0. Prices in our Valley have pretty much stabilized.

0 Interest rates are at all time lows.

0 There are multiple 1st Time Buyer programs from Cities, Countys, State, and Federal Governments. These can provide down payment assistance, and significantly reduce the cost of owning.

If your answer to my 1st question is negative then the answer is probably NO NO NO.

If you believe that prices are going to drop further and you plan to wait and buy at the bottom, please let me know how you will be able spot that bottom before it has already happened.

If you want a reasonably accurate valuation of your property there will be 50 local real Estate Agents willing to provide a “free” Comparative Market Analysis (CMA)in the hope that if you are selling you will consider hiring them.

If you need a detailed estimate you can pay a profesional Appraiser between $200-$300 for it. In both cases you will get a valuation based on local knowledge of the house, it’s condition, and the circumstances of the comparable sales i.e. Short Sale, Foreclosure, Probate etc.
Now consider whether a computer program having non of this highly relevant data might be able to provide a more accurate result.
I’m a great believer in the old saying that we get what we pay for. Zillow is a perfect example of that.

Beginning Jan 2010 Silicon Valley Counties (North Santa Clara and Southern Alameda) sales prices have stabilized and some areas are now seeing small increases.

Apart from this being a normal process indicating the last stages of any financial cycle, it has been significantly driven by 5 major sources:

1. 1^st Time Buyer Tax Credits which ended mid 2010.
2. Extension of FHA and V/A maximum loan limits for High Priced Zip codes.
3. Historically low interest rates.
4. Huge increases in the number of 1^st Time Buyer programs from Federal, State, County, City, and Employment specific sources. These continue to increase and improve.
5. Major reductions in Bank Owned (REO), and Short Sale properties coming to market as Banks have beefed up programs designed to keep people in their homes where possible. This has allowed more normal conditions to have control of sales prices.

NOTE: I’m only describing my local Market here in Silicon Valley. I know conditions in other areas have been, and continue to be hit worse than us.  

Question.

Hi Bill, I was talking to a friend about REO and wanted to get your expertise on the matter.  She mentioned recently there were news about how bank were approving foreclosure while owners were doing a refi and other things, so at the end of the day even the bank didn’t own title to the property.  The loan is sold off to multiple lenders and Title is unclear.  Have you heard about it?

My Answer.

Hi Lisa,   As with many things described as “News” in ourMass Media this is just another Urban Legend. In this case one that shows absolutely no knowledge of reality. What it is talking about is a mixture of different situations based on rumours and hearsay, in all cases relating to either Short Sales, or loan modifications, usually from the 29 States where “mortgage” law is different than in California.

It has nothing to do with REO properties which by definition are fully owned by a Bank. There is no other “Owner”. Title is in the name of the Bank and will be delivered by them to the new owner as in any other purchase. An owners Title Insurance  policy will, as always, be paid for by the current owner (the Bank) and given to the new owner through Escrow. There is nothing different today than when you bought your house.

New questions are allways welcome at bmccord@rwnetwork.com

From: Lisa Ly

Sent: Thursday, December 23, 2010 8:11 AM

To: bmccord@rwnetwork.com

Subject: REO Question

                                                             ____________ — _______________

Hello James,

        You are obviously doing a lot of homework yourself, as I would prior to deciding on alternate strategies for a medical problem. However, in both cases accurate information is required in order to make the optimal decision.

I believe you have reached the point of needing accurate current data, placed in its correct context, in order to decide how to proceed.

For example, let’s look at the scenario you described in your question.

Purchase price – $360,000

Loan $288,000 – o.k.

20% down – o.k. but maybe not the best choice, as you are already aware.

6.00% interest – Wrong. Worst case is 5%. (A $200 per month difference in payment)

Property Taxes about $300 per month – Wrong. On $375,000 will be $390:63 per month. A $90:63 difference.

Hazard Insurance $100/m – Wrong. $60 per month is a good estimate. A $40 per month difference.

Just these few differences would allow you to buy up to $400,000 for the same monthly cost. This takes you into the Piedmont High School district with its much superior education system.

You’ve taken the time to build your knowledge and vocabulary well. Now you need real facts and numbers in order to become an educated buyer in a market place where getting it wrong can be very expensive.

I’m not going to base important decisions about my health on “free” research and advice from the Web. I want the alternatives to be explained by a professional, and specifically as they apply to me, not some mythical Mr. Average.

I suggest you take a similar approach and hire a Realtor who will explain the options available to you, and help you understand the pro’s and con’s of each one.

Sorry if this seems “preachy” but I feel very strongly about the mass of incorrect and misleading advice and information being spread throughout Radio, T/V, “News”papers, Magazines, and the Internet. These sources are not interested in supplying information relevant to you and your situation. Their sole motivation is to sell advertising.

Why not hire your own professional who can advise and inform you based on your unique circumstances, at this specific time, and with regard to your medium and loan term plans.

The reasons stated are that it will slow down the recovery which needs lots more honest decent folks to lose their homes.

I beg to differ.

I suspect that a moritorium would actually result in Banks putting more effort into Loan Modifications and, where not feasible, Short Sales, which cost 20% less than foreclosures but need a small element of intelligence. These options are both far less traumatic and would get the bad loans reseolved quicker.

Anyone care to guess why the Banks aren’t doing this already?

Given that the Banks caused this situation with their stupid lending practices, is it too much to ask that they give us a little help in digging out of it.

To understand how they did this we need to know what actually controls mortgage interest rates for the home buyer.

 It is the price of Mortgage Backed Bonds (MMB’s)and NOTHING else. The bulk of these are created by Fannie Mae and Freddy Mac who buy your mortgage from the Bank or Mortgage Broker who originally made it. They then package hundreds of mortgages together as a Bond and sell it off to private investors (Pension and Insurance companies are typical buyers). The proceeds from the sale are used to buy new mortgages from the Banks and Brokers. This virtuous circle is the motor that drives the Real Estate market.

The Private Investors stopped buying when they realized that a lot of the individual mortgages inside the Bonds were badly designed (Sub-Prime) and payments from were less reliable than they had been told.

When investors stop buying MMB’s the Mortgage Lenders have no money to lend and the Real Estate Market freezes up.

One solution would have been to increase the interest rate on new mortgages in order to offer a higher rate to the investors to compensate for the higher risk. In normal times this is how the market works. In the current circumstances the Investors were not going to buy at any price.

In early 2009 the Fed came to the rescue to avoid a total shut down of the housing market. They began buying these MMB’s in huge numbers and aaccepted very low interest rates. This restored the supply of money available to make new mortgages at historically low rates, and stabilized the whole residential real estate industry.

These Fed purchases have been completed and the challenge now is to attract Private Investors back as buyers for MBB’s. They are there, but will not accept the low rates that the Fed did. Therefore the interest rates paid to get a mortgage will have to go up.

Potential Buyers need to be getting serious if they want to take advantage of these historically low rates.

 

California is a virtually bankrupt State with the 3^rd worst educational system in the Country.

To be allocating $200 million to such a program, while simultaneously imposing huge cuts on education, seems to me the height of irresponsibility.

In practice this program will chiefly benefit people who would be buying anyway, and steer them toward new construction. I don’t see this as anything Realtors should be cheering about.

Banks and Builders however are welcoming it with huge sighs of relief.

Just my opinion.

One of these is the proposal to allow a bankruptcy judge to force a bank to reduce the Pincipal amount of the mortgage. This is called a “cram down”.

Rather than giving this power of “Cram Down” to bankrupcy courts” (most “distressed” homeowners do not, and will not want to go the bankrupcy path), I’d rather see the Real Estate and Media industries praising and fighting for the Wells Fargo strategy for dealing with their Wachovia inheritance.

They are actively using Principal Reduction “Cram Down” along with Loan Modification strategies, usually  together, to provide long term solutions to many of their defaulting loans.

With a long history of prudent and pragmatic lending policies Wells Fargo are an excellent example of what the banks could and should be doing to make it possible for responsible homeowners to stay in their homes. By lowering the loan amount and interest rate they minimize the larger loss which they would take in a foreclosure or short sale.

 the short sighted strategies being used by the majority of other banks with similar problems are best described as  re-arranging the deckchairs on the Titanic.

35%- Payment History. Late payments of bills such as Mortgage, Credit Cards, Car loans etc will lower a person’s FICO score . Paying bills as agreed over time will improve the score.

30% – Credit Utilization. The ratio of current revolving debt (Credit Card and Charge Account balances) to the total available credit (Credit Limits). Consumers can improve their FICO scores by paying off debt and reducing balances to less than 50% of the available credit. Closing existing revolving charge accounts can have a negative effect on this ratio, and lower your score. Before closing accounts be sure to do some more research, or get qualified advice.

15% – Length of Credit History. Time improves FICO scores without any action other than paying all bills on time.

10% – Types of Credit Used. FICO scores are improved by having a good history of managing multiple types of credit (Installment, Revolving, Consumer finance etc).

10% – Recent Credit Applications. Multiple requests to obtain new credit over a short period of time can hurt an individual’s FICO score. However, individuals shopping for the best rate for a Mortgage or Auto Loan over a short period will not see any negative impact on a FICO score.

For more detail on this and other Credit Related questions the following link is a Gold Mine of factual information.

http://www.myfico.com/CreditEducation/