WHEN RATES FREEZE OVER

Finally, there is some good news for the troubled mortgage market. The Wall Street Journal reported that the White House and the mortgage industry are close to a deal that would temporarily freeze interest rates for some sub-prime home loans on primary residences. Right now they are talking about a rate freeze for up to 7 years. The negotiations are on going.


Deutsche Bank reported on Friday that Henry Paulson's plan would cover homeowners who are facing their first adjustable rate increase and have some equity in the property. This group would include 1.2 million loans valued at $258 billion or about one third of outstanding "first-lien" sub-prime loans. Hopefully, this will allow homeowners to weather the storm.


The next hurdle is to get the investors who bought into funds of bundled sub-prime loans to accept this rate freeze. In my opinion, these investors do not have many options. I have read estimates that each foreclosed home could cost these investors between $50,000 and $100,000. Therefore, it would better for the investors to accept a loss from a rate freeze than risk having these loans go into total default.

I will keep you informed of the latest developments.

WAITING ON A FRIEND

I thought I would share this real life scenario.

I have a friend that is planning to rent a home even though he is more than qualified to buy . However, he wants to "wait out the market"

So, I started to think about the cost of rent, the tax write offs he would be missing, and the lost opportunity for equity growth, and thought, why wait?

I entered his data into a rent versus buy calculator on Yahoo to see what the results would be.

Here are the facts I entered:

For Renting

Rent is going to be $1600 a month with an additional $300 for rental insurance and an estimated average annual rental increase of 5%.

For Buying

The purchase price of the home he is looking is $300,0000. He plans to put 20% down. His mortgage of $240,000 can be locked in at 6 1/4%. The taxes are $3600, homeowners insurance is $600 and annual maintenance cost are $2000.

I also had to input his tax rate of 25% , a 3.5% estimated inflation rate, and a estimated tax return on savings of 6% before taxes .

The Results Are.........

My friend would save $611,606 in today's dollars by buying instead of renting!

Here is the link to the calculator. Maybe it will help your buyers that are still waiting for the "right time" to buy.

http://finance.yahoo.com/calculator/real-estate/hom-06

REAL ESTATE IS STILL THE BEST INVESTMENT

Real Estate Continues to be THE Best Long-Term Investment



Real estate is the single best investment one can make. That's how I open my weekly radio show, "Income Property Investment Talk," on the Voice America Network every Wednesday at 11 a.m. (yes, a shameless plug). That is the overriding message builders should be articulating, with repetition, to key internal and external audiences. And, yes, the facts prove this proclamation accurate.

"Homeownership as a long-term investment has a track record that is virtually unmatched by any other purchase in terms of its real benefits, Brian Catalde, president of the National Association of Home Builders (NAHB) and a homebuilder from El Segundo (CA). "Homeowners today have a combined $11 trillion in equity in their homes, against which they can borrow to help pay for college tuition, medical expenses and other needs. And housing offers important tax incentives to make owning a home more affordable."

"When you consider the facts, it's easy to see why 5.5 million people are choosing to buy a home this year. There are some challenges in the market, but overall there are many more opportunities in local markets today," said Pat V. Combs, 2007 President of the National Association of REALTORS. "Real estate continues to be a solid long-term investment."

While the latest S&P/Case-Shiller home price statistics for 20 of the nation's largest metro markets showed a 4.4 percent year-over-year decline, a closer examination of the data reveals that on average, these same markets appreciated in value by more than 50 percent over the past five years. For example, in Chicago, home prices declined 1.3 percent between August 2006 and August 2007, while posting a 34.2 percent gain for the five-year period between August 2002 and August 2007.

"To argue that home values will continue to decline and never recover, somebody has to make a convincing case that it will cost less to build a new home five years from now than it does today -- and that's just not going to happen," said Catalde. "Despite today's housing slowdown, the cost of land, labor and materials required to build new homes continues to go up."

Furthermore, Catalde noted that the rapid appreciation rates in 2003-2005 were clearly unsustainable over the long-term, and that housing typically increases in value slightly above the overall inflation rate.

Among the 20 markets surveyed by S&P/Case-Shiller, which represent more than 40 percent of the U.S. population, four posted home price appreciation rates of more than 80 percent over the past five years while 11 registered gains of more than 45 percent.

"It's important to keep things in perspective," said Catalde. "The current housing price correction is most pronounced in the once super-heated markets in California, Nevada, Florida and Arizona. In most other markets, price declines have been pretty modest."

"Perceptions about real estate have been skewed in recent months due to the overwhelming focus on national figures. While average sales and prices help us identify trends, the fact is all real estate is local -- conditions vary greatly from one city to the next," added Combs. "Unfortunately, that news is largely unreported."

Builders cannot allow the national media to report what it deems to be the proper perspective on the value of real estate. Builders must get out in full force and spread, with repetition, one simple message: "Real estate is the single best investment one can make."


Written by Peter L. Mosca
November 12, 2007

LOCAL MARKET TRENDS

Toms River Real Estate - Trulia

ARE OPTION ARMS A TICKING TIME BOMB?

A CNN Money article refers to the Option Arm as "ticking time bombs". However, I believe for the right client, this loan makes sense.

First let's explain how they work:

Every month you get four payment options:

1) The Payment Cap Rate- This is lowest payment. However, it does not even cover the interest accruing. So, the loan amount actually gets bigger instead smaller. This is called negative amortization.

2)The Interest Only Payment- This covers all of the interest but none of the principle. If you make this payment every month, your loan balance will neither increase or decrease.

3) Fully Amortizing 30 Year Fixed Rate Payment

4) Fully Amortizing 40 Year Fixed Rate Payment

As you can see, the Option Arm gives you flexibility and allows you to control monthly cash flow. For example, if you are a commissioned sales person, you can pay the low payment cap payment on months when you have few sales. Then, you can increase your payment, and reduce any deferred interest that may have accumulated , on a month when sales improve.

The problems occur when people, often on a fixed income, take these loans and continuously make the minimum payment. In this case, your loan balance will increase every month and reduce your homes equity. In a market where values are decreasing, this is a double whammy. To make matters worse, most of these loans have a clause that when the loan balance increases by 25% the loan becomes due in full. This basically means you are forced to refinance the mortgage.

In conclusion, for a client that understands the flexibility this loan allows, it can be a good tool to control monthly cash flow. However, it can indeed be a "ticking time bomb' in the wrong hands.

60 Years of Bad Real Estate Predictions

Lets keep today's "expert opinions" on real estate in perspective.

The Santa Barbara Association of Realtors put out this information some time ago:

The prices of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline.” (Time, December 1, 1947)

“Houses cost too much for the mass market. Today’s average price is around $8,000—out of reach for two-thirds of all buyers.” (Science Digest, April 1948)

“The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs $28,000.” (Business Week, September 4, 1969)

“The era of easy profits in real estate may be drawing to a close.” (Money, January 1981)

“Most economists agree…[a home] will become little more than a roof and a tax deduction, certainly not the lucrative investment it was through much of the 1980s.” (Money, April 1986)

baby boomers are all housed now. They are being followed by the baby bust. By 2005, real housing prices will sit 40 percent below where they are today.” (Harvard economist Gregory Mankiw, “The Baby Boom, the Baby Bust and the Coming Collapse of Housing Prices.” Journal of Regional Economics, Fall 1989)

“A home is where the bad investment is.” (San Francisco Examiner, November 17, 1996)

“If you have bought your house since the War… You have made your deal at the top of the market… The days when you couldn’t lose on a house purchase are no longer with us.” (House Beautiful, November 1948)

“Be suspicious of the ‘common wisdom1 that tells you ‘Buy now’…Because continuing inflation will force home prices and rents higher and higher.” (NEA Journal, December 1970)

“In California…For example, it is not unusual to find families of average means buying $I00,000 houses.. .I’m confident prices have passed their peak.” (John Wesley English & Gray Emerson Cardiff, The Coming Real Estate Crash. 1980)

‘”If you’re looking to buy, be careful. Rising home values are not a sure thing anymore.” (Miami Herald, October 25, 1985)

“We’re starting to go back to the time when you bought a home not for its potential money-making abilities, but rather as a nesting spot.” (Los Angeles Times, January 31,1993)

“Financial planners agree that houses will continue to be a poor investment.” (Kiplinger s Personal Financial Magazine, November 1993)

“Your house is a roof over your head. It’s not an investment.” (Everything You Know about Money Is Wrong, 2000)

FHA IS BACK !

5 Reasons to Consider FHA

1) As Little as 2 1/4% Downpayment

2) Credit Scores 600 or Below are Often Approved.

3) Coborrowers Income Can Be Used To Qualify (They don't have to live there)

4) Seller Can Pay All of the Closing Costs

5) Only Two Years Required After Bankruptcy

Pre-approval Means More than Just a Lender Letter

One of the most problematic pieces of the property-buying process these days is the financing contingency. Basically, this contingency says to the seller the buyer will buy his house contingent on the purchasers' ability to get a loan to finance it.

The financing contingency paragraph may give 7 to 14 days for the buyer to remove the contingency. If the buyer is successful, then the transaction moves toward closing. If not, the seller could have a null and void contract or he could be looking at a buyer in default.

The financing contingency paragraph (FCP) is very important. It's fraught with deadlines and I've seen a lot of agents get buyers and sellers wrapped around the axle on this one by mistake and cause some to lose money and others file lawsuits. It can be used as a means to hold the buyer to the contract, but it can also be used as a means by which the buyer can get out of a contract.

The FCP involves the buyer, seller and loan officer -- and possibly more parties depending on what type mortgage product you're looking over. If the house being sold is involved in a short-sale or foreclosure, the FCP may need to be accepted by a third party, not just the seller, before the contract is ratified.

In most contracts, the buyer puts up an earnest money deposit -- usually about 1 percent of the sales price of the house, but it could be more or less depending on the customary amount in your area. Nevertheless, if the buyer defaults on the contract (which could happen in various ways), the seller may have a right to keep the earnest money deposit. Again, this could be thousands of dollars.

One way the default could happen is through the FCP. So here are a few steps to keep in mind in removing this contingency and keeping your deposit safe and the transaction on track.


Apply for and get pre-approval for a mortgage before making an offer. This is so important in today's market. Even though you may have been watching home prices drop in the last few months, the price of money has not. It's been getting more expensive. Thus, if you apply for your mortgage before you've even gotten into the contract-writing process, then you'll already know your buying power, the lender will have already looked at the blemishes on your credit and verified your income and assets.

Name it and Claim it. Many contracts I've seen require the buyer to stipulate up front what type of loan will be used to purchase the house. This is so the seller can determine if the buyer is high risk or not and if they have generally good credit. Unless the property is being purchased with all cash, this part of the contract will most likely be filled out. It may stipulate if the loan is a conventional (or conforming) mortgage, or if it's a special type program such as FHA or VA (government-financed programs). Since you have to name the loan type of front -- be sure to carry out step 1 above.

Be honest about your credit history, your income and your assets. If you make $45,000 a year and UP TO $10,000 in bonuses -- that doesn't necessarily add up to a $55,000 income. If the lender writes your letter based on your stated income of $55,000, then only $46,000 can be verified once you've written your contract, then you may not be able to get the preferred lending rate and terms -- ergo, you may not qualify. While you may not be in default, it means you have to start all over again.

If your application starts going south, let the seller's agent know about it as soon as possible. The facts are the facts. If the lender starts letting you know you may not get your loan approved, don't keep it a secret. The seller needs to know so he can decide on whether or not to give the buyer more time or to cut bait and get back on the market.

In essence, get the money part of your home-buying process wrapped up early. If you know what you qualify for in the beginning and you know what credit problems you have, these won't be a surprise on the back side, leaving you with few options and possibly less money.

Written by M. Anthony Carr August 10, 2007

IT'S A BUYERS MARKET. SO, WHEN ARE YOU GOING TO BUY?

A buyer's market is technically defined as: "A market condition characterized by an abundance of goods available for sale."

The in-depth definition from the same source is: "When a buyer's market exists in commodities, the buyer is able to be selective in purchasing contracts, as there are many individuals wishing to sell. Furthermore, these buyers will generally be able to purchase contracts at lower prices than those that were previously prevalent."

The simple version is: when no one else wants a product of value -- buy it, because the price will be lower whereby you'll be able to maximize your investment for future gain. In essence -- buy low, sell high.

When it comes to purchasing real estate, it's not as easy as investing in your 401K or savings account. Those are simple. You can select as little as $1 to invest each month or as high as the law will allow -- thousands per year.

Most people really don't worry about how the stock market ebbs and flows as they are using the practice of dollar cost averaging to invest: "Dollar cost averaging is the practice of investing or saving money at specific times, regardless of market conditions or your personal financial outlook," according to a beginners guide to investing from About.com. The idea is that if you keep investing over the market levels (low and high) you will, through the law of averages, make money in the long haul.

The challenge with that type practice in real estate is that you can't slip into real estate investing. We don't buy our housing investments month after month with prices up and down. Instead, we slap down the down payment when it's time to buy. And wherever the market is, is where we start.

The best strategy for real estate and the best way to make money in real estate is to buy low, when the conditions are in the favor of the buyer to buy. Your start-up purchase is where you "begin" your investment growth -- and that's why I submit to my buyer friends the above headline question, again: "It's a buyers market. So when are you going to buy?"
Today in many markets you can buy a house for 5 to 10 percent below asking price. For a $300,000 purchase, that's between $15,000 and $30,000 off your mortgage. On a 30-year fixed rate mortgage at 6 percent, that reduction in mortgage amount would save about $180 per month (more than $2,000 per year).

In addition, many sellers are willing to help with closing costs just to sell their house. For example, in Fairfax County, Virginia (just outside the Washington, D.C. area) half of the 3 bedroom 2 bath single-family homes sold in the last 30 days included a seller subsidy ranging from $500 to $15,000 (the average seller subsidy was $8,790).

Then there are the prices. While they have been flat over the last couple years, they are starting to increase. This is where you're research on the housing market must turn local. The national numbers mean nothing to you when it comes to investing in real estate. Where are your average prices? Are they flat, deflating or appreciating?

Nevertheless, there are hot pocket markets. In the DC area, there are several zip codes that, when looking at the numbers, are technically in sellers markets. In these areas, homes are selling in under 60 days, prices are up, unit sales have outpaced the level from a year earlier and total sales volume is expanding. The thing is, though, the pressure from surrounding zip code markets keep the prices from escalating as fast as their potential.

Let's review -- you have plenty of housing inventory from which to choose. Sales are slow, so sellers are offering thousands of dollars in incentives to tempt you to buy. Prices are flat. Interest rates are still historically low. Sounds to me like the buyer who has been waiting on the sidelines needs to get off the fence and pull out his checkbook.

Written by M. Anthony Carr

WHAT ME WORRY ABOUT A MELTDOWN?

WHERE IS THE MORTGAGE MELTDOWN?

Select Mortgage is still currently offering:

100 % Financing -Seller is allowed to pay all closing costs (Income limits apply call for details.)

2.25 % Down Payment - Credit scores below 600 are often OK. Only two years required after bankruptcy. The seller can pay all closing costs and the down payment can be a gift. You can even use a non-occupants income to help qualify.

No Income Verification - starting at 5% down

The idea that that the whole mortgage market has collapsed is just not true. Many attractive mortgage programs are still available.