of those reductions occurred in July.

The states with the biggest price reductions are California, Florida, Nevada and Arizona and Illinois.  These states have been hardest hit by the recession but may provide the best opportunity for short and low cost investments with steep upsides.

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