Foreclosure Debt Forgiven; New FICO Score System

The name of the little photo to the right is "holiday deer", and I hope you can also think of it as "Holiday Cheer" with the recent news on debt forgiveness.

At least if you do have to take the bad credit hit for a foreclosure or short pay, the new law signed yesterday by President Bush removes certain taxes that used to apply. So the good news is for renegotiated loans where more was owed than the current value of the home ("short pay'), the borrower will not have to pay income tax on the difference.

A sign of when things are going to bottom out is when there are signs of things getting better, and one of those signs with loans might be that there are more fixed rate loans taken out in the first half of 2007 compared to the first half of 2006. See this Mortgage Bankers Association article. Fixed rate loans are most certainly a sign of better financial health for many borrowers who will thus be avoiding the spiking of their monthly loan payments 1 and 2 years after taking out their loans.

If you're contacted by someone saying he/she will get you out of foreclosure, please read this article about foreclosure scams. This includes DO NOT sign over your property or sign a quit-claim deed, and do not pay someone to renegotiate your loan with the bank (you can do this yourself for free, or ask your REALTOR to help you). Foreclosure in California follow a very specific process--do not allow yourself to be taken advantage. Read my earlier post about knowing your rights if a Notice of Default has been filed on your property.

More news is about your FICO score, as calculated bv the Fair Isaac Company who invented the index most commonly used throughout the loan industry, the insurance industry, the car industry, and anyone else who wants to figure out if you're a good risk or not. Keep your credit as clean as possible, because that will help you get a better loan at a better interest rate if you are trying to refinance or purchase. This new model will be rolling out in the Spring, but may be used before that in the loan industry (it's hard to know), but take a look at the samples in the box under Figuring Your Credit Score as these may be a hint of things to come.

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FHA Loan Bill May Increase Loan Limits

The FHA Modernization Bill passed by the United States Senate on December 13 will bring changes that have been fought for long and hard. FHA loans are currently limited to $359,900 in Southern California (loan amounts are regionally based), and 3% down on top of a $359,900 loan amount does not meet most of the housing market in this region. Per California Association of Realtors, "the U.S. Senate on Dec. 14 approved legislation designed to modernize the Federal Housing Administration’s mortgage insurance program by increasing loan limits, and helping troubled borrowers with subprime loans refinance into federally insured mortgages." "The bill, which has the support of the Bush administration, also would reduce the required minimum down payment for an FHA-insured loan from 3 percent to a flat 1.5 percent of the appraised value of a home. "

If passed, new FHA loan features will also streamline condo purchases, and increase loan limits to $417,000 (the current conforming loan limits for non-FHA loans). Expect these changes to be taking effect in January after the final issues are worked out between the Senate and the House.

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Guidelines for the Interest Rate Freeze

Today's news and guidelines on loans eligible for the interest rate freeze:

According to the New York Times, the goal of the President's plan is to convert as many subprime ARMs as possible into "more sustainable loans." However, the freeze applies only to borrowers who:

Took out their loan between January 2005 and July 2007 and whose rates are set to increase between January of 2008 and July of 2010; and
Have less than 3% equity in their homes; and
Are current on their payments (or no more than 60 days behind); and
Are able to handle their current lower rate, but will not be to handle a higher payment.
Analysts estimate that the plan will help between 240,000 to 250,000 borrowers.
The freeze is a voluntary agreement on the part of lenders, so no legislation is required for this plan. Analysts note, however, that congressional approval would be necessary in order to increase current FHA loan limits.


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Interest Rate Freeze on Adjustable Rate Mortgages

More to follow, but today's news, and it should be good news for many people, is that rates for loans initiated January 1, 2005 through July 30, 2007 will stay put. If your rates were scheduled for a "reset" between January 1, 2008 and July 31, 2010, the preliminary information, to be announced tomorrow, is that your present rates will not go up per your original schedule on your loan documents, but will remain where they are. If there is also a .5% drop in long term rates on the 11th by the Federal Reserve, this should indeed be good news for borrowers. There are specific terms to this agreement, of course, and two of them are most likely going to be that this agreement between the Bush Administration and the lending industry applies to those who are current on their loan payments and those who have owner-occupied loans. Click here for more information.


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Seaport Marina Hotel Project Will Be Revised

Lennar Homes is now dropping its project to build 425 condos or townhomes plus other mixed use development at the Seaport Marina Hotel site, leaving the current operator of the site, Taki-Sun, to work out a new, scaled-down, project that will please Taki-Sun and the community. Negotiations on this project began a long time back (previous post), and have also been complicated by the area residents' objections to a proposed Home Depot construction in the same area (proposal was passed 6-3 by the City council, but is now being challenged by the Coastal Commission). This same area is part of a long term plan as reflected in the post about the SEADIP proposal, and new development will bring an additional burden on the roadways, and ultimately, quality of life, to the area.

It seems that everyone wants to be at the beach, but finding the room for maintaining coastal environment vs. building development is more and more a challenge. Our open areas along the entire Southern California coastline diminish with each decade, so every proposed use now carries more focus and stringent study.

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Thinking about Home Remodel?

It's time for the annual results of Remodeling Magazine's 2007 look at the return on home remodel projects. Basically, the return on projects trended down from 2006, a not-too-surprising result nationally due to rising costs and slowing home appreciation. The Pacific West was an exception, though. In July and August of 207, REALTORS® in 65 markets were asked to speculate on the return of project costs, and the Pacific region agents estimated 100 percent return or more for six projects: a wood deck addition, a minor kitchen remodel, fiber-cement siding replacement, wood window replacement, and an upscale wood and vinyl window replacement. Note these are all exterior projects except for the kitchen.

Home office remodels nationally bring the lowest return on remodels. The projects that bring the highest return seem to be based on the buyer's needs, i.e., a minor kitchen remodel which brings one of the highest returns. Careful thought should be given on types of room conversions--reducing the total number of bedrooms to enlarge or create the master suite may be a negative reduction for buyers. When a buyer's space needs match those of the seller's, there is likely to be a high return on a project, so knowing the local demand is important. So if you're a seller thinking about what to re-do, even if you're not going to sell for some time into the future, consider "universal" projects which could be identified with by a prospective buyer.

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Do Abandoned Oil Wells Impact Your Neighborhood

In early Southern California real estate, homeowners were enticed into additional income by having an oil well, literally in the back yard behind a little bungalow house. On a larger scale, oil was drilled for in certain areas which coincide with earthquake fault lines. Many were capped and ultimately receded into dim memory. But no longer. The presence of these wells could have an impact on a seller's use of their property.

While this map gives only the overview, you get the idea of how many active (green) and abandoned (red) oil wells there are in the Long Beach area alone.

The City of Huntington Beach considers this such a vital issue that a report is required by law to be made by a seller as to the whether or not any such wells were ever present on a property.

According to the company which maps these wells, there are 4,000 abandoned wells in Long Beach, 1600 in Signal Hill, and 3600 stretching from Seal Beach to Newport Beach. For a larger version of this map, just e-mail me.

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Do Foreclosure Properties Always Sell Under Market?

"Foreclosed properties sell way below their market value," per Foreclosure Times.com. This is the kind of myth that spreads quickly, and often to the detriment of the investor or buyer.

A lender may buy or take a property back below market, but will price the property as near as possible to local market values in order to recoup their loss. Why would it do otherwise? An example: A Long Beach property where the total loans taken out were approximately $580,000. The property in my CMA analysis had a market value of $645,000-$650,000 in early 2007 if certain improvements were made before going on the market. Eventually, the property was on the market for 6 months, did not sell, even at $599,000, and went into foreclosure. The tax records show the lender took it back for $400,000 (the seller originally bought it for $475,000 about one year prior.) Two months later in October 2007, according to the tax records, it sold for $650,000 to a new owner. That was not an undermarket price.

Another example is an upgraded single family home in Palmdale which was first listed for $399,000 and eventually dropped to $279,000 and still did not sell. After going into foreclosure, the asset management company recently listed it for $329,000.

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Property Tax Reduction

Don't pay more property taxes than what your current market valuation indicates. If you bought property 2 years ago, or less, then you probably want to keep close track of your local selling prices for properties similar to yours. For information on how to apply for property tax reduction, go to the Los Angeles County Tax Assessor's site located at the right column and download the form. You will need to provide certain information about sales within a certain time period for this year, plus get the form submitted by the date stated. For sales information to help you in this process, contact me, I will be happy to help you in your market sales information.

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The Things That Help a Listing Sell

In a market where the inventory is over 6 months in many areas, buyers have a lot more homes to view before deciding to make an offer to the seller. Sellers have much more competition. Buyers have more time to compare. In any market, however, it's always wiser for sellers to prepare their home for sale, and here are some photos of a refurbished house waiting for a buyer.

Not everyone can or will pay a professional stager to set up their home, however, just getting the basics will take a seller a long way:

An uncluttered home that is clean, enough furniture to create the scale of the room or rooms, and the right size furniture so the room does not feel crowded; enough personal possessions so the buyer can identify with the space, yet not too many personal items such as a large number of family photographs that will snag or distract the buyer's attention away from the focus of viewing the house as their potential home; soft or neutral colors that create a background for the buyer to imagine himself living there with his furniture; shiny hardwood floors or a cleaned carpet; clean bathrooms and kitchens with shining counters; a coat of paint and well done repairs. Outdoors, fresh flowers and a raked and watered lawn or other landscaping creates "curb appeal" when the buyer arrives for the showing.

The home in this example is a 2 bedroom, 2 bath single family house listed for $869,000 and has been completely refurbished by the owners/listing brokers Laura and Richard Martin of Laurich Realty.

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