Ever notice things happen in waves? The “should you walk away” theme got a new voice in Brent T. White who argues more people should stiff their lender. Predictably the banks were not amused.

Are you a Realtor?  Or maybe a “we buy houses” outfit that takes it’s marketing seriously?  If your website has a physical address for your business on it, consider listing with Google Local Business Center.  I’m surprised that more small business owners don’t take advantage of this – check out the video.

Here’s a statistic I bet you have heard before, one in four mortgages are underwater.  So the question is given that the house is an investment loss, do you walk away?  A  CNN Money article interviewed 5 homeowners and asked that same question.   To homeowners a house is more than a house, it’s a home, and many of them have decided to stick it out and keep the home.   One lone couple has decided to walk away, citing attempts to work with the bank for a principal reduction of $100K, and when that didn’t work letting it go to foreclosure for a $250K loss to the bank..   Hah, banks are not giving out principal reductions .. at least not that I have heard of.  Banks are playing hardball and not giving up much ground, although you would think they would work harder to avoid foreclosure.  After all, who got the bailout money?

I read through the comments, and most of the peanut gallery was upset with the lack of responsibility people are showing by walking away from their homes.    While I sympathize with the sentiment (or may I say jealousy), is it really a lack of responsibility, or just a sober and difficult financial decision?  Let’s see, I could run through all my saving and go broke or I can jettison this asset that the very bank that lends on it caused a credit crisis that caused it’s value to drop beyond all the worse case scenarios I ever considered.

I thought the commenter that professed disbelief at the 50% drop in value was cute.    I recently received an offer of $55,000 for a house that has a $186K note on it.  I should be lucky to only have a 50% drop.

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.

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!

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.

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?

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 the first step is to draw up a hardship letter and a budget. What can you afford? And why do you need a loan modification? Banks are numbers businesses and if you can show them that the new numbers make sense you might have a good chance of getting a loan modification.

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.

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.