02.13.09
4 mortgage limit lifted by Fannie Mae
I recently viewed a real estate presentation. The speaker was visibly perturbed by the recent decision of Fannie Mae to limit investors to 4 mortgages. His point was that experienced investors will help the housing recovery by buying the REO/foreclosed properties and holding them. Helping clear the inventory of bank owned properties on the market could only help the housing market. But by limiting investors to 4 mortgages, Fannie Mae was unnecessarily limiting investor activity that could help the economy.
I’m sure he was pleased by the recent announcement by Fannie Mae, that it will be updating its guidelines so that investors will be able to obtain financing if they have between five to ten mortgages not four (note that the mortgages can be with any lender, not just Fannie Mae). Not surprisingly the criteria is more stringent than in the past, bigger down payments and a minimum credit scores of 720, but at least for those who qualify the artificial ceiling of 4 mortgages has been lifted.
01.05.09
Buckle down, the housing market isn’t going to get better
The new year, out with the old, in with the new! Many people are glad to see 2008 go. It was the year where a bad housing market turned into a freefall rout. Where many lost their jobs. So you can’t blame folks for having a lot of hope for a 2009 that is better than 2008.
With the new year comes economic outlooks and predictions. I recently listened to an interview with Harry S. Dent, an economist known for accurately predicting the Japanese decade long recession, and the DOW hitting 10K, back in the 80s. According to Harry Dent, we are just in the beginnings of another great depression. While 2009 might see a short lived rally in the stock and housing market, overall we are in for several more bad years according to Dent.
Harry Dent will be speaking at Wealth Summit Live, an event in Orlando on January 24th and 25th, featuring a number of well known speakers geared towards helping people succeed despite the dour economy.
If you invest in real estate, I would recommend listening to the interview with Dent. Even if you don’t completely agree with him, his knowledge of trends and how they impact the economy is a message any investor should listen to. You can access the interview for no cost by registering at the Wealth Summit Live site. Maybe I will see you in Orlando!
12.21.08
Loan modifications for the non-delinquent
Some of us already knew it was possible to get a bank to do a loan modification prior to delinquency, now Fannie Mae joins the party. Kenneth Harney’s column in the Sunday San Francisco Chronicle announced that Fannie Mae will allow borrowers to request alterations to their mortgage even if they have never been late.
Essentially a loan modification is when a bank agrees to changes the terms of your mortgage due to financial hardship. Most banks won’t reduce the principal owed, often leaving the property underwater, but they will lower the rate (I recently heard of a mortgage that was modified to an interest rate of 1% for 5 years) and they will extend the term (ie. from 30 years to 40).
The loan modification industry is a wide open field and lots of confusion abounds. The feds have been slow to put any regulation in place, so as usual the market is making it’s own rules. Unfortunately, some people are getting scammed by brokers that say they will negotiate the loan, and then disappear with the fee. But loan modifications can work and for some people banks have been quietly modifying loans even before the mortgage ends up in the loss mitigation department. Some banks are even proactively looking for signs of distress and contacting the borrower early.
Harney’s article is a good read and documents that a trend that was already underway comes into the mainstream with the Fannie Mae announcement.
11.28.08
Happy Black Friday
Happy Black Friday! For those of you with money, all sorts of assets are for sale at rock bottom prices. Go forth and buy!
- In many parts of the country you can scoop up houses for less than the cost of building them. A friend of mine is buying houses in Florida for $25,000 when just a few years ago they were selling for over $100K. I challenge anyone to be able to build a home at $25,000 (mobile or pre fab homes don’t count).
- Stocks are for sale, Warren Buffet is reportedly on a buying spree. And why shouldn’t he be? With his knowledge of what constitutes a good company (my guess is that no or low debt on the balance sheet is one criteria) he can get good company stock for cheap.
So those of you with cash that are sitting on the sidelines, buy an asset! It is almost hard to go wrong. Invest for the long term and be prepare for prices to dip more .. but if you have the long term view you will be ok. To me real estate seems more like a sure thing than stocks, but it depends on what you know best and your willingness to manage your asset (stocks don’t stiff you for 2 months rent and then leave a mess to clean up).
And, if on this Black Friday, you insist on being a consumer rather than an investor, you still have great bargains awaiting you. New cars are selling for thousands less than they did just recently. The settlement on a wrecked 2006 Prius was enough to buy a brand new 2009 in one case. Dealers are so desparate that there are buy one and get one free deals out there. Anyone up for two Dodge Rams for the price of one?
11.05.08
loan modifications, alternative to foreclosure
Loan modifications are becoming a popular alternative to foreclosure. A loan modification, sometimes called a workout, is where the lender changes the terms of the loan, such as the interest rate, the amortization type, or even the principal balance (dropping the principal balance is still not common but it does happen). The idea is by changing the terms of the loan to lower the payments the borrower can continue to make payments on the loan and prevents loan from becoming non performing.
Here’s what I have heard so far on loan modifications:
- They are not working with investors
- They won’t talk to you unless you are behind on your payments
- The customer service folks won’t help you, you have to talk to the actual decision makers
Of course this is all hearsay. However I do believe there is some truth to the buzz I’m hearing. Navigating the bank hierarchy to get agreement on a loan modification is hard. That is why there are a number of companies that will help you do just that.
According, to the Loan Modification Handbook
10.27.08
Loan modification handbook
In dealing with a toxic mortgage you can no longer carry, so far I have identified three options:
- Stop making payments and let the bank foreclose on you.
- Find a buyer and negotiate a short sale with the bank
- Keep the property and get a loan modification
I’ve written about short sales previously in this blog. The foreclosure option is the option of last resort. Although I have no emotional attachment to the properties it appears the least harmful thing I can do to my credit is to try and negotiate a loan modification as a first step. If that didn’t work I could look into a short sale or simply give the deed back to the lender. This is called a “deed in lieu of foreclosure” and not quite the same as a foreclosure.
I belong to a few real estate mailing lists. One poster to the group, claimed she was able to negotiate a loan modification that cut down on her payments and knocked $46K off the principal balance. That sounded pretty good to me, so purchased the book she recommended: The Loan Modification Handbook
Written by Michael Albert and Rami Ibrahim, it arrived from Amazon a few days ago. The Loan Modification Pamphlet would have been a better name for it. So at first I was rather disappointed at the rather slim size for the price. However it is a good introduction to the topic. It provides examples of letters you write to the lender and good advice on how to get to the right decision maker (hint: it’s not the person that answers the customer service line). A nice touch was a listing of the actual phone numbers for many banks’ loss mitigation departments. That alone is quite useful, as anyone knows from navigating a large corporate bureaucracy by phone.
So far I haven’t acted on any of the steps in the book, but I will soon. I read somewhere that a loan modification is 40% cheaper for a bank than a foreclosure. For one of my houses in particular, the area is gutted with foreclosures and nothing is selling, if the lender has any sense at all they should be willing to work with me.
10.19.08
Cabana Cay fiasco
A couple of days ago, I talked with the third person I have met that has been burned by a Cabana Cay investment. About two years, the Cabana Cay investment pitch was making the rounds on the real estate investment clubs/seminar circuit. Cabana Cay was in the building of building or refurbishing resort properties, mostly in Florida. From what I gathered the deal was a preconstruction opportunity that, when finished, you would own a resort condo that would lease out to vacationers at high rents providing lots of cash flow. The deal was sweetened by a developer lease back for a year or two, and/or the ability to put your down payment towards mortgage payments, so there was very little out of pocket.
Fast forward a couple of years and everyone I have met is trying to get out of the deal by selling the unit as a short sale. They have all stopped making mortgage payments (which were big once the funding for them – lease back/down payments – ran out), which of course has trashed their credit. There are allegations of fraud as it appears that consistently the units were valued higher than what they were worth. Promises of refurbishing a resort into a 5 star property never happened and Cabana Cay, as a real estate developer, apparently is defunct. Although you would never know it from browsing the internet.
There appears to be a viable Cabana Cay property in northern Florida. I couldn’t find the other ones.
10.12.08
How many real estate agents will survive this market?
A real estate agent once told me that 20% of the agents make 80% of the money. From what I have seen it has to be true. I’ve had the pleasure to work with great agents, but these can be hard to find, so I’ve ended up having to deal with not so great agents. It seems to me that many agents are just glorified order takers, which might have worked ok during the boom, but this tough market requires more aggressive marketing strategies.
What is amazing to me is that the mediocre agents continue to be well .. mediocre. You would think that they would see the writing on the wall and take their game to a new level. When will these people wake up and either find a new profession or improve?
Here’s what I have had to put up with:
- Inability to write decent copy. You would think they would mention that the property has a view, or is the lowest price in the subdivision.
- Not returning phone calls for days or checking email.
- Turning their cell phone off after 5pm and on weekends.
- Not very tech saavy – ie. they can’t figure out how to upload pictures to the internet.
- Listing an ad in a print publication and then not checking that the listing makes it to the online version.
- Taking the dart board approach to pricing. For example, not knowing their market and listing it too high, then incrementally lowering the price 5 or 10,000 per month.
- Not being able to answer the question: what sites will my property be listed on?
- Not being able to articulate their marketing plan.
Yes, I might be more focused on the internet and online marketing than others. But, hey wake up, it’s the way of the future! And where your prospective clients start their property search, why some agents seem to not understand that is beyond me.
10.03.08
Will the bailout bill help real estate developers?
In a stunning slap to President Bush, the original bailout bill was rejected by Congress. Now a new modified bill is making the rounds, with some sweetners (I’m watching the AMT earmark myself) that might just get everyone to vote yes.
Understand that no one wants this bill. It’s like cough medicine, you know you have to take it but it still tastes awful going down. Of course cough medicine usually helps your cough, but the country’s financial system has caught bronchitis not just a trifling cold — so it is questionable whether the bailout bill will end the financial crisis. Still everyone seems resigned to the cold hard fact that there is really not much choice.
I’m involved with two real estate development deals. Thankfully they are not condos. One of the developer wisely switched to building apartments from the original condo plan. The other is a commercial development. So what’s the problem? Like you had to ask, of course it is financing.
Recently overheard in a corporate hallway somewhere in Silicon Valley, “our stock price is so low, we are prime take over bait .. but no one can organize the financing”. Even the tech section is affected, isn’t that food for thought.
With both the real estate deals that I’m involved in, the bank providing the original construction financing went under. So the developers are scrambling to find new financing .. but to no avail. Word is, that banks are getting downgraded just for having construction loans on their balance sheets, whether performing or not, so they have the door firmly closed for new ones.
So will the bailout bill help real estate developers? Well if it helps the banks start lending again, it should.
09.26.08
WAMU fails, sold off to JP Morgan
Ah, nothing like sitting down with a cup of tea and reading the morning news. And if you follow the financial sector, it continues to be bad news after bad news after bad. This morning’s shocker was the spectacular failure of WAMU. I just recently wrote about WAMU a few weeks ago. They offered me a loan modification that I gratefully took. Maybe it was a desperate move on their part (although I still think it worked out well for them).
This opens up some speculation. Since I’m not in a strong position to weather this crisis forever, could my lenders become more pliable in the future? Maybe I should monitor their health and swoop in in their waning days and offer to keep paying the loan, on my terms. With the way things are going, with so many walking away from their houses, people who are actually paying their mortgages could have negotiating power. Now or in the future.
