Housing And Alfred E. Newman, “What, Me Worry?”

Posted on May 31, 2012 by Tim Freund

If you didn’t know any better, you would have looked at this week’s Case-Shiller and NAR’s Pending Home Sale Index and conclude the housing market recovery had reversed and was still in decline.  Nothing however could be further from the truth.  While true, Case-Shiller did show a continued deterioration in pricing, don’t forget that Case-Shiller is a backward looking index.  That is, the data is based on reported sales or closings, which by definition reflect actual contracts that are 30-60 days old and in the case of closed short sales even as old as 6 months.  Not exactly up to the minute information.  Not unlike the bell weather adjustable mortgage Cost of Funds Index or COFI, Case-Shiller lags behind the data.  In the case of COFI, borrowers benefit from the slow moving index when rates are rising but don’t when rates are in decline.  With Case-Shiller, the lag is neither harmful nor beneficial, it’s just behind.  Further exacerbating this discrepancy is the nature of Case-Shiller which looks to the 20 City MSA (Metropolitan Statistical Average) for its data, which includes both slow sub-markets like inland California for example, when looking at cities like Los Angeles and San Francisco.  Anyone who is selling in these urban centers will tell you, the market is anything but slow and prices are rising, not in decline.  However, averages are just that, a blend of data, providing a general idea of market conditions.

NAR’s Pending Home Index is much more on the pulse of change so the decline in pending numbers should be a concern, if the reason for the decline were not so obvious: low inventory.  While I can’t speak to all  markets, I can say our local inventory is so low it makes perfect sense that the pending sales numbers were lower too.  Without product to sell, sales numbers have to be down.  Clearly this is great for triggering rising prices, but low inventory poses its own sets of problems ironically not the least of which is a stymied housing recovery.  How’s that, you ask?  A housing recovery requires steady appreciation, sales and overall property movement.  Without sales, how can there be a recovery at all?  Moreover, the threat of unstable price appreciation is a real concern.  Slow and steady is a good thing, rapid and reckless is not.  Further we need steady home sales to boost the economy, which in turn leads to more sales of other things.  Home sales spur all elements of the economy, from home improvement purchases at Home Depot and Lowe’s, to remodeling and furniture sales.  The key to our Nation’s economic health is the exchange of goods and simply put, the economy depends on it.  So for Case-Shiller and NAR’s PSI numbers, I am reminded of MAD Magazine’s Alfred E. Newman and his famous line, “What, me worry?” and to Mr. Newman I say, “Not so much.”

Posted in Economics, Real Estate | Tagged , , , , , , , , , , | Leave a comment

When The Glass Really Is Half Full

Posted on May 24, 2012 by Tim Freund

The headline of today’s Los Angeles Times Business section reads: 1 in 3 L.A. County home mortgages is underwater.  It could just as easily have read: 2/3 of all homeowners have equity, but that doesn’t sell as many papers.  The article correctly identifies what we in real estate have known all along: California’s inland cities, communities and neighborhoods are bearing the brunt of the real estate downturn.  We have known for months, that low inventory will be the key to recovery and that the coastal areas are well on their way.  Those interior communities like San Bernadino, Onterio and the Central Valley, are still way over built.  Areas where new home development ran rampant during the housing boom, still have too much supply and the only tightening of that supply is coming from cheap houses that investors are scooping up.  The average homeowner in these communities is stuck.

By contrast, many markets are in a full blown recovery.  Interest rates are ridiculous with the 30 fixed yesterday as low as 3.625% at zero points!  Foreclosures are down and distressed properties are making up an ever smaller percentage of the inventory.  Our area for example, along the Los Angeles/Ventura County line, is seeing an almost unprecedentedly short supply.  The number of homes under contract is rising monthly and currently rests at nearly 57%.  Sales are up 16% while inventory is down 42%.  In fact you have to go back to 2004 to find inventory levels this low.

What is fueling this dramatic drop in inventory?  The Times points out that the “negative equity loans hinder the move-up market.” by “breaking the chain” of the entry level buyer selling after a few short years and parlaying those gains into a new, larger home.  What negative equity is doing therefore, is slowing the ability for people to sell one property to buy a larger one because the would-be-sellers don’t have enough equity to jump into the next level home or make the “move up.”  The effect of this is tight supply.  Why?  Because fewer homeowners can’t sell to move up, they don’t sell.  When homeowners don’t sell, we get a tight supply like now.  The good news is that a tight supply leads to rising prices which we are already witnessing in the sub $700,000 range and higher prices means better equity and eventually we climb out of the hole we’ve dug for ourselves.  The irony is guys like me (predominantly listing agents,) are finding it increasingly difficult to find listings, so if you are thinking of selling, call me, I’ve got loads of marketing not being used by other listings just waiting and ready for you!

In the mean time, our market remains hot as a pistol.  And should the jobs picture continue to improve and the economy along with it, we should be able to see the negative equity numbers recede like the sea at low tide.  Welcome news indeed.  So raise your glass which really is half, or should I say 2/3 full, and let’s toast to the housing recovery, it’s about time.

Posted in Economics, Real Estate | Tagged , , , , , , , , , , , , | Leave a comment

How To Get A Loan Mod Approved Part 4: Foreclosure and Mod Offers

Posted on May 17, 2012 by Tim Freund

Part 4: Foreclosure and mod offers.

Your loan mod appears like you’re making some progress and you are actually starting to get a hopeful.  At the same time, you’ve got that gnawing feeling that the bank may not get you your modification in time and instead they’ll foreclose on you.

Watch your timelines.  As this process is moving along, you’re still not making payments.  You’ve been having lots of conversations with the Loan Mod Department or Loss Mitigation Department AKA: “Loss Mit”, but did you know that the Foreclosure Department may not know the status of your mod and is moving toward foreclosing on you?  Not making payments triggers several things.  First, you are accumulating unpaid payments that are adding to your loan balance. This in turn is increasing your borrowing costs because those payments are adding additional interest to an ever increasing balance, further complicating the Underwriter’s calculations by the way.  You’ve been getting nasty letters and calls from the Collections Department; don’t they know you’re doing a modification?  Uh in a word, no, and they don’t care anyway.  They’ll want you to make a payment of some kind – if you’re in this far, don’t start making payments now (but I can’t say that).  Every state is different of course.  In California the other trigger is the Notice of Default (NOD) or worse, the Notice of Trustee Sale (NOT).  For those of you reading this that are in Judicial states, I can’t speak to the process since California is a Non Judicial state we have trust deeds not mortgages so no court appearance is required for foreclosure.  This is a critical point in the process, because you are like a covered wagon heading towards the edge of the Grand Canyon and if you’re not very careful, will find yourself flying over into the abyss; said another way, you’re playing Chicken with the bank and you could lose your home.  You need to call the foreclosure department and they should have a person or message directing you to a website that will show the sale date and status.  If a sale date has been set, you need to know about it.

Getting the sale postponed.  Truthfully if you are 60 days past the Notice of Default, you need to start talking with your RM or negotiator about the sale date.  Alert them by writing at the top of every correspondence, SALE DATE: PENDING.  Once you’ve found out the sale date, and you should have received written notification of this my mail or a note posted to your front door or both, you change your heading to, SALE DATE: 1/1/11 (your date).  It must be made clear to them that the clock is ticking; you have to get your sale postponed.  Get on the phone with whomever you’ve been working with and alert them to the pending sale.  This is a call you’ll need to make every day or every other day until you get the sale postponed.  You need to verify the postponement in writing.  If someone says it’s been postponed, ask for a letter, a screen shot, something.  You can’t take their word for it, you’ve got too much at stake.  Once the sale is confirmed postponed, you can breathe a little easier, but they will only postpone it in 30 day intervals so this now becomes a regular part of your loan mod procedure.

Your first offer.  Very often the lender will make a throw away proposal to see if they can get you to bite.  It will usually be a “Piggy Back” offer.  This is where they “generously” allow all of your arrearages and back payments to be added to the balance but nothing else.  In other words, you don’t have to make some monster single payback payment, but rather just add everything onto the back end.  They will tell you that this is what most homeowner’s biggest hurdle is and tell you that’s the best you can get.  You do not want to accept this offer.  First of all, it does nothing to change the payment you were making when you started this process – no change in rate or terms.  Secondly, if you accept this offer, you have precluded yourself from a future modification.  They won’t grant a 2nd modification.  So repeat this mantra: escalate.  Explain to your person that this doesn’t help you afford the home.  Ask them, if the underwriter is “looking at all my debt”?  “Don’t they see I’ve got child support payments, a 2nd lien; a lease or time share you can’t get out of; huge medical bills”?  You give them anything you can think of and then ask for a supervisor or make the call to the Executive Office.  You can call the Executive Office anytime you want.  They will likely be able to help get your file pushed forward and escalated.  Remember, write down everyone you’ve spoken with and their extension and reference your conversations with other Executive Office personnel – they likely all work together and know one another.  Again, this is just showing that you’re serious, diligent and professional.

The Trial Mod.   After all the wrangling and number crunching is done, they’ll finally come up a real offer.  This offer typically stretches your payments to 40 years rather than 30, makes it fully amortized if you were in an interest only and reduces your interest rate, which could come in the form of a straight forward reduced flat fixed rate or could be the a fore mentioned “Step Up” whereby the first years are reduced super low and gradually step up; ie: years 1-3 are at say 2.5%, the next 2 years 3.5% and then the remaining years fixed at 4.5%.  But it won’t become permanent until you’ve demonstrated you can handle the new payments.  This is called the “Trial Loan Modification Period” and is usually for 3 months.  This new structure will start at a date, often a month or two out; will include the taxes and insurance based on all the figures you’ve provided in your package and include all back payments and accrued interest.  Once you make those 3 “Trial” payments in full and on time, your lender will draw up new loan docs usually based on those terms (though they won’t guarantee it’s usually the case), and you now have a successfully modified your loan.  It only took a year but you did it.  Congratulations!

H.A.R.P 2.0.  This is a refinance program introduced by President Obama in 2012.  It allows current borrowers (you can’t have missed but one payment in the past 12 months,) to refinance regardless of DTI (provided you are underwater), or LTV (you can even be unemployed).  In other words, as long as you are current; your loan is owned by Fannie Mae or Freddie Mac (sorry, jumbo loans don’t qualify) and you are still breathing, you can refinance; (You can verify if your loan is a Freddie or Fannie by visiting their websites).  I mention this here because you may end up taking a loan mod if for no other reason, to restructure your debt later on by refinancing through HARP 2.0.  Since you have to be current on your payments, even though your loan mod might not be everything you want, it may be enough to bridge the 12 months of making payments so you can refi under HARP 2.0.

The object of this series:  I updated this series since originally writing it because I have been involved in two more loan mod attempts since and one appeal, and the government introduced some new programs, so I felt it worthwhile to bring my new experiences to the table.  Sadly my success in these latest attempts was very limited, it’s just not easy to get banks to comply, or troubled homeowners to fit into the “loan mod” box.

You may also be wondering why I would devote so much time in writing this and “giving away” all my secrets.  The reason is simple, I want to help distressed homeowners and I thought this the most efficient way.  There is really no money to be made for a guy like me in doing loan mods.  They take a really long time and I cannot by law collect money up front.  In fact I could only collect a fee if I were successful and even then I don’t even want to ask.  Since this process is so difficult to accomplish, and since there are no upfront fees or retainers, it’s just not a job that pays, so I’ll stick to selling residential real estate.  I do make this one request, if you are one of the many that are seeking a loan mod or know someone who is, and you found this helpful, send me a referral.  I work the Los Angeles/Ventura County line and help buyers and sellers including short sellers, buy and sell real estate, so keep me in mind, I’m never to busy for a referral.

All the best, and good luck!

Tim Freund

Posted in Loan Modification, Real Estate | Tagged , , , , , , , , , , , , | Leave a comment

How To Get A Loan Mod Approved Part 3: Keeping The Pressure On

Posted on May 16, 2012 by Tim Freund

Part 3: Keeping the Pressure On

After you’ve gone through the initial collection of your data, submitted all the paperwork and started your conversations, what happens now?  You call and follow up.  In the beginning you’ll probably follow up once a week.  I like to call in the morning since I’m on the west coast and besides it’s easier to catch people in the morning.  Don’t forget, every call starts with verifying who you are – even if you’re speaking to the same person every time; so don’t get frustrated by this!

Once you have confirmed all your paperwork is in you will be assigned an RM – Relationship Manager, their job is essentially to make sure all the paperwork is correct and current (this means be prepared to send in your latest bank statements and paystubs upon request).  Presuming you followed my advice in Part 1, you’ll pass this test and your file will go to Underwriting.  This is the most difficult part.  You may have thought the losing of your file or transfer between more than one RM was the worst, but I am here to tell you the Devil is in the details and the one in charge of making the modification recommendation and scrubbing the details is the underwriter.   One would think the guidelines would be similar to refinancing a loan and in many ways they are, however modifying existing terms is a complex animal that few understand.  All the more challenging is the fact that you won’t be able to speak with the underwriter – ever.  Further still, the underwriter may be forced to follow certain investor guidelines that are different from the bank you make your loan payment too – they work for one bank but have to answer to the rules of another.  The investor may have bought the loan from someone and wants the rate they are already getting from you.  They may have “policies” that exclude you and your file.  The underwriter is charged with managing all this, crunching numbers to try to make a payment fit within pre-structured guidelines set forth by the government; percentages of debt to income or DTI.  It would seem so simple for the lender to say, “OK, we’ll just reduce your rate and stretch out your payments”.  But it’s not.  They have to calculate impounds for back taxes and insurance – what they refer to as “escrow costs” because they will set up what is commonly referred as an impound account for taxes, insurance and maybe even homeowner’s dues.  They have to find the balance between the highest rate they can get for the investor against the rate you can afford.  One of the key elements here is the 31-38% debt to income ratio (DTI) used under the H.A.M.P. guidelines.  This ratio is the adjusted home payment after modification, divided by you family income.  If you make too little, your ratio will exceed 38% after modification and you won’t qualify; if you make to much your payment will be below 31% and again, you won’t qualify.  When you make to little they apply everything; forebearance of debt, reduction in rate and extension of terms  (the Big 3) .  When you make too much, we don’t know what combination of modifications they apply.

What are the “Big 3?”  Rate reduction.  This one is pretty obvious, but sometimes to get you to qualify they do a “step up” where your rate steps up over time – think adjustable.  Extension of time is just that: amortization over 40 years for example vs. 30.  This reduces the payment.  Forebearance.  This is the most confusing because it is not debt forgiveness only debt postponement.  With forebearance, the lender is basically postponing repayment of a certain portion of the loan until you either refinance or sell, at which time they get paid back that money.  The main point here is that it is essentially “set aside” from the amortization schedule so it’s only paid back with sale or refi, not monthly.  This reduces the payment by virtue of reducing the amount to be repaid.  I recently had a loan mod rejected because the forebearance had to be 64% of the total loan to get the new payment DTI under 38% and the investor was both unwilling and unable under HAMP to do it.  The cap on forebearance is typically 30%.  In other words, that’s as much as the bank is willing “postpone.”

Loan Amounts.  You are probably aware that there are two types of loans; those backed by government agencies like the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac.  These are also referred to as conforming loans.  These loans fall under the oversight of HAMP, the Home Affordable Modification Program.  Remember I said there would be some government forms on your lender’s website that you would have to fill out, and HAMP is the root of this.  But what if your loan was a jumbo loan?  Do HAMP rules apply to you?  No, but yes.  No because banks don’t have to adhere to the HAMP rules but yes because they still follow them in general.  At Chase for example, they call it “CHAMP”: Chase Home Affordable Modification Program.  But because it is not technically HAMP, expect different investors with even more complicated rules.  If you have a jumbo loan, it is very likely you will get rejection letters that will say you’ve been declined as unqualified for HAMP.  Don’t get discouraged by this.  You already know this because by definition a jumbo loan doesn’t qualify for HAMP.  The people you need to speak with are not the same people generating these obnoxious letters.  And when I say letters I mean you may get these HAMP decline letters several times if you are a jumbo mod candidate.  Just ignore them.

Time to bring out the guns.  You’ve been waiting and waiting and it starting to appear as if you’ve stalled.  You can’t get any meaningful updates, and you want answers.  While staying cool and calm, you ask for a supervisor, try to get the name and extension; feel free to go over all your notes with whomever you are speaking with ie: “on March 3rd I spoke with so and so and she said… and on March 17th I was told by Mr. What’s His Face that I should expect an answer by such and such etc., etc.  Let them know you are handling this as a professional; you are detailed and have documented everything including them, if you’ve spoken with them before.  And if you have spoken with them and you remember, let them know, “John I spoke with last week about my mod on 123 Main Street.  They may or not remember you but it helps to break the ice and makes it friendly.  But you mean business at this point so keep the pressure on.  You can’t take no for an answer.  If you completely sputter and really hit the wall, you need to escalate.  From the internet find the number of the Chairman’s office and call there.  While this is no guarantee of success, odds are, after you’ve explained to the person you reach, all the dates and conversations you’ve had, (obviously it won’t be the CEO but will be someone from the executive office), you should find a more responsive RM going forward.  This is called “getting your file escalated”, and it’s an important, virtually inevitable necessity.  I like to call it Climbing the Food Chain.

QA vs. UW.  So you’ve escalated, gotten your file over to Underwriting and finally UW has made a recommendation for modification.  You think “I’ve done it!”, only to find out it now goes to Quality Assurance.  QA will evaluate the recommendations made by UW and look for errors; and there will be errors.  Remember how I said it was a lot more complex to modify than to refinance?  Because of this, your file may go back and forth between QA and UW more than once.  If you can’t get satisfaction from you RM or there is no answer and you’ve left a message already, you can go into the general line and speak with anyone in the hopes of an update.  Often their information will not be as current as yours – don’t get frustrated by this – sometimes however, they’ll give away a couple of nuggets or clues that they shouldn’t have, given their pay grade.  The more you find out, the more pressure you can apply.

Next Part 4: Foreclosure and mod offers.

Posted in Loan Modification, Real Estate | Tagged , , , , , , , | 2 Comments

How To Get A Loan Mod Approved Part 2: What Now?

Posted on May 15, 2012 by Tim Freund

Part 2: What Now?

Now that you’ve assembled everything, and when I say everything, I’m talking a couple hundred pages everything, you are ready to fax the paperwork in.  You’ve numbered the pages and created your table of contents.  So where do you send it?  Every lender has some link on their website for Homeowner Help.  That’s where you’ll find their forms including the HAMP forms the Federal Government requires of you and the lender.  There will also be a phone number and you’re ready to make the call.

Making the call.  When you contact your lender for the first time, let them go through their spiel.  They will ask for your loan number; address; do you still reside on the property; the last 4 of your social, do you want to keep the property or sell.  They will tell you they are a debt collector and anything you say will be used in an attempt to collect a debt and that this call may be recorded for quality assurance purposes.  They will go through this every single time you call.  I suggest keeping these numbers written on a card you keep in your purse or wallet so that if they call and you’re driving or somewhere away from you file, you have the vitals.  You also want to have a pad of paper, to take notes; names dates phone numbers or extensions.  Your file notes don’t need to be neat, just complete.  Also, remember if they call you it’s always a good thing because that means someone is working on your file.  But since they are usually on east coast or central time, the call could come in early – especially if you live on the west coast.  I have received calls at 6:30 a.m. before.  You do not want to miss the call.   Getting back to that initial call… at some point they’ll tell you where to find the forms and that you need to fill them out and finally where to fax them.  They will not tell you any of the tips I’ve listed in Part 1: Getting Started.  At this point you can say that you’ve put that together and are ready to fax in the paperwork.

You attract more flies with honey.  When you are speaking with the bank’s representative there are several things to bear in mind.  First, they really do care about you getting a loan mod, to a point… Don’t interrupt them, or get testy and terse even if you’re frustrated at having to verify you are you over and over; or if you’re asked to repeat your story to someone new.  Try to never put them on hold and always, always let them know it’s OK to take their time, there’s no rush; if you’re tight on time, don’t make the call, do it later or tomorrow.  They are going to really appreciate this and your calm demeanor.  You’ve got to figure they are working on hundreds of cases.  In general, the process is so frustrating and tedious that the borrower or their representative will at some point “lose it” and rip into the person on the other end of the phone – how would you like that every day?  Be the one that is thankful and appreciative, ask about the weather, how they’re doing, are they a Cowboys fan if they’re in Texas, or joke with them that you’ve had 4 days of 70 degree weather or it took you 3 hours to shovel the snow off your driveway.  “Kill them with kindness”, my mentor Mark Bader used to tell me.  Be sure and ask their name and use it!  People like to hear their own name and it makes you less an adversary as an ally or friend and in your file keep a log of every conversation.  If you miss something they said, it’s OK to ask them to repeat that, or for you to restate it to make sure you got it right.  Your log has to have the date and the name of the person or persons you spoke with.  Ask them for a direct number to them or their extension.  They may not provide it if they are just answering the call in a rotation.  You can also ask for an email address but you are unlikely to get one since the bank doesn’t want anything in writing that could be used against them later.

Faxing the documents.  Now that you’ve been through the authorization process and have the number you are ready to fax the mother lode of papers you’ve accumulated – even if they haven’t asked for them yet – because they will.  It’s critical that you try to stay a step ahead of the process.  But here’s the key point to this approach: everyone likes the easy gig; the low hanging fruit; the one they can get off their desk as quickly as possible.  By giving them everything up front you are moving your file ahead of everyone else’s.

The follow up call.  Your first follow up call will usually be a few days after you’ve faxed the papers.  It is very possible that they haven’t processed your papers yet but you’ll call to make sure they received them.  If there is someone to go over them with, do so.  Ask if they have everything they need.  This is where your table of contents comes in handy.  They have almost certainly not looked at all 200 or so pages yet.  So they will rattle off some documents that most people miss or weren’t obvious to them in their 2 minute look over.  Find what they claim is the “missing document” in your table of contents and then refer them to the appropriate page number.  It’s amazing how impressed they will be and how quickly they will want to push your file through to the next level.  If you are lucky, you’ll get escalated right away – but don’t count on it.  Finally ask them when you should call back, if they have an extension or direct line or if they know who your next point of contact will be and ask if they know who the investor is.  More often than not, you think the bank you’re dealing with is the investor when in fact they are the servicer and the investor may be an entirely different lending institution.  B of A could be servicing a loan for US Bank and their rules may be different from B of A’s.  And don’t kid yourself, the more players the more difficult.

Super human patience is the key here.  You have to anticipate that this process could take a year or more.  You have to expect they will ask you for items you’ve already sent and be ready to repeat yourself.  You must be prepared that they will misinform you, contradict themselves and make mistakes.  But you have to keep your cool.  This is the process and you can’t change it.

Next Part 3: Keeping the Pressure On

Posted in Loan Modification, Real Estate | Tagged , , , , | Leave a comment

How To Get A Loan Mod Approved Part 1: Getting Started.

Posted on May 14, 2012 by Tim Freund

This is  updated from the original series first published in September 2011.

Part 1: Getting Started

Stop paying on your loan (no I can’t say that even though it’s true).  If you are current the bank has no incentive to work with you.  I recently was asked by a Wells Fargo negotiator to explain why the client started missing payment last July.  Obviously I didn’t say, “To get your attention!,” rather I said because the hardship of (fill in the blank) was just too much at that time.  In this case, I had a homeowner who, after having been unemployed for nearly 3 years, finally had to take a job out of area, in San Diego, hundreds of miles south, and that I said was the reason.

Assemble your papers.  You will need 2 months bank and investment statements for all accounts, 2 recent pay stubs, 2 years tax returns – signed, 2 years W-2’s.  You will need a copy of your current property tax bill and a utility statement (to prove you live there).

Hardship letter.  You will need to concisely explain your situation; you lost your job for a while, your income is down, someone was sick etc.  You will need to demonstrate this with a detailed breakdown of your monthly expenses – this is how they will assess whether you even qualify for a mod.  They are going to want to see it all so be prepared.  As you begin this process, try and figure out what % of your gross income is currently used for housing.  I will be going into this a little later in the series, but your ability to get a loan mod under the HAMP program, will hinge on this number – after the modification.

There will be some official forms from the bank that will double some of these efforts – grin and bear it, it has to be done.  HAMP forms, the RMA (Request for Loan Modification), Dodd-Frank, 3rd Party Authorization if someone other than yourself is going to make calls on your behalf.  Even though these acronyms may sound foreign, you’ll get to know them, real fast.

Make sure every page has your loan number on top – every page.  Most lenders still require that you fax rather than email/upload loan mod papers.  This means you’ll likely have to break up the pages into clusters of 40 pages or so.  You’ll need access to a heavy duty fax machine – a little home all-in-one feeder won’t handle the volume of paperwork you’ll be sending.  Expect that some pages won’t go through so you’ll need to resend the entire thing again – don’t try and send just the missing page, it’s easier to send the whole thing again.  How will you know if it all the pages went through?  You need to number every page.  The fax cover therefore needs to also be a table of contents, so A) you know exactly how many pages went through and B) when the RM (Relationship Manager) or the document collection specialist says to you, you need to send the following, you can ask them to refer to the table of contents and then page such and such, which you’ve already numbered.  In this way you will save a lot of back and forth.  It’s time consuming, but like anything, proper preparation is 90% of the battle.  If you go in willy-nilly, don’t bother.  You will be chasing your tail forever and give up before you even get started.  You have to be ultra thorough.

Next: Part 2. What Now?

Posted in Loan Modification, Real Estate | Tagged , , , , , , , | Leave a comment

There’s Gold In Them Thar Hills

Posted on May 11, 2012 by Tim Freund

Yes, yes the real estate market is turning.  Sales are up, distressed properties are down; the economy is getting better with an improving jobs picture and interest rates are crazy low.    Never before has there been such a confluence of favorable rates and prices.  It’s no mystery as to why the housing market is on the mend.

Sure there are places where development went crazy and under qualified buyers fueled a speculative marketplace.  The hangover of that punch is still being felt in swaths of unoccupied, bank owned neighborhoods throughout inland California.  Still, those areas are not necessarily representative of the situation in most of California.   I once had a postman tell me “The most expensive neighborhoods don’t have straight streets,” meaning the hills are where the money is.  Don’t believe me?  Try buying in Silicon Valley in the hills of Cities like Palo Alto, Los Altos… Hillsborough.  Then of course there’s always Pacific Palisades, Beverly Hills; Rolling Hills.  California has lots of hills.

We know that supply and demand is the basic tenet of price determination.  We also know that California is largely built out, at least in those hills and beach areas and large city areas.  Not many subdivisions being built in San Francisco…  nor are there in Los Angeles City.  I just read that Pebble Beach was just approved to build 90 homes as well as add a couple hundred hotel rooms – it only cost them 685 acres of permanent and protected open space.  The Sierra Club and the California Coastal Commission had a little something to do with that.  You get the idea; California is home to the most employers; the greatest growth (think Facebook); the largest ports for imports from places like China, Japan, Viet Nam.  Heck it’s the only state with 4 basketball teams, 3 football teams, 3 hockey and 5 Major League baseball teams.   For all of these reasons we can understand why people want to live here.  Oh yeah, and the weather isn’t bad either.

This morning, the Los Angeles Times reported data from the latest census that showed the last decade had the highest level of immigrant growth in the U.S. population since the 1920’s.  Of that growth 25% came to California.  Of course some of that growth was in the form of low wage earners in pursuit of the American Dream.  But a greater portion was almost certainly an upper echelon of thinkers and doers here for the education and the unique entrepreneurial opportunities that California offers.  California remains the largest recipient of venture capital, as an aggregate amount, of any state in the Union.  Think it and they shall come.  Funny thing about all this is that all these folks coming to the Golden State need a roof to live under.  But construction remains anemic.  If demand increases and supply doesn’t respond by increasing, a shortage is created.  When there is a shortage, prices go up.  Sure there are still budget problems in Sacramento and unemployment for many is still a fact of life.  None the less, one can’t help but believe brighter days are ahead, happy days are here again and if you want to ride that train you better get on board ‘cause it’s leaving the station.  That means if you don’t yet own a home, you’ll want to buy one just as soon as you can because as fast as prices came down, they can go back up again.  After all, there’s gold in them thar hills, and I’m not talking about the shiny stuff either.

Posted in Economics, Real Estate | Tagged , , , , , , , , , , , , | Leave a comment

I’m Getting Divorced, Should I Keep The House?

Posted on May 9, 2012 by Tim Freund

To keep or not to keep, that is the question… Conventional wisdom and most attorneys, would have you keep the house if you are getting divorced.  You retain continuity for the kids; you love the house and you and your Ex put so much into it and not just equity; you have to live somewhere and the house payment is cheaper than many rents and besides, homes will go up in value eventually and you can hold out until then and reap the benefits.  All true statements, but the bottom line is that I believe you are still better off selling, especially if you are not the bread winner of the family.  Plainly said, in sickness and in health and ‘til death do us part, applies to the home as it does the marriage; dissolve one, dissolve them both.

I have seen this time and time again where the wife keeps the house and the husband walks away usually forgoing the equity in exchange for keeping the 401K or some cash equivalent to half the equity.  It seems like a good deal to Mrs. Homeowner; the kids stay in their bedrooms and that’s important for them to get through this terrible ordeal and life stays pretty normal for everyone.  Poppycock!  As emotional as divorce is, your financial security for the future is more so.  Nothing will stress out kids more than a parent who is forced to go back to work or take on additional hours because they have to make the house payment.  This is as true for the small condo as it is for the multimillion dollar estate.  Don’t keep the home, it’s just a money pit.

A home a money pit?  Am I not an advocate of homeownership?  Isn’t owning a home the best in investment one can make?  Yes and yes but let’s face it, once husband or bread winner is out of the daily picture, you have all the responsibilities of maintenance that your spouse used to take care of; cutting the lawn, painting, carpet replacement etc. not to mention the mortgage and what if, at some point, there is a major repair required?  Now I’m not suggesting that after you get divorced, you shouldn’t eventually buy a home.  In fact sometime after, maybe a year, it’s a great time to consider purchasing because by then you’ll have  a sense about what it’s like to be on your own and you’ll have a better idea about your budget and what you really can afford.  But immediately following divorce, the tendency is to continue unchanged in your habits, when in fact you should be doing the opposite and cut expenses.  It’s amazing how quickly you realize just how much 50% less really is, and until the divorce is final, it’s often very difficult to know this.

Why is it bad if you were to keep the house?  There are a couple of reasons.  We know for example, cash is king.  We’ve seen this lesson applied to housing ever since the market started its long descent and in businesses across every genre, so why would “keep the house” be better than “cash is king?”  It isn’t.  Get the cash and then decide what’s best.  If you end up having to sell, your real estate agent commissions and closing costs will average about 6 – 7% of the homes selling price.  This is true whether that is a year after your divorce is final or ten and is never accounted for in the settlement.  So should you be compelled for whatever reason to sell, someday those costs will be paid solely by you.  If you are selling a $400,000 home for example, 7% is $28,000; did your Ex give you an extra $14K in the settlement to account for his half of this eventuality?  Unlikely.  What if the home sells for $1M?  7% is $70K and that’s $35,000 extra cost to you… not exactly small potatos.

Another issue is the illiquidity of real estate.  Let’s face it; you can’t just take money out of the home like an ATM.  If you end up needing cash and you’ve taken the home instead of cash, you’re stuck.  By selling together, not only are the selling costs split equally, but any difference between what you thought your home was worth and what it actually sells for, is shared as well.  Moreover, if you want or need the cash right now, you are more likely to accept a price lower than you might have otherwise and those proceeds of the sale are split equally between you and your Ex.  Thus, if you sell for a little less, the Ex does too.

“But home prices are rising and if I get the home today, won’t I gain in the appreciation?”  In that scenario yes, but that appreciation still has to be greater than the 7% selling costs and if you sold and took half the cash, you could still buy another place, perhaps at a lower price point for example, and that too would appreciate.  Of course if prices dip, you bear the sole brunt of that drop as your Ex is not only divorced from you, but also from the asset.  The key here is that you want the flexibility to make financial decisions and keeping the home as part of the settlement no matter how you slice it, is not the flexible way.

Posted in Divorce, Economics, Real Estate | Tagged , , , , , , , | Leave a comment

Is The Economy Getting Better? Ask And Listen

Posted on May 1, 2012 by Tim Freund

I talk to a lot of people.  It’s just the nature of being in real estate; people want to hear what is happening in the housing market and as a Realtor, I find new clients by sharing my information and listening to their stories.  When I hear someone is in construction, I am very keen to hear how things are going.  “Up and Down” one guy said to me yesterday, he builds custom cabinets.  Mark Brodsky, a good friend of mine, reps a high end cabinet drawer company here in L.A.  He tells me he just landed a large order for a custom home.  “It’s picking up” he says.  This tells me the high end construction may be on the rise.  Another friend, Larry Jassenoff is a project manager for a high end Malibu construction company.  He states they are starting to line up jobs.  He’s feeling better about things.  My carpet installer, Todd Walden says it’s still slow in new homes, but he’s seeing a slight pickup in remodeling/carpeting jobs.

I blogged last week that tight inventory is going to lead to new construction and that is going to awaken the sleeping giant of our economy: home building.  Yesterday a report came out highlighting the decline in home ownership to the lowest level since the early 1990’s.  For many like my friend and Cal Lutheran University economist Dan Hamilton, lower home ownership rates are the key to a stabilization in the housing market.  Dan hypothecated and his economic projection models suggest that no stabilization in housing can occur until home ownership levels dip to the 64-65% range.  We just hit 65.4%.   Something interesting to me is that many of the homeowners that lost their homes over the past several years were regular home owners who, for a variety of financial reasons, got caught in the downward spiral of the economy.  They lost their homes but they are not necessarily traditional renters.  By renters, I mean folks who really should never or will never own a home, and certainly not again, if they lost one already.  No, many “homeowners” lost their homes and they will be out there to buy as soon as they are able.  In fact, many are just starting to become eligible after short selling a few years ago.  Something most people don’t know is that under FHA guidelines, a person who short sold can purchase again within 3 years of their short sale, and do so with as little as 3.5% down.

What’s it all mean?

What it means I believe is this: we are poised to see an explosion in new construction, mostly in the form of apartment buildings, multi-use retail and residential concepts as well as work-live lofts etc.  People will be moving into town not out of, to the suburbs – these people I predict, will be young renters ready to step into home ownership but on their terms, that is, close in.  More people are going to buy in the next two years than we have seen in the past 5, as more and more of previously distressed sellers are eligible to reenter the market place, and as more of us feel the worst is over in housing.  This in turn means continued low inventory and ultimately low inventory in the face of higher demand leads to rising home prices.  Rising prices also means fewer distressed sales and the reemergence of the move up buyer; the one home owner category most devastated by the decline in values.  As equity increases, folks will finally be able to sell and parlay that equity into a large home.  Are there still pitfalls that can derail this train?  You bet.  The mortgage market remains almost entirely dependent on the government via Fannie and Freddie and the Federal Housing Administration.  There is still almost no marketplace for the sale of home mortgages outside of the government.  Hopefully as home prices stabilize across the country and begin the slow march higher, investment firms will begin feeling it is safe to buy mortgage backed securities again.  As rates rise, which virtually everyone agrees is inevitable, the lure of higher returns should also help spur investor participation along.

Yes it’s spring, and in real estate spring equals optimism.  But this spring is different from those of the recent past; it’s better.  Just ask someone what they think of the economy and they’ll tell you, it’s getting better a little at a time, all you have to do is ask and listen.

Posted in Economics, Real Estate | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

The (not so) Little Engine That Could

Posted on April 28, 2012 by Tim Freund

As I read the Los Angeles Times this morning about the lackluster GDP numbers revealed yesterday, I started thinking about what might make those numbers really pop; what could single handedly effect job growth and as a result, personal income, spending, government revenues etc.?  Almost as if in passing, the article mentioned the housing market’s improvement, led by tight inventories.  …Tight inventories, curious right?   What about all those foreclosures and short sales we keep hearing about?  For nearly a year I have been calling bottom on the housing market.  In fact as early as June 2011, I said the worst was over.  I was even quoted by some real estate radio show in Pittsburgh, PA because I called a bottom, right here in the Real Estate Conversation.  I believe in fact, had it not been for Congress’s near government shutdown last July/August, we would be even further along in the housing recovery.  But what is the significance of tight supply?

We all now the basic tenet of economics is supply and demand.  As supply increases, prices must drop to move inventory – this is what we’ve been experiencing for the past several years, an oversupply of homes.  Conversely, when the inventory is down or “tight,” and demand remains the same or increases, pricing pressure increases along with it.  As an example, in my area, our home inventory has hit a (low) level not seen since 2004 and as a result, we are seeing a staggering 70% of all listings under contract.  That number is so ridiculously high, it’s hard to even fathom; 70%?!  You know this if you’re a buyer and if you sense you’ve missed the bottom, you’re probably right.

As you may or may not be aware, I started my career in real estate as a builder’s representative, selling new homes.  It’s a funny thing about new construction; it employs a lot of people.  From the earth mover, to the offsite improvements such as water mains and sewer line’s supplier, to the finish carpenter, painter, dry-waller  pick a trade; pick a supplier or manufacturer.  Today there’s even solar and other “Green” technology, so it’s not just guys swinging a hammer or digging a ditch, building has an impact on jobs in ways no other industry in America does: quite simply because it employs virtually everyone.  My father in law, Mark Bader, was in building for 50 years, selling and managing and he used to tell me as far back as the 1980’s that the building business is the engine that drives the economy.  “As building goes,” he used to say, “so goes the economy.”

Fast forward to the L.A. Times article today mentioning tight home inventories; aside from solving many of the underwater borrower problems that we have been so focused on for so many years now, rising home values and a tight inventory will also trigger new home construction.  Admittedly, many areas still have a surplus so this little engine of the economy may not be racing its engine at the starting line, but I can’t help but believe it’s starting to rev its motor just a little bit.  We’ve seen this in Southern California in the form of rising building permit applications though largely in combined residential and commercial projects; lofts; Live – work spaces; residential over retail, and this may be the trend: building closer in rather than traditional subdivisions in the outlining areas (which remain over built).  As this situation plays out and should the inventories remain tight for an extended period of time, that little engine that could can very quickly become the (not so) little engine that is.  And folks, when that high-speed rail leaves the station, hold onto your hats and get ready for what promises to be the strongest economy we’ll have seen in years.

Posted in Economics, Real Estate | Tagged , , , , , , , , , , , , , , , , | Leave a comment