Tuesday, September 30, 2008

I am developing a new condo fetish.

I just showed a pair of awe-inspiring foreclosed condos in a new building off Wilshire in K-Town. They were sooooo nice it was amazing. I have always been a proponent of older homes because they have character and charm but these new places are jaw-droppingly cool and there is no repair work to be done! It is not a bad thing to have something be shiny and new. It may not be unique but it can have charm and character. I am really turning over a new leaf here and appreciating newly built properties. There are a ton of them in the hottest areas of Koreatown, on Wilshire by the metro stations, the world famous Kareoke Dive Brass Monkey, the Big Lebowski inspired Shatto Bowling alley and a myriad of bumping Korean nightclubs that remind me more of Vegas than L.A. New condos are where it's at!

Monday, September 15, 2008

Building a fortune, one house at a time.

(All these folks have to live somewhere!)

Myself and others have preached a path to wealth through owning single family homes. For indocrination into our cult check out the books "Buy and Hold" or "Building Wealth One House at a Time." The formula couldn't be easier: buy single family homes and rent them out. Out of all real estate investments homes are easiest to finance, easiest to rent, tenants pay all utilities, move much less, homes appreciate the most, there’s no rent control, and....drumroll...the return is unmatched by ANY investment.

Simple analysis on a house for sale in Los Feliz 90027, just listed for $1.6m:

“This house was purchased for $400k in 1987. Twenty years later, it has appreciated 7% on average - we now have a list price of $1.6m. But the buyer only put 20% down when she bought it. In other words, she turned $80K (20% down) in 1987 to $1.55m after commissions. And if it was never refinanced, the $320K mortgage should be way less than $100K (thanks to the tenant for paying it down).

“Basically, the owner turned an $80K down payment into $1.45m, in 20 years. That’s an annual return of 85% (how’s that 401K doing?).”

The power of leverage – homes appreciate 7% a year and we make 85% a year. With Mr. Lender and Mr. Tenant on your side, why aren’t you buying a new rental house every two years and retiring in twenty? Now with the mortgage turmoil it is becoming more difficult to finance homes. Guess what, that means more renters pushing up rental prices!

Don’t wait too long: rates just dropped almost a whole % point on some loans. Things are getting busy – in Silver Lake/Echo Park/Los Feliz alone homes are selling a rate of 2 per DAY.

Call me to set up an appt to look at rental houses and talk about long term planning. Please do not email me for a “list of homes.” They are all on the internet. Property investing = buns in carseat driving around.

Wednesday, September 10, 2008

A startling take on the truth about loan modifications!!!

I just got off the phone with Loss Mitigation at Ocwen. Correction, make that what used to be Loss Mitigation. As of noon-ish today, Ocwen has left the Short Sale playing field.

According to my contact, (a Loss Mitigator) they announced to the department today via email, that they were done.

Ocwen decided to stop negotiating all short sales. Period.

"None at all?", sheepishly I asked.

"Not a single one. Unless it was already approved", says he.

Curiously, yesterday the deal to sell Ocwen collapsed.

Here I am working on negotiating a short sale. I'm pretty sure the borrower did a Stated Income Loan and lied through his teeth about his income. I'm also pretty sure he used someone else for the Social Security Number. (No, I didn't do his loan!). And I'm pretty sure he has a sub sub prime loan (two subs intended).

There's no loan modification in the books for this borrower.

I asked my LM guy, "So this is going to go to foreclosure, become an REO, and Ocwen will take a bigger loss down the road?"

"Yup, That sure appears to be what they are planning!"

Ocwen, who's shares tanked yesterday, is primarily a loan servicer.

As of December 31, 2006, OCN serviced 473,665 loans under 487 servicing agreements for over 40 clients. These clients include Wall Street firms with mortgage securitization platforms, such as Deutsche Bank, Lehman Brothers, Credit Suisse and Morgan Stanley, mortgage originators, such as Delta Funding, and governmental agencies, such as the United States Department of Veterans Affairs. Revenue from this segment comprised 80%, of its consolidated revenue, during the year ended December 31, 2006. (Reuters)

After I got off the phone I started thinking. This is all speculation on my part...

If Ocwen was the holder of the Note, they would have a vested financial interest in minimizing the overall losses. Accepting a short sale would minimize those potential losses. But Ocwen isn't the holder of the Note. Some Investor is.

In a Short Sale there is going to be a loss. Ocwen will negotiate for what they can, and then pass the remaining balance to the Investor. That loss will be absorbed by the investor. The key is not in the loss, but in the fee generation. In a short sale, Ocwen can charge only a small amount of fees.

On a foreclosure, Ocwen can and will charge up the fees. The Admin Fee, Processing Fee, reloading the Stapler Fee, talking to Mueller Fee. Pretty much any fee they can come up with. These are fees they just couldn't generate with a short sale.

After the Auction, when it goes on the market as an REO... Assuming it sells for the same amount it might have had it been a short sale, Ocwen stands to make much more in fees than had they negotiated a short sale.

Following me so far?

Oh yeah, and who pays for all the loss mitigator salary anyway? Ocwen!

So what do you do when the negotiations for your purchase fall through?

I can just see the BOD saying last night, "If we can't sell this pig of a company, we'll fire the Loss Mitigation Department, stop doing negotiations and rack up the fees! "

Of course, the REO probably won't sell for the amount they could have negotiated the short sale for. But who cares? Not Ocwen, They'll get their trumped up fees no matter what it sells for. It's the investor that's taking the hit - not them.

Ocwen is still in business. Are they not worried that by shooting their investors in the foot that they won't be able to attract new investors to service for?

Or since the buyout fell through, is the corporate plan to make as much as they can before closing shop?

2006 Net Income: 206 Million
2007 Net Income: 38 Million
4th Quarter Net LOSS: almost 7 Million!

Just thinking...

Tuesday, September 9, 2008

Should you buy now or hold out?

Should You Buy A Home Now?

The drop in prices may mean it's time to jump in.
Or is it too soon? Experts offer pros and cons.
By Peter Y. Hong

Southern California median home sale prices are down about 30% from their peak. That's about as far as they fell in the 1990s real estate downturn, and enough of a decline to have many asking: Is it time to buy? Some are already answering with their checkbooks. In the inland areas where prices have crashed hardest, buyers are slowly returning. But many of those who study housing markets say the worst is yet to come for real estate. Buy now, they warn, and you'll regret it as prices continue falling. Others contend that prices are low enough that renters who aspire to own should buy now so they can start building their equity. Predicting price trends is a dodgy business, and there's no one right answer for everyone. But if you are thinking about buying now, here are some pros and cons to consider.

Buyer beware

The main argument against buying a home now is that values are still spiraling downward. Stay on the sidelines and you'll be able to buy that dream home for a much lower price than now -- about 25% less in Los Angeles County, predicts Celia Chen, director of housing economics for Moody's Economy.com.

Chen bases that guess on several factors, including the high inventory of unsold homes and the gap between current prices and income.

During the housing boom that began in the late 1990s, the relationship between home prices and incomes grew increasingly out of whack. Mortgage lenders offered subprime loans with low introductory teaser rates, as well as "no-documentation" loans that didn't even verify a borrower's income.

This allowed people to buy more expensive homes than they could afford, helping inflate values. But many of those loans have gone into default as teaser rates expired and borrowers couldn't make their payments. And lenders are no longer handing out loans to people who can't demonstrate their ability to repay them.

That has made the relationship between home values and incomes relevant again, economists say.

More than half of the adults in the Los Angeles metropolitan area own their homes. But because of the price run-up that began in the late 1990s, fewer than 11% of adults in the L.A. area earn enough to buy a median-priced home of $412,000, according to a National Assn. of Home Builders index.

As recently as 2001, when the median was lower, that figure was about 38%.

Los Angeles economist Christopher Thornberg believes that home prices will stabilize when homes are affordable to about 25% of the adult population. For that to happen in Southern California, home prices would have to come down 20% to 35% from their current levels, Thornberg said.

"There's no way in hell the house you buy now will be more expensive next year," he said.

Home prices are also relatively high compared with rents. The ratio of home prices to annual rents in the Los Angeles area was 20 as of March 31, meaning the median home sale price was 20 times a year's rent for a comparable property, according to Moody's Economy.com.

The 15-year average ratio in Los Angeles is 16.4.

It's true that rent checks don't generate returns. But renters can take the money they would have spent on a down payment and invest it in stocks, mutual funds or other investments (20% down on the median-priced Los Angeles home would be about $82,000) and are spared the costs of home maintenance and repairs.

Another reason not to buy is the current economic uncertainty. The mortgage payment that looks affordable now will be harder to make if you lose your job.

"You want to have enough savings or cash flow to weather a downsizing in the workforce," said Judi Martindale, a San Luis Obispo financial planner. If not, she said, keep renting.

Those who would depend on their homes as a form of retirement savings also should hold off, Martindale said. A house is not liquid, and relatively few who plan to generate cash by downsizing to a cheaper home in the future actually do so, she said.

"It's very difficult for people to move down" when the time comes, she said.

Why wait?

Those who say now is a good time emphasize the benefits of homeownership. The market may or may not be near the bottom, but take that off the table, these people say. Instead, consider the advantages of owning versus renting.

As long as you can afford your mortgage, for instance, you won't be evicted. With a fixed-rate mortgage, your payments remain the same over time, while rents generally rise. Over time, you can build equity in your home and own it free and clear -- and then won't have to worry about monthly payments at all.

There's also the advantage of living in an environment that you control, where you can remodel or decorate as you please, without having to seek a landlord's permission.

"Houses are lifestyle assets, not investments," said Brent Kessel, a Pacific Palisades financial planner. Kessel believes that those waiting for a market bottom may be approaching homeownership the wrong way. As long as one stays within one's means, the financial risks of homeownership diminish over time.

"Make a purchase decision based on your lifestyle, not the market," he advises.

Margaret Smith, a Claremont financial planner and former university economist, takes it a step further, saying that a home is almost always a smart investment, even if values do temporarily decline.

Smith and her husband, Gary Smith, a Pomona College economist, say buying is practically a sure bet when you would pay less for a monthly mortgage and other home costs than what it would cost to rent the home.

They call that monthly savings the "home dividend" and say it will offset a short-term decline in a home's value. The monthly rent savings not only is money in your pocket but also can be invested elsewhere.

Even if your mortgage payment and expenses start out higher than comparable rent, the payment becomes relatively cheaper as rents increase -- provided it is a fixed-rate loan. "You can certainly turn a negative into a positive over time," Margaret Smith said.

In addition, mortgage interest and property taxes can be deducted from income taxes, potentially shaving thousands off annual home costs.

Even though mortgage rates have crept up, lower prices mean you could actually pay less monthly for a home than you would have a few months ago. The typical monthly mortgage payment in Southern California for a home purchased in June was estimated at $1,671, according to DataQuick. That's based on the median price for Southern California and a 20% down payment. That was down 35% from the same month last year and, adjusted for inflation, was the lowest in five years. That monthly payment does not include taxes, insurance and maintenance costs.

By Smith's formula, the home dividend for someone who buys a $355,000 home (the Southern California median) would be nearly $1,000 after one year compared with renting a home for $2,000 a month.

That is, the buyer -- even with the added expenses of homeownership -- would spend less on his or her housing costs than rent because of mortgage interest deductions.

"Stop fixating on short-term price moves; think about long-term rent savings," Gary Smith said.

If someone delays buying a house that would produce rent savings to hold out for a better price, the delay would mean losing those savings -- and the loss could be compounded if prices went up instead.

"Buying a house is risky, but waiting is risky too," Gary Smith said.

Words to the wise

Whether you decide to buy a house now or wait awhile, real estate experts say you should keep in mind the following:

* Don't count on price appreciation.

If you can't afford a house now, don't presume you'll be able to tap an increase in your home equity to refinance it -- that's a mistake made by many people who are now in foreclosure.

Likewise, don't divert retirement savings to buy more house than you can afford, expecting to make up the shortfall later through a jump in home values.

* Don't expect a house to make you financially stable.

Experts advise home buyers to have a steady and reliable income stream; don't buy in the belief that simply owning a home will provide financial stability.

* Don't buy if you think you may be moving soon.

If you're not sure how long you are going to live in a house, move slowly. If you are forced to sell after a short time, any price appreciation may be outweighed by closing costs and agent commissions -- and prices could decline.

Typically, people should avoid buying a home unless they plan to live in it for at least five years, advises Richard Green, director of USC's Lusk Center for Real Estate, but a safer target these days may be seven or eight years.

Green, who recently relocated from Washington, D.C., is wrapping up a home purchase in Pasadena. He's not worried about prices falling further because he and his wife plan to stay at least 20 years.

"This was the house we wanted to live in," he said. "A house can be like a car, something you use and enjoy and have for a while. Whether it goes up or down in value may not be so important."

Even Thornberg sees that there may be good reasons to buy now, regardless of price.

"Maybe you have a baby coming up," he said, "and don't want to be in an apartment."

Friday, September 5, 2008

The Short Sale Myth-Reality Realty.

Hello all, this is my initial Real Estate Blog and I want to take the opportunity to thank you for reading. For anyone who doesn't know me, I am a hyper-energetic realtor based in Eagle Rock and selling all over North L.A. and the San Gabriel Valley. I am also a mortgage lender and I spend a good chunk of my time working with a non-profit organization called Operation HOPE, where I help people get out of foreclosure and save houses. I'd love to put you on my list of satisfied buyers, just give me a call at 310-709-8283.

The first topic I'll dive into is the myth of short sales. Those are properties where the sales price won’t be enough to repay the existing loan and closing costs, so the bank has to agree to take less than they are owed to make the deal work. For example, Joe Homeowner owes $650000 on his house that is being "short-sold" for $500000 so the bank is writing off $150000. After working in foreclosure avoidance for what seems like forever, and also working the other side with buyers who are trying to get into short sale properties, I have come to the conclusion that 99% of short sales will NEVER go through. Why? The bank will almost never agree to take less! They don’t care that they may make less eventually when they have to sell it as a foreclosure. They want to make an example of irresponsible sellers and make them suffer for getting themselves into such a financial pickle. If you are such a seller and need to sell, you had better be in real financial trouble-at LEAST six months behind or your short sale will not be approved. That means you can’t have any other assets, or if you do, you have to give them to the bank. They’ll transfer what you owe to another property, or they’ll take a promissory note if you don’t own any other real estate. And you almost always have to already be in default on your loan, so your credit is trashed regardless. One property that we had an offer on, Flagstar bank was demanding that the seller sign a non-dischargable (meaning bankruptcy-proof) note for not only the deficiency in the purchase price, but also all the missed payments up to that point! That short sale, like all the others, did not go through and the seller is still occupying the property.

There are many reasons why the myth of the short sale gets bargain hunting buyers foaming at the mouth. Most of them stem from the fact that most people don’t understand how they work and they advertise their property as a short sale at a very low price with no idea whether they qualify for one. To further the myth, many Realtors take them on with the same ignorance. The blind leading the blind.

So, you the prospective buyer say, what’s the harm in looking at short sales? Here’s the problem: you are wasting your time. Not just by looking at unlikely properties, but what if you fall in love and make an offer? What if it’s actually accepted—pending lender approval, of course? Then you waste even more time waiting weeks, even months to find, 95% of the time, that the lender turned the deal down and foreclosed on the property yesterday. Not only is that really frustrating, but you have a huge loss in missed opportunities. That cute little foreclosure on the next street that sold in a day. That regular sale that sold in multiple offers last week. Oh, yes, and even though the paper says that the prices are dropping, now that you’re back in the market it seems like anything that’s any good is $20,000 higher than you thought you were going to pay with the short sale.

If you’re a savvy buyer, how can you take advantage of some of the really great deals that do appear, like legitimate REOs? First, can you pay cash? Or do you have such a large down payment that your loan can be under $417,000? You are in good shape. If you already own a home that you have to sell in order to buy another, you need to put it on the market and sell it for whatever you can and be willing to rent until you find the deal you want. It’s not that difficult, there are lots of rentals out there right now. And when you’re ready, don’t be confused by the short sales you see on the market. Just ignore them and look at the homes that you have some chance of actually purchasing. If your existing agent is showing you short sales and writing offers that seem too good to be true that never get accepted you are wasting your time. I'll take you out and show you some quality properties that are actually for sale. Perhaps I will call my company "Reality Realty".