Anyone who knows me knows I don’t exactly rank California high on anything, from politics to weather. But I’m thankful for one thing voters did back in the 1970s that studies show even today voters would vote in again–something that just might help or save housing. In 1978, prior to the Reagan tax cuts, Californians voted to reduce taxes–something they rarely do. Taxes on property. In 1978 Prop. 13 was placed on the ballot in California.

Prop. 13 limits the amount the government can charge for property tax to 1 percent. Of course, some areas add a bond tax called Mello-Roos, which can hike rates to as much as 2 percent in some areas, but that’s optional. You can choose to live in a Mello-Roos-free area. Prop. 13 also minimized the amount the government could incrementally raise your taxes to 2 percent annually–and only 2 percent of the increase taxes-–not the assessed value.Similar legislation in other states would do three things nationally:

1. Under California’s Prop. 13, holding a home has benefits. Only when a home is resold is it reassessed at the new purchase price; so people wanting to keep low property taxes will stay in their houses for a long time. What does this do? It reduces supply! That’s valuable in today’s market for obvious reasons.

2. Prop. 13 also makes one component of real estate predictable. For instance, I recently bought a home, and I know that five years from now, my property tax bill will be only slightly higher (assuming my home goes up in value) than it is today. In times of economic uncertainty, this provides comfort to some who are worried about the rising cost of mortgages

3. The proposition has the added benefits of ensuring aging boomers that they can take a one-time transfer of tax to another property and, if they choose to stay, they know they can pay perhaps 1000 percent lower than their neighbors in taxes just for sticking around. Many argue that Prop. 13 limits the amount of revenue the government can earn. One simple fact refutes this charge. The Howard Jarvis Taxpayers Association found that in the years since Prop. 13, school district revenue per student (even given our far-greater-than-average boom in population) and adjusted for inflation rose 30 percent! State revenue in that time rose 25 percent and even city revenue grew by 20 percent.

For once, other states should follow California precedent and cap tax increases. Perhaps this might calm some buyers’ fears and help stimulate buying. With 18.5 million homes sitting vacant today, calls for increases in taxes of any kind by anyone, particularly those running for office, are nauseating.

Dani

Nationally, this rate–January through April of 2007–was 59 percent.

This means we are seeing nearly four times the rate of foreclosure around military bases.

Top surge areas?
Columbia, South Carolina: Ft. Jackson, where the Army trains recruits, rose 492 percent over last year.
Second largest was 414 percent in Woodbridge, Virginia, next to Marine Corps Base Quantico.

Why? There could be many reasons. Here’s what I think:

1. Salaries aren’t keeping up with inflation (this is speculative, but is posted on military sites).
2. Military personnel are forced to move quickly and can’t sell, so they abandon their homes.
3. Military households tend to be single-income households and had mortgages reset.
4. The military had higher-than-average homeownership during the last five years, with resets hitting these lower-wage servicemen and -women hard, so they might not be able to pay their mortgages.

What do military personnel need to do?

1. Consider “short sale’ing” their property to avoid a foreclosure, even if they show “lates”–it won’t ruin their credit like a foreclosure will.
2. Consider renting out the property. Sites such as the Landlord Protection Agency have ways for you to advertise your home to military workers and protect yourself.
3. Contact the bank immediately, as soon as you know your payment will be late.
4. Look into VA mortgage options for your refinance. New conforming limits may help lots of people refi into an affordable mortgage.
5. When you leave for duty, set up atuomatic bill pay. And, if you have internet access overseas, check to be sure payments are posting.

Dani

House trading is a legitimate business that brings two sellers and two buyers together to trade homes. Check out onlinehousetrading.com for more information! This is particularly useful for military families needing to move–and fast.

Let me first identify myths and truths:

Your equity position matters. It doesn’t matter if you have $1,000 equity or $500,000 equity because you are getting a mortgage for the other house.

It won’t work because banks won’t let you trade mortgages. That is true, but with house trading both parties are simply buying each others’ homes. Both parties acquire a new mortgage or pay cash.

Both homes need to be the same price or you have to make up the difference in cash. That would be like someone telling you if you sold your $300,000 home that you had to buy another $300,000 home. As long as you can qualify for the mortgage, you can buy whatever you want.

Let’s look at a couple of typical scenarios; upsizing and downsizing a home.

Upsizing:
Seller A has a home valued at $350,000
Seller B has a home valued at $450,000

Equity doesn’t matter! Seller A would get a loan for Seller B’s house and Seller B would get a loan for Seller A’s house.

They will simply buy each others’ homes.

Downsizing:
Seller A has a home valued at $550,000
Seller B has a home valued at $450,000

Equity doesn’t matter! Seller A would get a loan for Seller B’s house and Seller B would get a loan for Seller A’s house.

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

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.

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

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

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

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

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.