Federal Loan Modifications Expanded to Second Mortgages

Last week, the U.S. Treasury Department announced the expansion of the Making Home Affordable Program to help reduce payments on second mortgages. According to the Treasury Department, as many as 50 percent of all at-risk borrowers have second mortgages. Under the second lien effort, if the servicer starts a modification on the first mortgage, participating servicers will automatically reduce payment on the second lien in accordance to complex, but uniform, criteria. Servicers may even erase the second loan in exchange for a lump sum payment.
Homeowners now have the ability to submit questions to the Administration's housing team. Members of the Treasury and HUD staffs will periodically select commonly asked questions and post responses on MakingHomeAffordable.gov. To submit a question, homeowners can visit www.MakingHomeAffordable.gov/feedback.html. Selected questions from homeowners across the country and responses from the Administration will be available at www.MakingHomeAffordable.gov/asked-and-answered.html.

When in Doubt, call the School Board

We had our annual Homeowner Association meeting last night in the townhouse complex where I live. I sell quite a few units here, and was surprised to hear that the area had been redistricted, and a handful of buildings that had previously been in one school district (Cupertino) were now in another district (Sunnyvale.) Prior to this a street had been the divider between the two districts, but now we will need to check a map to see which townhouses are in what district. The present owners are "grandfathered in." and their children can stay in their current schools. Very confusing.
I questioned Dr. Benjamin Picard, the new Superintendent of the Sunnyvale School District, who spoke at our Realtors' meeting this morning, and he explained that these units had been taxed as if they were in the Sunnyvale district all along, and the error was recently found. He strongly recommended that we as Realtors double check the schools where any home for sale is located by calling the school district. Considering the impact that schools have on property values in our area...that's a good idea.

New Scam on Craigslist

One of our agents was called by clients who saw that a house he had listed for sale was in the Rentals Section of Craigslist. Not only was it advertised as a rental, (which it wasn't) but the monthly rental was only $950, with an equivalent deposit.
Wow! A real bargain if it weren't a total scam, considering that the house was over
2000 square feet and in a top school district. This is the second tome that he has had this happen with one of his listings, and even though he removed the ads, I wonder how many people fall for the "send me the deposit and rental agreement, and I will send you the keys" line. More local money headed to Nigeria from unsuspecting victims.

Favorable Signs in Many Markets

Last week I reported on positive indicators in the first-time home buyer market. New mortgage applications for home purchases and refinances were up 77 percent from the same week in April 2008. Mortgage rates continue to average well below 5 percent – 4.7 percent last week on average for 30-year fixed rate loans and 4.5 percent for 15 year loans. Rates like these are a major factor pushing applications. Nearly 600,000 home buyers have already claimed either the $7,500 tax credit from last year or the $8,000 credit for this year, according to IRS data cited by the National Association of Home Builders.
Statewide, CAR reported improvement in both sales numbers and median price. March existing home sales were up 64% from prior year, and median price had the first month-over-month increase since August of 2007. California’s inventory of unsold homes also fell in March to five months, down from 12.2 months in March 2008, making March ‘09 a three year low for existing inventory.
Our Cupertino De Anza office reports the highest number of pending sales for a single week in the last several years. I don't want to jinx anything, but things are looking up in Silicon Valley!
It seems that everyone is wondering if we have actually reached bottom...in terms of price declines. In South County the inventory of "very affordable" homes is shrinking quickly. Investors and first timers have swooped in and bought most of them. It would seem that prices are stabilizing (at least at the lower-end).
All in all, it seems it was a great week in SF Bay Real Estate – good activity in all price points.

Slow Leaks Can Become Very Costly

We walked through a home for sale today in which the property inspection had showed moisture under the house...not surprising with all the rain we've had recently. It certainly warrants further inspection. These leaks may seem (or even be) minor right now, but when left unattended lead to expensive repairs down the road. Over the years we've seen this over and over. A $300 repair four years ago would have eliminated a $6,000 repair now.
When you find water in the house where there shouldn't be any, take care of it now while it's still a small repair. If you look at it as an investment, fixing small leaks early has an return on investment of a few thousand percent.

What Will the New Appraisal Regs Mean to Home Buyers?

This year is shaping up to be a great opportunity for buyers to get into the market or even to become a move up buyer if possible. Home values are down, interest rates are low, loan limits are up, and therefore affordability is the best it has been in 10 years or so.
There have been many changes in the loan process, but the appraisal rulings that took affect on May 1st may be some of the biggest. Now all lenders (bankers, brokers, direct lenders, etc.) are required to adhere to the HVCC (Home Valuation Code of Conduct). This new requirement is going to change the way they do their business and how they order and manage the appraisal process.
First of all, a mortgage professional can no longer contact an appraiser directly to order an appraisal, coordinate an appraisal, or even ask about comps. All appraisals must be ordered through a "centralized" appraisal management system. Once the appraisal request with all required documentation is completed, the buyer then receives an e-mail and is required to pay for the appraisal by credit card. This must be done prior to the actual appraisal order being completed. Once this is done, the appraisal order can be placed with an appraiser from a list of local appraisers. The turn-around time for to receive the completed appraisal is about seven days from payment.
It will be very challenging in the future to have any appraisal contingencies which are less than 10 days and any financing contingencies which are less than 14-17 days.

Buying An Investment in This Real Estate Market

If you're thinking about buying your first real estate investment, there's good news. There are lots of good deals out there. But even if a deal looks too good to resist, you need to be sure you have a firm understanding of the two significant elements that determine profitability: cash flow and return on investment (ROI). Otherwise, it's very easy to misjudge just how profitable the property will be.
Realtor Magazine explains it simply.
Cash flow is extremely important because it dictates whether the investment will cost you out-of-pocket money or put money back in your pocket on a monthly basis. To determine monthly cash flow, you must consider all expenses related to the property and then subtract this from the revenue being generated.
Finding the obvious expenses is pretty easy, but you may have to do some digging to uncover the not-so-obvious expenses. These line items are real and can significantly impact your monthly cash flow, so don’t leave anything out. They can include:
Vacancy-rate impact*Replacement equipment*Maintenance*Advertising*Tenant repairs*Late Payments
After you subtract all expenses from the revenue, you’ll know whether you’ll be making money or paying money. You may ask yourself: Why would I involve myself in an investment that is going to cost me out-of-pocket money? This brings us to the next important variable when evaluating your real estate investment decision: return on investment (ROI).
First, the technical definition: the rate of return based on an initial investment that generates a cash annuity for a specified time period...in plain English: ROI is basically the money going out (including your initial investment) banked against the cash flow that the property will generate in a given amount of time. This creates a net cash flow stream, and your return percent is calculated off of this figure.
Keep in mind that when compiling these cash flows, you must include all expenses related to the property, and the revenue stream must include all monetary benefits derived from it as well. ROI is heavily determined by the initial investment, because that is most likely the largest cash outlay related to the investment. All other variables held constant within the same scenario dictate that the bigger the down payment, the less return you will have on the investment.
So a new question emerges: If my return is less, why would I put a larger amount down? You must consider the trade-off between the amount of the down payment and the monthly cash flow. The more you put down, the more likely you are to have a positive cash flow — the investment paying you dividends. (and lenders are requiring larger down payments on investment properties, anyway.) There is a fine balance between cash flow and ROI. Depending on your current and future financial goals, you can determine the best scenario that suits your needs.
Whether your goal is to generate an annuity stream, prepare for retirement or create a college fund, real estate investments can be an excellent place for your money, if you do it right. With interest rates at record lows, profitable inventory and opportunities throughout the nation, it may be time for you to invest in property.