Finding Foreclosures:

Yes, I’m a licensed agent!

But I have to say that agents–while protecting some homebuyers and sellers–are adding an incredible amount of extra work and effort to the real estate recovery. Their added fees are creating inflated home prices, keeping sellers and buyers from reaching deals.

How exactly is this the case? Simple. They are adding unnecessary work, rules and negotiation to an otherwise easy process.

In addition, sellers, knowing they have to pay 6 percent to an agent (5 percent if they’re lucky), simply add this to the price so they still get their ultimate bottom line out of the house. This means the buyer actually ends up paying, even though the documentation shows that the seller is paying the agent’s commission. Therefore, we could have a faster home recovery without agency fees!

On top of all this, the agent adds to the process wasted energy and time, which could be spent house hunting, financing or moving.

Here is how the process should work. By the way, I just had this experience tonight working with an agent as an agent, representing myself:

1. Buyer looks at houses online, finds the house, visits the house. Buyer likes house.

2. Buyer and seller come together.

3. Buyer and seller negotiate on a price, based on both parties’ needs, in one room.

4. The buyer and seller, if they can’t agree, move on.

5. The buyer and seller, if they do agree, understand and hear each other’s emotional as well as financial needs (yes, leaving a house can be emotional), and they are able to come to terms that take everyone’s requirements into consideration.

6. Buyer and seller sign paperwork (easy to find online inexpensively), buyer and seller assign escrow and find title company. Then escrow processes everything.

If anything goes astray, legal teams get involved (no matter what, agent or no agent).

Here is how it goes with an agent:

1. Buyer looks at houses online, finds the house, visits the house. Buyer likes the house. (Note: Buyer is still doing the work, just not getting paid).

2. Buyer has to find an agent to represent him or her, or buyer gets “dual representation” from seller’s agent (thereby increasing seller agent’s commission for doing little to no extra work, but adding 2 percent to 3 percent to the purchase price).

3. Buyer still looks at the same houses he/she would look at it with or without an agent.

4. Buyer’s agent has to present an official offer to the seller’s agent.

5. Seller’s agent has to take offer to the seller, present it, “mull it over,” discuss it, decide how much can be squeezed from buyer and present a counter offer to the buyer’s agent.

6. Buyer’s agent presents counter offer to buyer. Buyer tells agent what he or she wants to counter with, and steps 4 to 6 repeat until everything in the situation without the agent is finished–the same process that could have been done in one hour with the seller and buyer together.

7. Seller’s agent puts documents into escrow.

8. Seller’s agent and buyer’s agent “stay in touch” throughout escrow to make sure they get paid.

9. No direct communication exists between seller and buyer, so anything the buyer or seller needs must go through an intermediary, thereby justifying ridiculous commissions and inflating home prices.

Bottom line? From an agent? Sell by owner. Putting your house on the MLS is as easy as going to housepad.com. Unless you have some overly complicated situation, don’t waste your time or money with agents.

Dani

If you are out looking for a new home, there are many things in the neighborhood or area that you want to look for. These include, of course, low unemployment, job growth, jobs in the area and a location close to urban areas (which increases demand because of urban sprawl). Look to see if a Home Depot or Target is moving in. Where do I recommend? Here are a few areas:

1. Idaho – around Boise and Idaho Falls. While I was laughed at earlier this week and told that “all four viewers” would call and complain, Idaho has a 2.7 percent unemployment rate and a five-year job growth rate of more than 18 percent. Median household income is above average. It’s a little boring, though; not necessarily right for the young and single. Prices are about 70 percent of what they were two years ago but have been stable now for months.
2. Salt Lake City and Logan, Utah. I’ve been bullish on SLC and Boise for the past year. Both have a 2.8 percent unemployment rate and a five-year job growth of more than 18 percent. Lots of biomedical and high-tech companies are moving in, and there are lots of call centers, too.
3. Key Largo , Florida. Not as battered as other areas of
   Florida, it still saw a more than 30 percent price decrease but is relatively stable now. I still like
   Palm Beach as well due to the numbers of boomers moving.
4. Las Vegas, Nevada. I get beat up for this pick, but look at the facts. It has a 12 percent year-over-year increase in population, and retirees are moving here in droves. The deals are all over the place because of still very high foreclosure rates. Vegas also has a low unemployment rate. Prices dropped 19 percent in one year leaving some great bargains!
5. Phoenix, Arizona. After experiencing a one-year drop in prices of 18 percent after another year of 22 percent, prices are low, low, low.
   Phoenix is the fifth-largest city in the country by population, and it continues to grow. Many major companies such as Motorola, Boeing and Intel continue to create jobs. The city retail sales tax is 2 percent. It’s an inexpensive state to live and work in. Also, boomers will continue to create demand.

Yesterday I received a call from a friend on Wall Street who sat on a conference call announcing a major change from Wamu, advising its withdrawal from the wholesale side of the mortgage lending world.

That’s to be expected, given the recent pressures in the lending industry, specifically as the mortgage broker becomes more irrelevant each waking day.

The big surprise comes from the fact that Wamu has chosen to shut down its entire retail lending operation. Of course, you could stop at a branch and have a 19-year-old open a checking account, help you with your safety deposit box and write a mortgage while he or she is at it (presuming the teen knows how to spell “mortgage”).

Seriously, this announcement–effective immediately–essentially puts a nail in the coffin representing the riskiest mortgage program in America. For the investor community, the program generated tremendous cash flow and investment opportunities for those who understood its complexity. For the everyday homeowner, it was used as a way of stretching the affordability factor, and now it’s gone.

We suspect the elimination of the program will allow for greater stability in the mortgage markets, resulting in a flight to quality for many consumers who, blessed with an ounce of equity, will be able to refinance into more favorable terms in a more conservative, 30-year-fixed program.

I further suspect in the short term that those who became accustomed to $1,400 payments on a $450,000 mortgage will simply walk away, realizing that the ability to refinance will still result in an increased payment compared with the deferred payment that failed to cover the minimum interest payments.

I’m interested to see what impact that will have on lenders such as Wamu that control a huge portfolio of those toxic loans.

Great time to buy from a value perspective, but I feel for any borrower who lives close to one of these homes that has become a ticking time bomb. Of course, I feel even worse for the employees at Wamu who just had their legs kicked out from underneath them because their CEO failed to plan ahead.

Bill Nazur

An interesting study was broadcast on Fox News this past weekend–the high school graduation rate in the top 50 metro cities, according to a study done by America’s Promise Alliance.

What was most staggering to me is the incredible overlap between high school grad rates and foreclosure rates!

The lowest graduation rates in order were:

1. Detroit
2. Indianapolis
3. Cleveland
4. Baltimore
5. Columbus, Ohio
6. Minneapolis

Let’s look first at riskiest areas to buy, compliments of Forbes (March 31, 2008):
Cleveland and Detroit. Coincidence?

Now let’s look at the top 10 foreclosure rates by metro area that overlap:

1. Detroit –exact match
2. Cleveland — number 6
3. Other areas of Ohio, including Columbus — in the top 20
4. Indianapolis - number 18

Coincidence? I don’t think so. Perhaps one of the leading reasons we have high foreclosure rates in these areas is lack of education–lack of education about how to handle one’s money and how to make financial decisions.
I find the results pretty staggering.
Dani

Homeowners in trouble are getting ripped off, big time. “Rescue scams” are at an all-time high. Desperate for a light at the end of the tunnel, homeowners think they see one–but it’s an oncoming train.

In many cases, the “rescuer” promises to take over payments in exchange for temporary deed to the home until the owner can afford to pay again. Only problem is, the owner never gets the house back.

Another scam is telling the homeowner that the new loan he or she is signing will pay off the old loan. The scammer gets the money and doesn’t pay off the old loan. Or, worse yet, the scammer temporarily take ownership of the house, then doesn’t give it back.

There are also scams on the buyers’ side… companies promise foreclosures for 50 percent off for $10,000 seminars, only to lead buyers to auction houses where the company is getting 5 percent in kickbacks.

Here are some tips to avoid being scammed:

1. If it sounds too good to be true, it most likely is.

2. The only entity that can remedy your home-loan situation (if you don’t refi) is your bank. If your lender is WaMu, for example, you need to call WaMu.

3. Many of these companies promise to refinance. In almost all cases, going to a broker isn’t in the best interest of the homeowner. Go directly to a lender if you want to refi; then you know you won’t be scammed. Lenders must disclose all costs up front.

4. Don’t wire money or use any method other than escrow companies to send money regarding your home, ever! Legitimate escrow companies act as third parties that make sure issues like what is noted here don’t occur.

5. Anyone who says he or she can repair your credit is likely not being honest. If that is part of the deal, walk away immediately. A foreclosure does not “come off your credit” as easily as a 30-day late payment on a credit card does. It just doesn’t work like that.
And finally,

6. Ignore anything you find on the internet. The internet is hard to regulate, and by the time the FBI catches on, the site is down and hundreds of people have been ripped off. Dont respond to e-mail solicitations or click on any links pertaining to rescue scams.

Dani

The abandoned homes in areas such as Detroit and Stockton are hurting neighborhoods–badly.

But they’re helping some poor, remarkably enough.

There is a bright spot for some of these abandoned houses.

Many of these homes, usually foreclosures, experience transients moving in, stealing power, tearing apart walls for copper plumbing and setting fires to make drugs or heat the home. Police are struggling in many neighborhoods to keep this under control (Source: Yahoo Real Estate). There is a consistent problem with crimes and thefts in foreclosed homes. In the past, these thieves would steal from the outside of the home; now they steal from inside, too–with little repercussion. Even the local humane society shelters are over capacity with pets left behind.

However, there is a bright side here–finally.

Some charities, such as Habitat for Humanity, are buying the homes, fixing up the abandoned properties and taking advantage of the low-prices for the homes–basically shells by the time they’re robbed and stripped of valuable wiring and plumbing. Charities are now starting to get these shells for rock-bottom prices and using volunteer labor to turn them into housing for the poor.

Dani

The Fed chairman on Friday, March 14, outlined what the Fed is proposing to alleviate the housing crisis. Here are the highlights and the resulting negative outcomes as I see them. Government, stay out if these are going to be the plans!

1. Prohibiting lenders from issuing loans that borrowers cannot repay. Big problem here. We have no accurate way of assessing this. The traditional method, FICO scores, is no longer accurate. The FICO doesn’t take into consideration mortgage resets and is fairly easily manipulated by people who fix credit. FICO says plans are in the works, but a new algorithm won’t be released until 2009. Also, more people today earn nontraditional income–income working from home on 1099s and so forth. These people are often highly qualified but may not be able to get a loan.

2. Making lenders verify income and assets. I have no problem with verifying assets. But it’s difficult to verify the income of many of today’s workers. For instance, many of us work off of 1099s and take business deductions. This makes it nearly impossible for the bank to see how much we really make.

3. Requiring escrow accounts for high-priced loans. This sounds great, but it’s a ripoff for the consumer! People are better managers of their money than institutions are. If they aren’t, they pay a price. Here is a fact. Take a $1 million home, the “low end” price for many areas in Southern California. If we had to put even 1 percent into escrow, that is $12,000/year. That is money we could have invested and earned interest on. Unless the bank is going to fork over the interest we could have earned by investing it ourselves, forget it!

4. Ban repayment penalties including loan flipping. While Id love to be able to refi my primary residence without a prepay penalty, the truth is that loans with prepays often come at cheaper interest rates because the bank knows it will get X dollars from the consumer. Ban penalties, and the banks will offset this income with higher rates. Period. Bottom line: None of these is an answer to the housing crisis.

There are many deals today in the foreclosure market. With rates coming down and banks easing lending restrictions, even investors are finding their way back into the market.

So if you are a bit tired of the stock market and want to diversify into real estate, here are some top areas I’ve identified where you can find deals as an investor in the foreclosure market, and why:

Ft. Lauderdale, Florida. Ranking number 10 in 2007 metro areas for foreclosures, there are deals galore. Companies are literally walking away from newly built condos. So why is this a good thing? Studies show boomers are moving here–and the ones who already live here are staying. This will help prop up this area in four to seven years as more retire, making it a prime area for a rebound.

Seattle area, Washington. While ranking lower in foreclosures (21st in the nation by state), there are deals (10 percent to 20 percent off of the value) in and around Seattle. Interestingly, studies show boomers are leaving Colorado for Washington and Oregon–two states that may benefit as people retire. Also, Seattle
has consistent jobs in the high tech arena that aren’t leaving, making it another great selection.

North Carolina. I love this state! Ranking 18th in the nation in foreclosures, the median price is about $178,000, a 3 percent drop in 2007. This is about the national average, with good jobs and stable incomes. Also, boomers in the South are migrating to
North Carolina from some of the more expensive areas.

For souls willing to brave a bit more risk, here are some areas really battered in 2007 with steep price declines. These are not for the faint at heart and are risky areas, but a small rebound could mean a big return (long-term holds!)

Riverside/San Bernardino, California. Down 17 percent for 2007 (although not looking great for 2008 either–a long-term hold, indeed). Tampa/Clearwater, Florida. Down about 12 percent for 2007, but lots of people are interested in moving here. It’s a great retirement area, and jobs are stable.

Cleveland and vicinity, Ohio. Down nearly 10 percent for the year. Jobs are not quite stable yet, so it’s risky, but a long-term hold may be warranted here. And there are so many foreclosures, you can definitely get a good deal.

Dani

Federal Regulators for Fannie Mae and Freddie Mac, the biggest buyers of home mortgages, are going to remove limits on the amount of loans and securities that they can own. This could help the housing market (Source: The New York Times). It could also help relieve the credit crunch in the long term, though it is a risky move for the two mortgage giants.

According to the agency that controls these mortgage companies, it is making the change because the organizations began filing timely financial reports again after accounting lapses years ago. This is questionable and may be more related to the mortgage “crisis.” One limitation that remains, of course, is that Fannie and Freddie still have to hold 30 percent more capital than they are required to by law, due to tumultuous times in the mortgage market.
Fannie Mae reported a $2 billion loss for 2007 and is noting that home prices will further decline in ‘08. This follows a $4 billion profit in ‘06.

In many ways, this means that large mortgage buyers will hold many loans–including potentially fatal loans. While this might help the home market, it isn’t the best financial investment the government could make. Democrats in Congress are, of course, calling for more. The fact is, few investors are buying mortgage-backed securities these days. So without Freddie and Fannie, there are very few investors to buy them. Without investors, banks won’t create loans. Without loans, the credit crunch continues.

Bottom line: This step may help home prices, and it may help lenders–but it will surely be a bad deal for these two agencies. I wonder who will ultimately pay for the deals gone bad.

Dani

In today’s turbulent economic times, we can lose 2 percent of our 401(k) value in a day and 5 percent in six months in our homes. The instability requires a solid plan of action to recession proof your life. About 40 percent of economists surveyed today believe a recession is likely in 2008. Here are some tips to help you prepare:

1) Secure any income. If you have income streams, document them and be sure they’re safe for the next few years.

2) Start getting your financial house in a database, literally. Use a money tool such as Quicken or even Excel to help you keep track of things such as mortgage balances and credit card debt. Sometimes seeing how much you are in debt can help curb spending, too.

3) Prioritize your debts. You get an $8,000 tax return, right? You owe $7,500 on your car, so it would be nice to remove that payment. But what if you’re paying 6 percent on your car and 15 percent on your credit card? Even if the $8,000 won’t make much of a difference in your balance, it will make a difference in how much of your money goes to interest each month. Pay the debt that has the highest interest rate first.

4) Transfer balances. Lots of us get balance transfer offers from credit card companies and ignore them. This is easy to do. But simply shifting money from one card to another, even if it buys you six months with no interest, can save thousands in a year.

5) Begin saving if you haven’t already. It’s very easy to feel insecure right now with fluctuating markets.

6) Take stock of your stocks. Figure out what is in your 401(k). Don’t just put it in and forget about it. Look at the balances, rebalance your portfolio, and make sure you are invested wisely for the future. Most investment planners will have you invest based on when you intend to retire or when you need the money.

7) Look for all the tax incentives you can find. There are lots of ways to save money on taxes: 401(k)s, IRAs and some not-so-common savings plans such as college funds and donations. Talk with a tax planner and save your money instead of giving it to Uncle Sam.

8.) Have six months’ worth of savings. In otherwords, if your bills are $3,000 per month, you need a minimum of $18,000 in liquid capital. This should be something secure, like a six or 12-month CD.

9) Get spending under control. Throughout the early 2000s, many were using their homes as ATMs, feeling the market would continue to increase. We know how detrimental that can be. Figure out where your money goes by keeping track of it for two to three months. You will know what you can cut out and where to save some extra money.

There is a lot of misconception out there about the foreclosure freeze and whom it really helps, what it takes to qualify and how it works. My goal is to demystify it a bit. Here’s what you need to know:

• The freeze is temporary. It freezes legal efforts to remove delinquent borrowers for 30 days while lenders and borrowers work together on a payment plan.
• This is a joint effort by six of the nation’s largest lenders.
• One big difference between this and other options discussed in the past is that it is available to people no matter what type of loan they have. Even if you do not have an ARM, it may help (ARMS have the highest rate of delinquency, though).
• The borrower does not have to be subprime to qualify. Any kind of mortgage is OK.

When do homeowners qualify?

• Once they are 90 days or more behind in their payments, lenders will send letters asking the owner to call.
• Borrowers will be asked if they want to stay in their home. If they do, they will be offered financial counseling.

Important things to note:

• Loan modifications are not automatic. Homeowners have to provide proof of wages and debt.
• Lenders decide whether to pause the foreclosure process.
• During the freeze, foreclosure prevention specialists decide whether a loan-modification program will work. Will the borrower have a chance to be successful? Is he or she making enough money?
• Potential options are: Lowering rates, lowering the loan balance or both. Anything that does happen requires that the homeowner pay on time for three months, at which point the changes become permanent.

As homeowners, remember that it generally costs the bank $50,000 per home to process a foreclosure. Most would rather have homeowners stay in homes. So call your bank.

Dani

As late as mid-January of 2008, a survey of economists conducted by leading financial publications resulted in a prediction that the U.S. had less than a 50 percent chance of going into a recession in 2008.

If you listened to the media, you’d think the world was ending. Who are the worst offenders?

I did a search to see how many hits I got on websites noted below, with hit rates indicated:

Fox News: 1,530;

CNN: 1,692;

ABC: Approximately 3,760; and

MSNBC: An astounding 23,200.

I took this into the newspaper arena and found the following:

The far left-leaning San Francisco Chronicle in 2008 alone mentioned a recession 464 times, according to its web search–more than it did the entire year of 2007, which came in at 329.

The New York Times, also left-leaning, 420 times in 2007 and 311 times since January 1, 2008.

Compare this to The Washington Times (considered more conservative), which mentions it 149 times in 2007 and 77 times in 2008.

One could speculate on the motivations behind using the R word. Perhaps it’s pure drama that drives viewers.

But the media have a responsibility here, and it seems very few people are holding them accountable. The more they mention the word recession (whether we are in one or not), the more people assume we are.

In the first two weeks of 2008, ABC, CBS and NBC presented negative stories about a pending or looming recession 32 times. Positive predictions were presented eight times. (Source: Business & Media Institute).

Here are the facts: A Bloomberg News study of 62 economists released January 9 showed economists predicting 1.5 percent growth in the first half of 2008. This is definitely weak expansion, but it is far from a recession. The Wall Street Journal reported similar findings, predicting growth of 2 percent or less and a 42 percent chance of recession. This holds true for unemployment, also exaggerated by the media. Take The Today Show reporting on January 5 that unemployment moved up to 5 percent last month, the highest rate in two years. Actually, in September of 2005, unemployment was at 5.1 percent. The 5 percent rate is the highest in 16 months, not two years. It’s also below the 5.4 percent 10-year average and the 6 percent 30-year average (Source: Business & Media Institute).

I can only speculate on why the media would choose to report the news as they do in an election year or when circulation at some aforementioned newspapers is down (you can guess which ones), but the media owe it to the public to talk about the facts and not use scare tactics, selectively choosing the data they wish to represent.

Dani