Purchases Using a Reverse Mortgage

Nancy Soule, a longtime local loan broker, spoke to our Realtors' meeting this week. I had realized that Seniors could obtain a reverse mortgage for funds needed in later life, but she brought up a new possibility: Using a reverse mortgage to buy a new home. If a retiree wants to buy a smaller home but would like to conserve some assets for emergencies, he or she can use a reverse mortgage for part of the cost.
Even though total monthly income may be from Social Security, qualifying for this loan is not a problem. Because there are no payments to make, a reverse mortgage has no income qualifications. Even if the borrower has less than stellar credit, this type of loan is possible...as long as any liens are paid off.

A Real Estate Bargain

I was up in the East Bay for a couple of days. A friend who is also a real estate broker had just made what I consider to be a terrific investment in the Concord area. This was a bank-owned property that was priced low for the market. He used a line of credit on his own home as the down payment and put a little cash into cosmetic repairs. Less than a week later, it was rented for an amount that gives him a $600-plus cash flow every month, after expenses. Unfortunately (or fortunately, since it's good that our property values haven't dropped to that degree) our prices in the South Bay area have not reached that level, but he claims that there are many other bargains to be had an hour north of us.

Watching the Mary Avenue Bridge Progress

We're getting closer to completion of the long-awaited Mary Avenue bicycle footbridge over Highway 280. The anchoring of two support towers that will support the bridge's main overpass has been completed.
A series of thick steel cables are now installed. These cables, which connect to the top of the towers and the bases of the bridge, allow the bridge to span the eight-lane highway with no supports added to the freeway.
The $10.2 million bridge will allow easy access across the highway for pedestrians and bicyclists. It is funded primarily by Valley Transportation Authority, with remaining funds coming from the cities of Cupertino and Sunnyvale.
The area at its bases will include about 12 acres of native landscaping, sound walls and bicycle trails. It has a tentative completion date for spring 2009.

A Retired Realtor?

Money Magazine says that about 40% of workers are forced into early retirement because of poor health and downsizing, but Realtors never seem to retire...in fact, many have already retired from another job, and are entering real estate sales as a second career.
My friend and associate Suzanne was the hit of the Housing Industry Foundation's fundraising party and auction last night. It was a costume event attended by local Realtors and Affiliates: title company reps, mortgage brokers and property inspectors. The costumes were attractive and original, but Suzanne won first prize.
She was dressed as a retired Realtor, complete with a shopping cart holding all her "worldly possessions" including an open house sign and a box of old escrow files.
Her outfit was classic "bag lady".
Unfortunately, with so many of us self employed and reliant on an industry that seems frozen in place, the humor was a little too close for comfort.

How New is the News?

It used to be enough to get Money Magazine every month, Newsweek each week, and a daily newspaper. Add to those sources the frequent email bulletins from the State and National Association of Realtors and local business seminars, and I could be current with all the real estate and economic news. Lately, I've been checking CNN and the Internet several times daily, and I still can't keep up to date with the frequent changes we're seeing.
My newest issue of Money went to press before the bailout was approved by Congress.
These printed issues remain a good place to read in-depth analysis...the "why" behind the news, but they lack the immediacy that we need to know what's happening now.

Do Nothing Day

Some frequent advice regarding investments seems to be: "Do nothing." My friend Lynn-Gross Cerf of Organization and MORE! carries this one step further in an email she sent.
Here is something rather FUN – Nov 3rd is Zero Tasking Day …… and wouldn't you know that it falls on the last day of Day Light Savings. On this day – well technically some time in the wee hours of the morning on Sunday 11/4 – we get an extra hour as the clocks “fall back”.
Have you ever given this day some extra thought? Most of the time we just look forward to this day and the extra hour that it brings as a chance to get a bunch more done or, at the very least, to sleep an extra hour. Why not try something FUN and different this year. Why not “spend” that hour doing nothing. Yes! You read that correctly. What would it be like to do nothing for a whole hour … heck, you might even discover something wonderful about yourself.
Give it a try …… see just what FUN doing nothing can be ……. It's only 60 minutes!

Sales Falling Through

This morning our office meeting was somewhat subdued. Several of our pending sales (including one that had 8 offers in Cupertino) have fallen through because of buyers who had investment losses or were concerned about company layoffs. Although a normal market has a 15% DFT (deal fell through) rate, the percentages seem much higher now.
Leslie Appleton Young, economist for the California Association of Realtors, recently announced that the state home values will lose 31% this year, and buyers are listening to these statistics, too...however, this percentage is heavily weighted by the low sales prices on bank-owned properties.
Some good advice from Warren Buffett:
"Be greedy when others are fearful, and be fearful when others are greedy."

Weekly Market Update

There are two types of buyers out there right now—those who see this as an opportune time and are acting on it, and those who have adopted the "wait and see" philosophy and are afraid to act. For the most part, our Silicon Valley offices are reporting that buyer interest has slowed with floor calls and open house activity decreasing. Last weekend, we had only 4 groups through my Sunnyvale townhouse listing. The market that seems to be faring the best is the entry level and continued success lies in the bank-owned arena where REO properties continue to generate multiple offers. With all of the drama on Wall Street, things have slowed quite a bit. An Agent in the Morgan Hill office just sold a home that was listed earlier this year for $1.1 million—the final purchase price was $750,000 (as a short sale).
There are two types of clients who are seeing success in today’s market:
Buyers who see real estate as a long-term investment and see this market as an opportunity and are acting on it.
Sellers who price their home correctly, stage it and are motivated.

A Look Back

I took a tour of my older posts today, and, out of curiosity, checked out what I had written a year ago...scary how quickly things can change. Despite the optimism in this blog, there were plenty of warnings in others that I wrote.

Friday, October 19, 2007
When "Spin" is a Sin

Here they go again! Big black headlines in the Merc this morning...20 Years After Black Monday, What if it Happened Today? and Home Sales Plummet 40% in the Bay Area. The implication is that stocks could drop by 22% as they did in the market collapse of 1987. So then what happens this morning? The Dow Jones, at an all-time high of nearly 14,000, drops almost 300 points. The NASDAC falls by 55.
Sue McAllister says in her article that "Wary buyers and a shaky mortgage market slammed the brakes on Bay Area home sales in September, which reached the lowest level of any September in the past two decades"...scary stuff, but true. It's the negative emphasis that I object to, especially since a chart on page two shows that although sales are down from last year, the median price in Santa Clara County is up 5.4% from last September. Also hidden in the second page is Richard Calhoun's comment that the market in Silicon Valley remains skewed, with our more expensive areas dramatically outperforming cheaper ones.
But so many people read just the headlines...

Some Common Sense

This was sent to me from Gabe Bodner, an excellent local lender:
We are clearly in the midst of a brutal bear market that began on October 9th of 2007. Since that time, Stocks have declined by a staggering 41% as measured by the S&P 500. Remember that a decline of 20% constitutes a bear market...and a 10% decline is a "correction". The last bear market which occurred between March 24th of 2000 and October 9th 2002, and saw a 49% drop. Overall, the average bear market lasts for 12.3 months, with the average decline being 32%.



The current bear market is right in line with the average historical time frames, and the extent of the decline is worse than previous bear market averages, but still slightly better than the bottom made in 2002. So the historical data might suggest that we could be nearing a bottom. Many people will say that it's different this time, and that we have never had a financial crisis like we are seeing. While that is true, it's always different, and it's always something. The last bear market was driven by fears of terrorism and fueled by a dot com/tech bubble...both of which had never been seen before either. As for the date October 9th, which was yesterday, it's interesting to note that October 9th of 2002 marked the end of the last bear market. And October 9th 2007 was the beginning of the present one. While it may just be coincidence, it will be interesting to see if our current low has some significance in stock market history.
One bright spot is that oil prices are plunging, falling from a high of $147 last July to current levels of around $75 today, at least making a trip to fill up at the gas station slightly more bearable.

California Offers Some Debt Relief

Federal law provides a tax exemption for debt forgiveness on a loan incurred for acquiring, constructing, or substantially improving a principal residence up to $2 million if the debt is discharged from 2007 through 2012.
The state has been slow to conform to the Fed. decision, but starting September 25, 2008, the federal income tax exemption for debt forgiven on a home loan now applies to state income taxes to a limited extent. Under the new California law, the maximum qualifying debt is only $800,000, not $2 million, and the maximum exclusion is $250,000. Moreover, the California law only applies to a debt discharged in 2007 or 2008. Not perfect...but better than nothing.

Wait and See

That seems to be the mantra of the week. Sellers are saying it, and buyers seem to be taking the same tack. They're waiting to see what happens with the bailout, with the election, with the mortgage industry, and with the housing market. They're watching the stock market move up and down, and wondering about their job security.
Meanwhile, people are less likely to go out and buy things, especially a long-term investment like a new home.
Those who are closer to making a purchase are waiting to see what impact the bailout might have on interest rates before they proceed with a purchase, and those who had planned to sell stock for a down payment are reluctant to sell in a declining market.
Economists and real estate pros agree that even with the bailout package, it will take the housing market some time to recover.

A Weekend off To Recover

After the last week, and the disastrous dip in the stock market, I needed some R&R.
Three days of square dancing at the Jubilee held at the Fairgrounds in San Jose gave me just the break I needed. There's nothing like music, exercise and the company of good friends to get your mind off your troubles.
Fortunately, two agents in my office were able to hold open house at my townhouse listing. Their reports were that traffic on both Saturday and Sunday was very slow.
I have a feeling that everyone is taking a "wait and see" position. Mortgage money is still very tight and despite today's welcome rise in the market, I expect that stocks will yo-yo for some time with every bit of good or bad economic news.
Maybe I'll have to do a lot of dancing.

Thoughts on the Economy from Coldwell Banker

This week, we're afraid to open our third quarter 401K statements as they arrived in the mail. Some of us are making countless calls to their financial advisers in hopes of a miracle or a quick fix to stop the decline. Still others are choosing to ignore it with the “ignorance is bliss” philosophy.
The bottom line is, we’re in this together. The problem that we have right now is that we as Americans collectively borrowed more than we could afford to pay and in turn, we created a system on Wall Street to support that culture. Now we’re paying for the errors of our ways.
This is a huge wake up call for all of us and should be a good opportunity to remind ourselves to be more fiscally responsible and much more conservative than we have been in the recent past.
One of the major issues affecting the real estate sector of our economy right now—keep in mind housing represents 20 percent of the GDP so it is an important part of our national economy—is the inability for consumers to get mortgage loans. We have a lot of interested buyers right now—many of whom see the opportunities available in today’s market—but unfortunately, only those with golden credit seem to be able to close the deals.
As an important aside, historically speaking, during times of economic crisis, consumers tend to invest their money in tangible assets, like real estate. We expect that this may be the case in the months ahead as consumers look to buy homes for all of the lifestyle reasons that prompt people to buy (i.e. marriage, births, divorce, deaths, retirement, etc.) but also with a consideration of the historic long-term appreciation that makes home ownership a valuable investment over time.
We certainly are in a time of uncertainty. But while so many of us sit glued to CNN and our investment portfolios, the housing market labors on. Because the beautiful thing about real estate is that it’s not just an investment—though it may be one of the most important investments a consumer will make in his/her lifetime. Your home is where you raise your family and plant your roots. It’s where you hang your hat and make memories to last a lifetime.

Autumn Yard Care Assures a Springtime Garden

WIN Home Inspectors had great suggestions for homeowners.
After a flurry of work managing yards and gardens during the summer growing season, many homeowners and home shoppers are ready to take a break from outdoor activities. Unfortunately, handling autumn lawn care tasks is necessary to assure that the lawn, trees, and plants are healthy come springtime. Fortunately, the fall to-do list is easy—and will vary somewhat by climate. But in general, here’s what clients can expect to find on their outdoor chore list:
Mow and kill weeds as usual.
Rake and manage leaves.
It may sound simple and obvious, but letting leaves pile up for too long, especially in a moist environment, can choke the grass beneath, leading to “dirt patches” where formerly living grass used to be. You need not run out and rake every day, but keep an eye on accumulating leaves and consider raking every three days or so. When raking, rake deeply rather than just skimming the surface to remove leave, which can help remove “thatch”—a dying layer between the soil and grass. As the season progresses, double-check that leaves aren’t clogging outdoor drains or gutters.
Water, but time watering carefully.
Water trees and shrubs in early fall (if you’re not getting normal rainfall), and water both evergreen and deciduous plants in early fall. However, once leaves begin falling wait until the plants are bare before giving them a major watering. The reason for this is to prevent the plants from launching new growths that won’t be hardy enough to withstand the coming winter.

Get Those Loans in Soon!

If you've been thinking of buying a home, refinancing, or are buying, but haven't locked in the rate yet because of market uncertainty...this is something you should know.
Sue Baker, our in-house lender, notified us this morning that the $729,000 conforming loans now available here in California must close by December 1, 2008. The law implies that the new maximum ($625,500) doesn't take effect until the new year, but this new time limit adds additional pressure on borrowers.

The Five Top Credit Mistakes

With the recent tightening of credit requirements by lenders, these pointers from Credit CRM might be helpful:

Credit Mistake #1: Closing Credit Cards Accounts
This is probably THE biggest credit mistake that consumers make. What you may find surprising is that closing credit card accounts can hurt your credit score almost as badly as missing a payment. Consumers make this mistake based on poor advice from a mortgage lender as a strategy for improving their credit scores.
In most cases, credit information will remain in your credit reports for seven years from the account's date of last activity, but you never want to get rid of old, positive information in your credit reports. This information actually helps your credit scores. So, what should you do with old credit cards that you don't use any longer? What you don't want to do is to let the account become inactive. Use the card every few months for low dollar purchases like dinner or a tank of gas....then pay the bill in full.
Credit Mistake #2: Missing Payments
This one's a no-brainer. Your FICO score evaluates previous late payments in three different layers: How severe, How recent, and How frequent
Credit Mistake #3: Settling Accounts
"Settling" is a term used in the consumer credit industry that means accepting less than the amount you owe on an account. A Short Sale, when the lender accepts less than the full amount due on a mortgage is an example of this. The only way to avoid the damage to your credit scores is to arrange a deal with the lender to report the account as 'paid in full' as opposed to 'settled'.
Credit Mistake #4: High Revolving Utilization on Your Credit Cards
Most consumers believe that making your payments on time is all it takes to have good credit and earn great credit scores. What they don't realize is that almost a third of your score is determined by how much you owe on your credit card accounts. In order to score the most possible points in this category, they advise keeping your revolving utilization at 10% or less.
Credit Mistake #5: Excessively Applying for Credit
Whenever you apply for credit your application gives the lender permission to access your credit reports. Statistics show that consumers who have more inquiries are higher credit risks than those with fewer inquiries. It is for this reason that the more inquiries you have, the more points you lose in the credit score calculation.
Only apply for credit when you absolutely need to, and avoid those in store offers of "10% off" in exchange for applying for a store credit card. This may sound like a great idea but the reality is that while you may save a few dollars on your purchase, those inquiries could end up costing you a lower credit score which could result in higher interest rates on auto or mortgage loans in the future.

The Problems With FHA

Ever since the mortgage industry stopped making loans for anyone with less than a 20%down payment and nearly perfect credit, "the only game in town" for first time buyers has been FHA. What we in the industry are seeing is a 45 to 60 day backup on processing as these loans are becoming more popular. And why not? 3% down, a fixed rate thirty year mortgage, with a current maximum loan amount of around $729,000...at least in California. Sounds pretty good.
Their loan volume has tripled in the last year alone, and now Congress wants to have them handle almost all the loans about to be foreclosed upon, refinancing these unaffordable loans.
The difficulty is that they have neither the funds nor the staff to handle this amount of new business, and these will both be slow in coming.
Right now, they are trying to insure 140,000 new loans every month, with a staff of under a thousand people nationally.
If this situation is not remedied soon, we may be reading about an FHA bailout next year.

The Bill Has Passed...or Have They Passed on the Bill to Us?

Second time was certainly a charm! With a vote of 263 to 171, the House passed the $700 billion Emergency Economic Stabilization Act of 2008 today. The Senate approved the same bill Wednesday night by a vote of 74-25. Soon after, the President signed the bill, officially passing the legislation.
I know the question we are all asking ourselves right now is how is this going to affect all of us. How will it affect our retirements? How will it affect the mortgage crisis? How will it affect our portfolios? The answers to these and other questions will only be answered over time but at least it's a step toward stabilizing our markets.
The government’s resolve to take action that is focused on fixing the credit crisis should add greater liquidity to the market and have a beneficial effect on homebuyers/sellers and the real estate industry as well. Keep in mind housing represents 20 percent of the GDP so it remains an important part of our national economy. Let’s watch as the details unfold over the next few weeks and we’ll wait to see whether the $700 billion in aid is our nation’s answer to prosperity.

One Man's Take on The Economic Crisis

Attached is an article written by Barry Habib of the Mortgage Market Guide
The Chinese have a proverb: “May you live in interesting times.” And we are living through interesting times indeed.

Whatever the political posturing regarding the current rescue plan, a plan needs to be passed. Credit markets are frozen and banks are going bust every day. This is not totally because of "toxic" mortgages. This has a lot to do with FASB 157, also known as "mark to market".
Each day lenders must mark their assets to the marketplace. It's like you having to appraise your home everyday and if your neighbor was under duress because they got very ill, divorced, lost their job and was forced to sell their home quickly they may have sold it super cheap. Now, does that mean your house is worth that super cheap price? Clearly not. Why? Because you are not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions. But "mark to market" does not allow for this, which creates a vicious cycle.

Why is this so bad? Because as lenders mark down their assets, the amount that they have loaned previously becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and say they have $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But should they take a paper write down of $500 thousand due to "mark to market" requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500 thousand after taking the paper loss, while their loans outstanding are $15 million. And at 30 to 1 this bank is viewed as a risky investment. So the stock price starts to get hit, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio...at cheap prices. And this makes the vicious cycle continue.
And a quick look at the holdings of these loans show that 95% are problem free. Additionally, the Credit Default Swaps (CDS) that are used with the pools of mortgages are relatively safe. But this requires a bit of understanding. You see, when a pool of mortgage loans is put together, it isn't just A paper or B paper etc….it's everything. It’s got some A paper, B paper, C paper…and even what looks like toilet paper. An "A" investor buys the whole pool but because they are an "A" investor their safety is greater because they can avoid the first 20% (an example) of defaults. So they own the whole pool but are sheltered from the first batch of defaults, and for this they get the lowest rate of return. As you can figure from here the more risk investors want to take, the higher the return. So the investments are relatively safe, but the accounting rules currently place undue pressure on the banking institutions.
Now add to all this, the opportunistic “shorting” done on the financial stocks, much of it illegal because those shorts did not legitimately borrow shares (called naked shorting), and you exacerbate this whole problem. Thank goodness for the recent temporary ban on shorting in the financial sector. As for the plan the government is the only one who can step in to do this. And they have to do this. And they will do this. The nauseating political posturing from both sides is just part of the process.
This is not easy to understand for the general public. In fact most politicians don't get this either. That's why it is a difficult yet critical bill for them to vote on. Once this is done it will take some time but the markets will stabilize. As for the real estate and mortgage industries, it will take a bit of time but we will make it through this. Rates will remain attractive and the influx of credit availability will help the housing market gradually improve. This ultimately will be the medicine needed to improve the situation overall.

It's Time to Stop Pointing Fingers and Do Something

My son and his wife own a fledgling firm that tests saliva for drug use. It has been growing quickly...but so quickly that new testing machinery is needed. Their success comes at a time when money is frozen.
C.A.R. and NAR (the state and national associations of Realtors) strongly support Congress’s efforts to craft and quickly pass a recovery plan in order to calm the nation’s financial markets and make credit attainable again for families and businesses.
U.S. financial institutions have been unable to raise any capital because of illiquidity of suspect or poorly performing mortgage backed assets on their books. With no way to remove these assets, which may put the institution at risk, investors have refused to invest or extend new capital to financial institutions. The result has been a near collapse of the U.S. financial market and a spike in the cost of credit that makes it nearly impossible for even qualified people and businesses to obtain or expand a line of credit. Under these circumstances, Californians will find it very difficult to obtain home loans, student loans, and other financing for the foreseeable future.