Monthly 1-Minute Newsletter

See my monthly newsletter below for December, 2010. Just click on the logo below for the best summary around of local and regional market info! Have a very Happy New Year in 2011!



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Are You Having Trouble With a Loan Modification?

It's probably no surprise to many mortgage borrowers by now in this Christmas season to realize that they've had a tough time getting their loan modified this year. If they do not qualify for the Home Affordable Loan Program (HAMP), they try their bank's program. Often this application process goes on for months, while the homeowner may grow short on funds and cannot continue the monthly payment, and then they begin the process for a short sale, or worse, foreclosure. This story has been repeated over and over by many borrowers. If a loan modificaton is approved by the lender, often times the delinquent payments and refinance fees are added to the principal, making the new higher payment very unattractive, so the borrower rejects it.
One issue is that lenders have very little incentive to modify loans, as the cost of doing so cannot be billed back to the investor, and the work involved is very labor intensive and is not easily automated. Many banks have not invested in qualified staffing to take care of the high volume of distressed owners. And their agreements with investors on securitized mortgages may not actually cover the details of completing loan modifications, but do address foreclosure, so they believe they are in a risky situation with fulfillment of their contract terms.
In a 31-page study by the Federal Reserve, based on data from over 105,000 loans from 94 loans servicers dating from 2005 from California, Oregon and Washington, to determine who receives a loan modification (no discernible differences according to race and income differentials were found, "In fact, we find that Blacks/African Americans, Hispanics/Latinos and Asians are slightly more likely to receive a loan modification, and that these loan modifications have slightly larger reductions in their interest rate than those of similarly situated white borrowers"), it was still unclear after its research into the behavior of various financial institutions as to why the number of loan modifications was still falling well short of the number of foreclosures, even though the HAMP program has been declared effective with borrowers who received one, a group with a low re-default rate, despite literature published to the contrary.  Here is the complete Federal Reserve study. 

Another very clear problem is that some banks do reach out to their customers, but many borrowers fail to make contact with their banks, even after being contacted by them. And the longer a delinquent borrower spends in delinquency without contacting their bank, the more likely the home will be lost to foreclosure.

If you are interested in a loan modification, you might be successful, and you should contact your loan servicer.  But it's important to understand that possibly no matter how much information you submit to your bank, for a variety of reasons you may not get one, or you may have to struggle for up to a year or more with them. Banks are not equal in this situation--one of the factors may be if your loan is a portfolio loan or one securitized with investors. The study mentions the "lack of transparency" because data is issued in the aggregate, and information directly linked to borrowers is still difficult to track. Also, according to this study, 52% of foreclosure sales lack "reciprocal servicer contact" (does that mean the bank didn't return the borrower's initial contact)?

Overall, banks recoup a little more money if a property is sold in a short sale, rather than going into foreclosure and coming back on the market as an REO. This usually costs banks more money, and their "loss severity" rates are looked at closely when making their decisions.

The bottom line is: If you are having trouble making payments, contact your bank now. If you have to keep submitting your information over and over again for periods of 30-60-90 days, then you should obtain assistance through a Realtor who is familiar with short sales, or an attorney who specializes in loan modifications, not just any attorney, for further help. Don't wait too long.

Is the Southern California Market Stabilizing?

With so many analyses and predictions going on about the direction of the real estate market, the average person is often uncertain about the real truth. Recently, I've heard a few prospective buyers that I've been talking with express the belief that the market is going to drop even more by a certain percent, or just drop in general, all depending on what they've most recently read. But there's one truth that most real estate experts and practitioners agree on, all across the country: All real estate is local. So whether or not a large bank stops foreclosures for a while, or some other wave hits on the financial scene, it may or may not affect your immediate market in your part of the state, county or city, or even your neighborhood, depending on the many economic characteristics and forces that make up your area.
So, having said all real estate is local, in general, the number of Southern California residential sales for November fell, but overall, prices stayed stable. Southern California means the six counties of Los Angeles, Ventura, Orange, San Bernardino, San Diego and Riverside.
For Los Angeles County, the sales volume dipped by 11.5% compared to the prior year, but the median price (lumping new and resale houses and condos all together) for LA County decreased by only 1.2%; Orange County's median increased by .6%; San Diego and Ventura Counties increased price by over 3% and 2%, respectively; San Bernardino, hard hit by foreclosures, decreased another 5% in median price over last year. Per Dataquick,  the overall median price for all six counties increased by .7% even though the sales volume decreased by 15%.
Local cities, per the most recent information for new and existing houses and condos published through October 2010 by California Association of Realtors, show:

• Long Beach decreased its median price by 4.7% from prior October.
• Cerritos increased its median price by 5%.
• Lakewood stayed the same.
• San Pedro decreased by .1%.
• Bellflower decreased by 1.7%
• Gardena increased by 9%
• Buena Park increased by 3%
• Huntington Beach stayed the same
• Westminster increased by 1.1%
• Newport Beach increased by 17%
• Downey decreased by .4%.

Breaking down by zip codes in some cities show that certain areas such 90810 and 90813 in Long Beach are showing increases, but the higher priced 90803 zip code is still showing decreases in median price. That's a similar story for other zip codes such as in Newport Beach, when compared to a higher priced section within the same city.
And, to top it off buyers, the past two weeks or so saw the biggest jump in interest rates in the past several months. Many mortgage professionals believe the floor of close to 4% may be permanently gone, and as of today, FHA quotes were at 4.75%, while a 5% down conventional loan for a condo was quoted at 5%. It's easy to take a calculator to check out this would affect your monthly payment. A free calculator download is at Real Data.
Buyers should start making hay while the sun is shining!

Have a wonderful Merry Christmas, Happy New Years, and Happy Holidays.

Christmas Homes Afternoon Photo Time

Getting into the local neighborhood Christmas spirit!

How Many Properties Under $300,000 in Signal Hill?

This is a good price point to consider because it works for second home buyers, 1st time buyers, and people looking for a good investment in a desirable location. The property in this price range will most likely be a condo but if a buyer is willing to consider North Long Beach or West Long Beach, it could be a single family home. For a two-income couple, the total monthly payment (principal, interest, taxes, HOA dues and insurance) may be $2000 or less at current interest rates. It's actually a very competitive price range because of the number of investors able to invest cash or a very large down payment, and it's an affordable price range for many buyers. Some areas of Signal Hill have great views towards the mountains and toward the ocean, and in fact, the City has taken a stance to protect those views. It has gone through much development in the last 20 years to shed its oil derrick image, and most recently a new grocer's has opened up across from Home Depot on Cherry Ave.

Right now in Signal Hill, 29 properties are listed at $300,000 or less (out of a total of 66 active listings in showing in the MLS as of today). This is almost 50% of the inventory, where the average of all list prices is over $400,000.  All of these properties are condos, except for two single family homes, and almost half are standard sales. With interest rates still under 4.75% (but see this article from Zillow about the biggest change in 5 months) a buyer could possibly meet the goal of keeping the total payment under $2000.
To see Signal Hill properties now, click here.

Opportune Time for Buyers.

National Association of Home Builders comments on the current market, both for new housing and existing homes. Prices nationally --and locally -- have returned to the 2003 levels. NAHB believes there is price stabilization in many areas of the country. Future household formation--which has slowed in the current economy--will eventually demand more housing. This is the "opportune time for buyers" because buyers who are motivated to buy and are qualified at this time should take advantage. Los Angeles County, though experiencing fewer sales than one year ago, has not lost in the median price point of a single family homes since one year ago: Year-to-date in LA County the median price of a single family home is $340,000, Click on the video for more on housing market conditions currently.

When Is "Diving" into Lease Option a Good Idea in Southern California?

Sometimes I'm asked about the possibility of a lease-option as a way to buy a single family home.

Lease-options were used extensively with commercial properties in the past and have also become a method for purchasing a single family home in the residential market.

They work best when: 1) the owner wants to sell but does not have to transfer title right away; 2) or the seller may need continuing cash to pay fthe mortgage, 3) the house may be vacant or will soon be because the seller has already moved on, 4) the money from the sale is not needed immediately by the seller, 5) and, very important, the seller has equity in the property or has other income. When a seller's market is slow and a house with equity in it is not selling, a seller might consider this scenario from a renter/buyer.

There are advantages for both the buyer and the seller in this arrangement.  It's also important to use a good lease-option agreement which covers, among other things, the percentage of rent credit towards the down payment, the date by which the sale will close, and other clarifications concerning who is paying the taxes, who is maintaining the property (usually the seller), agreement on the final sales price. Tenants in this situation are more likely to treat the property very well since they see themselves as the future owners.

An advantage for the seller includes retaining the income tax deductions and having good tenants. The advantages for the buyer are getting into a house for little money up front (the amount is negotiable of course),  building up a rent credit towards a down payment, trying out the neighborhood, still having time to shop for the best mortgage or interest rate, and the possible benefit of the price being locked in if the value goes up.

The buyer must first find out what the seller's circumstances are, which a Realtor can definitely help out with, before spending time on making lease-option offers. In many neighborhoods, short sales are about 50% or more of the local market and many if not most of those properties will not have a seller who will be able to rent out the house at local market rent because their mortgage payment may be much much higher, and they do not have either the desire or the ability to carry a negative cash flow.

However, if an equity seller can wait 6 months or even a year for the buyer, it might be worth the wait.

For some additional explanation, see this general article about lease-options.

If You Got a Home Loan From the Bank, Are You Its Client?

No. You're the borrower. And as the borrower, you voluntarily took the loan from the bank, and according to the usual circumstances of an arms-length loan transaction, there is no fiduciary relationship.

However, Bank of America's investors, for example, include Pimco of Newport Beach, TCW Corp. of Los Angeles, BlackRock, Inc. of New York, and Federal Reserve Bank of New York. Bank of America has about 500 investors, all of whom it may owe a fiduciary obligation because of their investment/purchase of funds. Banks in these cases are the servicers for these investors, with whom they have agreements or contracts. Those contracts are known as PSA's, Pooling and Servicing Agreements, which guide the specific demands made on loan modifications or short sales requested by the borrower. It may not be easy to find out the exact terms  in those agreements, and in fact, it's often difficult to find out what investor holds the note due to the use of MERS in the last few years. But those servicing agreements spell out the relationship of the Bank to the investor, and ultimately, the course of your short sale or loan modification request. The servicer may actually have leeway in negotiating for the investor, but if the investor is able to accuse the servicer it did not act in the investor's best interest, the servicing bank could have a lawsuit on its hands. So you might be told the "investor" is making demands, but is that really the full story?

The banks/servicers frequently require the use of their bank addendums to be added to Realtor contracts--adding another layer to interpret in the transaction.  Here is another use of the term "fiduciary"--On a recently published Purchase Contract Addendum by Wells Fargo in July/August of this year, the following language definitely confuses the issue: "It is the Brokers’ fiduciary responsibility to present the highest and best offer to the servicer." To be very clear, 1) the seller's broker has a fiduciary duty to the seller, not to the seller's bank, and 2) offers are presented to the seller, not to the bank. The "highest and best offer" (and the best offer may not necessarily be the highest price) is presented to the seller, who ideally accepts an offer when it then becomes a contract, which is than submitted to the bank for its approval to accept less than the outstanding loan amount. Naturally, the bank is interested in recouping as much money as possible, but the issue of fiduciary relationship--the person to whom you owe the greatest care--is clearly laid out for brokers in agency law, and that person is your seller if you are the listing broker, not the bank. The broker cannot be the servant of both because the broker already has a contract (the listing agreement) with the seller who owns the property, not with the bank--or investor--which owns the note.

Sellers would like a clear, black-and-white outlook for their property, and it's rarely easy, and full of complications. It's very important for the seller to read the letter issued by the bank when a short sale has been approved--the seller should not assume the bank is issuing language that is completely in the seller's interest without taking the time to examine it, or have it looked at by a tax or legal advisor!

FICO Scores May Mean Savings on Monthly Payment of $200

Many buyers, and property owners who want to refinance now, realize that FICO scores are important when it comes to getting a loan. But what exactly is the picture on the benefits to a higher score, and what kind of a difference will it make? Below is a general chart for score categories and interest rates.

The sample breakdown below may not be exactly like this because a borrower's other circumstances with a particular lender or a particular program could vary, so it's important to keep that in mind. But oftentimes prospective borrowers are not aware of how their decision to buy one more piece of furniture, or buying that new car, BEFORE closing escrow, may strongly impact their new monthly payment because they have added more debt.

30 year Fixed Rate Mortgage - $200,000 Loan Amount

FICO Score                APR              Monthly Payment

760-850                     4.466%          $1,009
700-759                     4.688%          $1,036
680-699                     4.865%          $1,057
660-679                     5.079%          $1,083
640-659                     5.509%          $1,137
620-639                     6.055%          $1,206

Chart courtesy of Pat Zaby

For more information on how debt and other credit issues can impact your credit score, I can forward you my Powerpoint presentation.  Also, go to http://www.myfico.com/ for objective information about credit scoring and obtaining a free credit report.

What is the Trend in Long Beach House and Condo Prices Since Sept. 2008

The two-year picture for median selling price of single family homes in Long Beach is a pretty diverse picture, just like the city itself. From September 2008 to September 2010:

Interestingly, the overall drop for the SFR from 2 years ago is only 3% from $390,000 to $379000 (per CARETS data). This is in contrast to the median price for Los Angeles County which has increased from $339,500 (Sept. 2009) to $350,000 (per CoreLogic data). There is a 30% decrease in expired house listings, and the number of sold properties is up 15% over two years ago, while the months supply of inventory is down 33%.

Condos in Long Beach have taken a bigger hit--the median sold price has dropped 22% in two years from $263,000 to $205,000 from 2008-2010, and for Los Angeles County the median price has dropped from $337,000 to $320,000 from 2009-2010. The overall median for sale condo price in Long Beach has dropped 22% in the last 2 years, but there are fewer expired properties (down 37%), and an increase in the number of sold condos in the last 2 years, by 5%. The months supply of inventory is down 32% from two years ago.

For both houses and condos, the number of properties for sale is down by 26% and 22%, a condition that eventually may contribute to more listings on the market to meet demand, driving sales volume higher and in some cases sales prices higher as inventory decreases in certain areas.