By This Intero Insider – Video Series brings you Dominic Nicoli, one of our top real estate agents at Intero Real Estate Services from the Los Altos office. He speaks candidly with Intero COO Tom Tognoli and shares his insight and projections on today’s real estate market from luxury real estate to foreclosures – where we have been, where we are now, and where we are headed.
Posts Tagged ‘mortgage’
After All, We’re Americans, And That’s What We Do
By Everyone knows that our nation’s credit rating has been downgraded, and that we are now just barely above Slovenia. This sounds pretty grim, and even though Slovenia sounds like a funny country, you’re probably thinking of Outer Slobovia from one of the Marx Brothers comedies. Slovenia is actually a thriving nation that came about when Yugoslavia splintered apart twenty years ago.
Despite the downgrade, we’re still the world’s most powerful economy with GDP of $48,000 per person in the U.S.
Do you know that while China is, indeed, on the rise, their average wages are a mere fraction of what they are here in America?
China is doing lots of things right, but let’s not forget that they still have hundreds of millions working a way in rural poverty where they can barely feed their families.
And GDP per person in China? It’s $7,600, or about one sixth of ours!
Let’s do that again: $48,000 per person in the U.S. v. $7,600 per person in China.
This always surprises people, but even with our downgrade last week, we still have a better credit rating than China. That’s worth remembering.
Also, let’s not forget that exogenous unplanned things happen that boost economies dramatically, often when you least expect it. If you go back to the late 1990’s, the internet boom was in full swing and huge fortunes were being made. These huge fortunes paid taxes, and there was lots of jobs created and these new jobs created new tax revenues.
Toward the end of that decade, Y2K hit, and there have been estimates that $3 trillion was spent to upgrade systems.
These two things, the internet exploding as well as Y2K, poured huge amounts into the economy here, and they played a key role in our wiping out our deficit and showing three straight budgetary surpluses.
I’m not going to make predictions of where all this will lead, but I think we sell ourselves short if we think this is the end of America.
We’re in a real mess with our deficit spending, but I have every confidence that we’ll get through it. After all, we’re Americans, and that’s what we do.
Intero Insider: Cut the Mortgage-Interest Deduction Now? Say It Isn’t So
By The mortgage-interest deduction is the latest housing policy Congress is targeting for possible cuts that could have a deep effect on the nation’s housing recovery. For California, this feels a lot like a “kick us while we’re down” move by Congress.
Don’t panic yet, though. Talk is cheap and this is an issue that has come up before – each proposal getting nowhere. Let’s look at what’s happening here.
First, what is the mortgage-interest deduction? It’s part of the tax code that enables homeowners to deduct the interest they pay on their mortgage from their income tax bill each year. It provides a nice deduction for those in high-cost areas like California and is a significant incentive for home buyers as they know they can count on this deduction to help reduce their annual tax bill.
Sounds good, right? So why cut it?
The mortgage-interest deduction is the largest single subsidy for housing in the U.S. and is projected to reduce tax revenue by $131 billion in 2012. It’s easy to see why Congress would be interested in gaining back some of the revenue.
The proposal that sparked the whole discussion early in November would reduce the amount of mortgage debt on which a borrower could deduct interest paid from the current limit of $1 million to $500,000. Also, borrowers could no longer deduct interest paid on home-equity loans or on mortgages for vacation homes.
The upside is the immediate pool of revenue this would create for a Congress that’s dealing with major deficits. However, pulling it from the hands of homeowners is a pretty bad move that could seriously derail an already-slow housing recovery.
With more than 11 million U.S. households now holding a mortgage worth more than their home, according to CoreLogic, taking money from homeowners is an obvious bad idea. And even though the proposal is simply to lower the current cap, it’s still a pretty drastic move that would significantly impact different segments of the market.
Proponents of the cut argue that only higher-income homeowners actually benefit from the deduction because those in the middle or lower-end tend not to itemize deductions on their tax bills anyway – opting instead for the standard deduction. They say that high-cost states are the ones that would be most impacted by a move like this.
I say it all depends. Many times moves like this will do more damage by sheer perception than actual numbers. The government takes away one of the largest incentives for buying a home. That’s bound to crush more consumer confidence.
So please, Congress. Think before you act on this. Housing is a work horse in our national economy. Don’t make a hasty move in order to fix another problem.
Intero Insider: What’s the Next Big Solution for Housing?
As expected, the countdown to the final closing days of the homebuyer tax credit has brought on more debate. Should the government create more programs aimed at boosting home sales or just stay out of it and let the market correct itself?
Many of the programs that were created to help homeowners and home buyers have been utter failures. Sure, the tax credit boosted sales while it was in place. But even now that conditions arguably are better for buyers – record low interest rates and lower prices in many areas – home sales continue to slog in many cities.
Another program may or may not help home buyers or struggling homeowners. But what happens when it ends? With the home buyer tax credit, we saw an artificial boost to the market, followed by the inevitable fall in sales as the immediate incentive went away.
So what’s next? As I’ve said in this column before, it’s all in the jobs, really. If the government really wants to help housing and homeowners then we need to think about security, incomes that are in step with mortgage payments, and a confidence in the future.
With interest rates as low as they are and the opportunities that abound for buyers today, it only makes sense that the missing key here is stability in incomes. Tax credit or no tax credit, life goes on. The reasons for buying and selling real estate always withstand the test of time – through markets good and bad. It’s a roof over your family’s head. It’s pride in ownership.
The government might do better to focus on helping those families who feel stuck – the ones who are underwater on their mortgages. They want to be owners. They have the means to pay. But they feel caught up in the waves of the mortgage mess that inflated the values of homes when they happened to buy. Another tax credit is not going to help them continue to pay a mortgage on a house they know they can’t sell without a loss.
Let’s get to the root of the problem, which isn’t necessarily home prices or the pace of sales. The real problem is a lack of stability and a lack of economic security. That’s the glue that holds together American ownership.
Intero Insider: Celebu-Drama & Real Estate. Who Cares?
I read a lot. Lots of news, mostly. Blogs, real estate-related news items…that sort of thing. I owe it to Intero’s clientele, as well as our team of real estate professionals, to stay abreast of the most current information. Have you looked at the “news” this morning, though? I was pretty disappointed.
Why?
Because a search of the top real estate “news” items right now returns a glut of useless stories about Jesse James & Sandra Bullock listing their home for sale. A crush of chatter about the divorce of Al & Tipper Gore and what they plan to do with their real estate holdings during the proceedings. There are even stories about how the characters from Sex & The City have risen to the upper echelons of New York real estate throughout the course of the series.
That’s just embarrassing. There are serious, weighty issues with which our industry should be dealing with and on which it should be reporting. But they’re not getting talked about all that much.
If you’ve been affected, whether by foreclosure, strategic default, or if your credit has taken body blows as a result of this mess, do you really care about Sandra Bullock’s real estate “woes”? Of course not.
You have problems of your own to deal with.
If you’ve gone through a foreclosure and have lost your home, there are several things that you should do. The first thing is to meet with a financial planner to determine a long-range plan to help you recover financially. This plan could include something as simple as setting up a plan with Consumer Credit Counseling, or as complex as declaring bankruptcy. It will certainly involve formulating a workable budget, something to which you can strictly adhere.
The next thing is making certain that you follow that plan to the letter of the law. Missed payments are not an option, as each one will hamper your ability to rebuild your credit. Without that, purchasing another home won’t be an option.
Another thing that’s imperative, especially with ever-tightening lending standards is to save, save, save. 100% financing, especially for those who have damaged credit, is a thing of the past. If you’ve got a credit score that’s less than perfect, it’s very likely that you’ll have to make a down payment of about 20% on your next home purchase, so minding your pennies is of the utmost importance.
It’s important to note that, even if your credit isn’t rock solid, lenders are looking for a consistent track record. If you’ve had problems in the past, but have been consistent in making payments and in making good on your debts, you’ll have a much better shot at securing a new mortgage in the future.
If you are concerned about how you can rebuild your credit and your financial life, talk to your financial advisor, your Intero real estate professional, or your attorney. It’s not an easy process, but it’s one, with a bit of time and effort, that can be done.
As for Sandra Bullock’s beach house? I’ll leave that to the E! News network.
Intero Insider: HAFA Spells Relief … Or Does It?
At the beginning of April, the Federal Government introduced new measures aimed at helping Americans avoid foreclosure. Sort of lost in all of the news about how great the real estate market’s been doing, Home Affordable Foreclosure Alternatives (HAFA), are designed to help struggling homeowners who, regardless of effort to keep their homes, simply can’t afford to.
“A short sale would really help … if only the bank would agree.”
Now, maybe it will. Banks already participating in the Government’s HAMP program are required to participate in HAFA, as well. Mortgage holders have been notoriously difficult to deal with when it comes to short sales. One hand doesn’t know what the other is doing, approvals take virtual eternities (if they ever come at all), homeowners who’re feverishly trying to sell their homes or face the spectre of foreclosure are lost in a sea of confusion about how to proceed in the process.
With a glut of foreclosed homes (over a million at last count), banks are having to rethink their options. Each foreclosure costs banks upwards of $100,000 more than a short sale, but until now, they’ve not been enthusiastic about approving them.
The HAFA program should make things a bit easier on everyone. Whether it’ll work is another matter altogether.
The new guidelines institute a timeline, so that all parties involved will know about what they can expect and when. Sellers will be able to get pre-approval and know what the absolute bottom-line acceptable prices will be. Junior lienholders, who typically get left out in the cold and who are, typically, the factors in denying short sales, will be able to recoup some of their losses. Improvements are definitely being made to the system (although “system” is far too precise a word to pin on the old way of doing things).
A major benefit to HAFA is that it will, hopefully, allow homeowners to leave their properties with their heads held high, and with their dignity intact by fully releasing them from the liability of their loan.
In California, which has been one of the 4 states hardest hit by the foreclosure crisis, there’s a bit more to the program.
The recipients of $700 million dollars in additional aid, the State of California has proposed assistance to low-to-moderate income level homeowners through means such as principal write-downs for those who owe more on their home than it is worth (it’ll be interesting to hear reactions from people who are in the same situation but who are still making their payments on time), relocation assistance, subsidized mortgage payments, or temporary aid for the unemployed who are at risk of foreclosure.
They are, sadly, many more homeowners affected by this crisis that won’t be helped, for one reason or another, by this program or any other.
If you’re a homeowner in distress, please contact your lender. Ask your Intero real estate professional. Find out what alternatives you have before it’s too late.
Mortgage That Matters: A MORTGAGE IS NOT A COMMODITY
From time to time I hear people saying that the mortgage loan officer is a dinosaur. The reasoning is that a mortgage is commodity, that every mortgage has the same criteria, and that they are, therefore, mere commodities.
By extension, the argument goes, borrowers do not need humans involved in the process, and that they can benefit from reduced costs by eliminating the human element from the equation.
When I hear this argument, I wonder if the person ever got a mortgage.
If they had, they’d know that the “human element” is critically important and that many, if not most, borrowers would never be able to buy a house without assistance from the Realtor and the loan officer.
As an example, think about all the subtleties of various loan programs. Let’s assume a borrower goes online and choose Program 1-A and gets turned down. He then applies for Program 2-A, Program 3-A and Program 4-A, getting turned down at each of them.
At this point, does he get so discouraged that he simply gives up?
Had their been a loan officer and Realtor involved, he’d have known that of the ten programs offered, he only qualified for the tenth one. A knowledgeable loan officer could have steered him right away to program 10-A and made certain he chose the right loan program to match his individual situation.
One argument for eliminating the human element also has to do with the reduced number of programs. The argument is that loan officers were needed 2-3 years ago when there were hundreds of programs, and the borrower needed help choosing among all these choices. Now, they, say, it’s either a conventional 30 year fixed or an FHA 30 year fixed, and anyone can choose between these two.
Again, no one would say this if they’d tried getting a loan recently. Awhile the number of programs has, indeed, shrunk, it’s a heckuva lot more than two. And more importantly, while there maybe be fewer programs, they’re all much harder to qualify for.
A good loan officer can help borrowers choose the right program and help them qualify for that.
And no computer program can ever do that as well.
Intero Insider: Is California Rebounding? Is It Really?
Last month, home sales in California were up almost 17% over November, and more than 10% over December 2008. This would indicate that progress is being made. Indeed, lots of people are predicting (as many do at the beginning of each year) that there will be a marked turnaround in market value and that things will do nothing but get rosier.
But there’s a problem that not a lot of people are talking about.
Raise your hand if you’ve heard of Strategic Mortgage Default.
No? Let’s talk about it.
Strategic Mortgage Default occurs when a homeowner, finding his home worth less than he owes on his mortgage, intentionally allows it to go into foreclosure. Let me repeat that: intentionally. Right or wrong, lots of people have done it. And many, many more are considering it. The thinking, typically, is that throwing good money after bad will just lead to … nothing. Many people believe that their homes will never again be worth what they paid for them. As such, they think, “Huh. No more property taxes, maintenance, insurance? That sounds good.”
In 2010, based on when many parts of California saw their real estate markets “top out”, many homeowners will have adjustments in their mortgages kick in. One saving grace here might be that interest rates are quite low, so payments mightn’t change all that much. But these adjustments, coupled with new taxes just passed in the state and the realization that their homes aren’t worth close to what they paid might be enough to have many people throwing in the proverbial towel.
While all of this might sound bleak, it would be naive to issue feel-good platitudes and not face the reality of the situation head-on. Strategic Mortgage Default will do its part to radically raise the number of bank-owned for sale in California. And there are lots already.
If you’re planning on selling your house this year, these homes — part of what we call “shadow inventory” — could play a big role in where you can, realistically, set your price. If you’re planning on buying, you’ll want to know how to position yourself to get the best price possible on your purchase.
Strategic Mortgage Default is going to be something you’ll hear more and more about in 2010. Like “short sale”, “REO”, and “foreclosure”, it’ll become part of the daily vernacular.
Pretending that the world is draped in sunshine and rainbows won’t solve anything. It might make people feel better for a while, but it won’t solve anything. Facing reality is the only thing that gets the job done. Your Intero Real Estate professional is ready to deal with reality. Let us know how we can help.
Intero Insider: Bringing A Little Clarity To The Mortgage Business
Since the dawn of time (or at least since financial institutions have been issuing mortgages to consumers), a shroud of confusion has lain over the process. Questionable fees, questions that don’t really have concrete answers, “best guesses”, and a morass of paperwork have been the norm in a business that ought to have been crystal clear.
As of January 1, 2010, much of that changed.
Under the Real Estate Settlement Procedures Act (RESPA), HUD has instituted rules and regulations that require all lenders to use standardized, simple-to-understand good-faith estimate forms. In addition, closing agents are now required to use settlement statements that show — in black and white — any differences between original estimates and actual costs.
I say that it’s about time.
One of the major problems leading to the mortgage crisis that began in late 2007 and which continues today was the fact that many borrowers didn’t fully understand the terms of a mortgage. Now with standardized good-faith estimate forms, which are easy to understand, are being used with all lenders and allow people to compare loans and legitimately shop around for the best deal.
When you ask, “How much does this loan cost?” someone should be able to answer the question. It’s a question to which there should be a concrete answer. Now, most fees cannot increase from the time of the original estimate. Those that can cannot, increase more than 10%. Any increases over and above these levels will have to be covered by the lender. No ifs, ands or buts.
The new forms don’t fix everything, of course.
One thing that the new good-faith estimate does not show consumers is what their monthly payments will be under the terms of a mortgage, nor the funds that they need to bring with them to settlement. It is imperative that buyers have this information, so that they can effectively prepare for what lies ahead.
If you’re thinking of shopping for a mortgage this year — and there are certainly many, many reasons to do so — be sure to talk to your Intero Mortgage lender, your tax advisor or your Intero agent, so that any and all questions you may have are answered before you get to the settlement table. The good-faith estimate forms may have made it easier to compare mortgages, yet within our economy the lending criteria has become more strict and harder to decipher. Now it’s more important than ever, to not only choose a competitive lender, but choose the lender you have the utmost confidence and trust in.
Be informed yet be well guided.
Intero Insider: Making Sense of Loan Modifications
Losing one’s home is a gut-wrenching experience. It’s something no one should have to go through. Now, sadly, many, many people are having to do just that. In many cases, however, there is another answer.
The Home Affordable Modification Program, or HAMP.
Part of the Federal Government’s economic stimulus plan, HAMP is an option that has yet to pick up a head of steam. It’s possible that it hasn’t gotten the necessary publicity, which is a shame, because keeping homeowners in their homes is vital not just to their well-being, but to the well-being of our economy.
Here’s how HAMP works:
Not a refinance, which replaces your loan with a brand-new mortgage, a loan modification happens when your lender reworks the terms of your existing loan. Generally speaking, this lowers payments and makes the home more affordable for you. Often, the lower payments are the result of a lower interest rate, an extension in the loan term, a reduction in principal, or any combination thereof.
If your home is your primary residence and the balance of your first mortgage is less than $729,750, then you may qualify for the program. Additionally, you’ll have to demonstrate that you’re facing hardships that are affecting your ability to make payments on your mortgage. From there, your lender will ask for documentation about your income, bank statements, as well as other financial data. You’ll also be asked to complete a Hardship Affidavit, in which you’ll describe extenuating circumstances with which you’re dealing.
“I’m doing just fine with my mortgage payments. Why is this important for me?”
Why? I’ll tell you why. The prospect of tens of thousands (yes, that many) homes suddenly appearing on the market is a pretty gruesome specter for our economy. Part of the problem of “shadow inventory” that we mentioned several weeks ago – a tidal wave of foreclosed homes entering the marketplace – would be a crushing blow to a real estate market that is only just showing signs of recovery.
Also, unoccupied homes are blights on communities. Too many can splinter a neighborhood, driving down everyone’s property values — not just those that are empty. And make no mistake: this isn’t just a problem of lower-income communities. No. Foreclosure is just as much of a problem in higher-end neighborhoods.
As Bloomberg reported late December – Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate. This brings the rate of default for these considerable loans up to a skyrocketing level of 12 percent as of September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages. This is quite a jump from the year prior where the rate for default on the $1 million dollar plus mortgages as only 4.7 percent.
So, take a look at HAMP. HAMP is offering distressed homeowners a second chance. A chance to keep a roof over their family’s head. A chance to keep the sense of pride instilled by owning your own home.
It’s not a cure-all. But it’s a place to start.
The Intero Insider
A weekly e-newsletter with fresh market data and candid insights from Intero CEO Gino Blefari
