Wednesday, October 29, 2008

Housing Stimulus Can't Wait

When Senate Banking Committee Chair Christopher Dodd (D-Conn.) conducted a hearing last week on the credit crisis, he took aim at banks' intention to use funds from the massive $700 billion federal rescue to shore up their financial position rather than tackle the liquidity problem in the mortgage market that was so core to the government's goal in passing its bill... click here for more.

Tuesday, October 28, 2008

Home Sales Rise as Affordability Improves

Existing-home sales rose 5.5 percent in September, with several markets showing signs of a rebound, according to NAR's latest research report. Find out how sales fared regionally. Read more >

$2,000 Property Tax Exemption

In these challenging financial times, don't forget that every household in New Mexico is eligible for a $2,000 head-of-family exemption off the value of your home for property tax purposes, BUT YOU MUST ASK FOR IT.
Call your County Assessor’s office to request the exemption.

Thursday, October 23, 2008

Albuquerque Home Sales 3rd Quarter 2008 Market Reports

Click here for the 3rd Quarter 2008 Market Reports

US working on plan to help homeowners refinance

AP - The federal government is working on a loan-guarantee plan that could help many homeowners escape foreclosure, a banking regulator told Congress Thursday. At the same time former Federal Reserve Chairman Alan Greenspan said the financial crisis will get worse before it gets better... click for more.

Wednesday, October 22, 2008

Financing still available for buyers with bad credit

Though loan terms and underwriting standards have tightened, residential financing is still available for buyers with less than perfect credit histories. Read more >

Commercial Real Estate: Ready to Tank

Commercial real estate has been strangely impervious to the housing crash, but its luck is about to run out. Economists and industry analysts say the recession and credit crunch pretty much ensure a bad year for commercial real estate in 2009, and at best a tepid recovery in 2010... click here for more.

Monday, October 20, 2008

Home construction falls sharply in September

AP - WASHINGTON - Construction of new homes plunged by a bigger-than-expected amount in September as builders slashed production yet again, putting the country on track to build the fewest homes this year in more than six decades... click here for more.

Tuesday, October 14, 2008

September 2008 Albuquerque Home Sales Market Report

Just click here for the full report.

Flood Insurance Extended

President Bush signed into law a continuing resolution that extended authority for the National Flood Insurance Program through March 6, 2009. Congress has been debating long-term reauthorization of the flood insurance program with many reforms supported by NAR, but no agreement had been reached before the program was scheduled to expire. Had it expired, no flood insurance policies could have been issued, effectively barring property owners from getting a mortgage in federally designated flood zones. As part of insurer and commercial coalitions NAR weighed in and backed an extension until Congress could more fully consider long-term re-authorization and reform.

Short Sale Results in Tax Liability for Sellers

The IRS properly imposed a penalty on a taxpayer for failing to include as income almost $75,000 in debt forgiveness in his 2003 tax return when he sold his property in a short sale, ruled the United States Tax Court, affirming the IRS's decision. Note: In December 2007, President Bush signed into law the "Mortgage Forgiveness Debt Relief Act of 2007." The law applies to debt forgiven in 2007, 2008, or 2009. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, may qualify for this relief, the IRS says.

Pending Home Sales Jump in August

Pending home sales activity surged as buyers took advantage of low home prices and affordable interest rates, NAR's forward looking Pending Home Sales Index shows. The Index jumped 7.4 percent in August to 93.4 from an upwardly revised reading of 87.0 in July. The latest Index number is 8.8 percent higher than August 2007, when it stood at 85.8. The index is at the highest level since June 2007 when it stood at 101.4. “What we’re seeing is the momentum of people taking advantage of low home prices, with pending home sales up strongly in California, Nevada, Arizona, Florida, Rhode Island and the Washington, D.C., region,” says NAR Chief Economist Lawrence Yun.

Credit markets see more gradual improvements

(AP) NEW YORK - The government's efforts to crank open the credit markets have led to some mild improvements in lending rates and Treasury bill yields. But it will probably take months, and perhaps a few years, before lending returns to healthier levels... click here for more.

Monday, October 13, 2008

Calls for 90-day moratorium on foreclosures

TOLEDO, Ohio - Democratic Barack Obama on Monday called for more immediate steps to heal the nation's ailing economy, proposing a 90-day moratorium on home foreclosures at some banks and a two-year tax break for businesses that create new jobs... click here for more.

Thursday, October 9, 2008

Thoughts on the “Bail Out” and Ways to Keep Your Money Safe

Last Month I mentioned that when market conditions deteriorate, fraud and scams will become more common. The mere fact that we will be doing a lot more short sales increases the opportunity for both deliberate and accidental fraud. Before we address that, let’s take a look at our current market conditions, and the potential effects of the bail out.
The first thing we need to get a handle on is the size of the problem, and how the size of the bailout relates to it. The numbers are so big that most folks just can’t comprehend them. This provides a fertile field for rumors, lies and scams to grow.
Here is a quick example: I have heard parts of several local and national radio talk shows where the following idea was being discussed as a serious solution to our problem.
Back when the Government was “only” putting up $ 85 Billion to bail out AIG insurance, the idea went: if we took the $ 85 Billion, and divided that amount between the 200 Million tax payers, each would get $ 425 Thousand Dollars. A man and wife would get $ 850 Thousand.
The argument went that each of us could pay off our mortgages (mortgage crisis solved), buy new Cars, Homes, Electronics…, and the economy would be stimulated.
At the times I heard these I was driving, and couldn’t do the math, but intuitively this didn’t seem like it could be possible. My first thought was that for the Government to have $ 425 Thousand dollars to give to each of us, they would first have had to take it from us in the form of taxes. It didn’t seem reasonable that we had each given the Government that much money in taxes.
While I was listening, no one ever called in and disputed the validity of this argument. In fairness, that may have happened after I tuned out, but I never heard it.
Then a couple of days later I got an email putting forth the same idea, and I did the math:
$ 85,000,000,000 Billion Dollars = $ 850 Dollars
200,000,000 Million People 2 People

Remember from Junior High math class how you can cancel out zeros on the top and bottom of a fraction?
The fact is that if the $ 85 Billion were equally divided between 200 Million people, each would only get $ 425 Dollars (Not Thousand). I think the fact that so many adults with a minimum of a high school education could get so caught up in this thinking says a lot about how we got here to begin with.
So, now that we are talking about another $ 840 Billion in bailout (700 Billion going to buy up bad mortgages), how much is that per person? If we stay with 200 Million taxpayers, it works out to $ 4,200 each.
In my mind, these are not the numbers we need to be looking at if we want to get a handle on this problem.
My question was: What does $ 700 Billion represent in terms of the size of the problem?
The best answer I can come up with, is that $ 700 Billion represents about 5% of the mortgages out there. Some sources have said (hopefully they are wrong) this represents only 5% of the delinquent mortgages. One of the big problems is getting to the correct information. There are so many sources putting out wrong information, as in the example above, that it is hard to be sure about the true facts.
In any case, let’s take the high road and assume that the $ 700 Billion represents 5% of all mortgages out there.
According to the Mortgage Bankers Association September 13th report, 4.39% of all mortgages on 1-4 family homes are delinquent, and another 1% are already in foreclosure!
According to Standard and Poors, last year (2007) sub-prime loans (421 Billion) represented 16.8% of all loans made (2.5 Trillion). Overall, they estimate that sub-prime mortgages represent 13.5% of all existing mortgages.
According to CNN Moneyline, we are seeing a spike in sub-prime defaults with 11.2% of the loans made in 2007 defaulting BEFORE THE FIRST INTEREST RATE ADJUSTMENT!
I will leave it to you to decide if you think the “Bail Out” will be enough to fix the problem. I am pretty sure the government knows this is just the first bite at the apple, as they raised the Federal Debt Ceiling by more than twice the amount of the “Bail Out” as part of the “Bail Out” package.

How to Keep Your Money Safe
Over the last two weeks I have been inundated with calls from students and others wanting to know what they should do with their money. Primarily, they seem to be concerned about money in their 401Ks and similar retirement accounts which are heavily invested in securities. They are also concerned about whether they can depend on FDIC insurance, and if it is safe to keep their money in the banks.
I don’t consider myself qualified to answer stock market questions as I do not invest there. FDIC insurance is probably not my strongest subject either. I do have the feeling that if the Government fails to back up the banking system we will be in a total financial collapse and the word money itself will no longer have the same meaning.
What I can do is share with you what I have done with my own money and why, leaving it up to you to make your own judgments about where you want to go.
My money was invested in residential real estate. I liquidated a substantial portion of my portfolio, starting in early 2006, with the last property sold in July of 2007.
I did this because I felt that we were at a market top, and that values had a good chance of declining from those levels. Said another way, I converted these assets to cash, because I felt that cash had a higher potential to hold its value than Real Estate.
Many who have called over the last few days now feel that the stocks held in their 401Ks (or other retirement accounts) are at risk of further decline from present levels. If you agree with this line of thinking, you can convert your stocks to cash by selling them on the open market.
If your money is inside a 401K, you probably have the option of a guaranteed interest fund or government security fund inside the 401K. You can immediately instruct your 401K administrator to move your funds from their present investment into the safest, most guaranteed fund they have, still inside the 401K. All with no tax consequences.
This will end your risk with regard to stock market declines as selling my real estate ended my risk with regard to its decline.
Now the problem is, we both have money sitting in a LOW INTEREST (1% to 3%) account. This not being a satisfactory long term rate of return, our next goal should be to reinvest that money into something that is both safe, and provides a “better” rate of return.
If your money is in a 401K, you will have very limited options as to what you can invest in. Most 401Ks have only a few stock, bond, or guaranteed interest funds in which you are allowed to invest.
You can rectify this problem by “Rolling Over” these funds into a Self Directed IRA. This can be done with no tax consequences.
The two IRA custodians I know of in Albuquerque that will allow true self direction of an IRA are: Sunwest Trust and Zia Trust.
Once you move your funds to a truly self directed IRA, you may want to “park it” in a guaranteed interest fund until you can make a Real Estate Secured investment as I am about to explain. Or, you may decide that you prefer to be invested in the stock, bond gold stocks or other securities.
Even if you prefer to invest in stocks etc. you will have a wider range of choices inside a self directed IRA than you will in a typical 401K plan.
Now, the thing that may be confusing at this point is the fact that I sold Real Estate because the risk of price decline was too high, and am now going to explain that I reinvested in Real Estate Secured investments.
In fact, what I have re-invested my money in would rightfully be classified as SUB-PRIME MORTGAGES. I think at this point looking at the specifics is the best way to clear up the confusion.
One of the properties I liquidated in 2006 was a single family residence, held by my self directed IRA. That sale netted my IRA approximately $100,000 (net equity).
The position my IRA had in the house was such that a 10% decline in market value would have resulted in a 20% decline in my net equity. Said another way, I had a 50% equity position in the property. If it was a $ 200,000 house, then I would have owed $ 100,000 on it. If we ignore closing costs (as I will do for the remainder of the examples), selling a $ 200,000 house would pay off our $ 100,000 loan, and leave us with $ 100,000 cash.
A 10% reduction in the value of a $ 200,000 house will make it a $ 180,000 house, which will leave me only $ 80,000 net equity after paying off the $ 100,000 loan. If I had $ 100,000 in equity, and now only have $ 80,000, I have suffered a 20% loss due to only a 10% decline in market value.
For comparison to the next section on re-investment in Sub-Prime mortgages: A 50% decline in market value of this house would have resulted in a 100% loss of my net equity.
Remember, leverage cuts both ways: it makes you money in an appreciating market, and it costs you money in a depreciating market.
The $ 100,000 netted from the sale of the above property was used to Purchase an existing $ 95,000 Real Estate Contract, and to create a $ 25,000 2nd mortgage. Both situations involved homeowners who were then being foreclosed on. Both parties paying on these notes had, by any definition “bad credit” therefore I refer to them as Sub-Prime loans.
The $ 95,000 Real Estate Contract bears interest at 8.5% per annum with monthly payments of $ 970, and a balloon payment in five years. It is in first position on a NE Heights home that had a market value of $ 250,000 at the time my IRA purchased it. Because my IRA paid only $ 75,000 for this Real Estate Contract, it will receive a 15.14% return on invested funds if the contract is paid as agreed.
Of course, the payments may not be made as agreed, and I may be forced to take the property. If that happens, I will have $ 75,000 invested in what was a $ 250,000 property.
Now to compare the market value risk of this situation to that of the house discussed above, let’s consider the 50% decline in market value that would have totally wiped out our equity in the earlier example.
If this house went down 50% in value, it would be worth $ 125,000. Since I only have $ 75,000 invested in it, I stand to make a $ 50,000 profit even after a 50% price decline.
So, with this investment, I have moved money from a position where a 50% decline in value would have entirely wiped out my equity, to a position where it will still be safe even if prices decline by more than 50%.
The $ 25,000 second mortgage I created is in almost the exact same situation. In this case, there was a homeowner who was in foreclosure. She owed approximately $ 80,000 on a property worth about $ 250,000. She needed $ 25,000 to make up her back payments and pay some other bills. I directed my IRA to make her a $ 25,000 second mortgage at 12% interest, $ 250 per month payment, and a 5 year balloon. When you throw in Origination fee and discount points, the loan should yield about 13% if paid as agreed.
Again, however, the payments may not be made as agreed. If this happens, I will have $ 105,000 invested ($ 80,000 first mortgage + $ 25,000 loaned) and will own a house that was worth $ 250,000.
Using the same math as the first example, if prices fall by 50%, this house will also be worth $ 125,000. Since I only have $ 105,000 invested in it, I stand to make a $ 20,000 profit even after a 50% price decline.
Up to this point, we have only been dealing with the risk of market value decline. Investing as described above provides some additional risk reduction as well.
First, I don’t have to worry about whether FDIC will come through or not. I have made my bet on the value of those houses not going below what I have invested in them. Everything is in my hands, win, lose or draw.
Second is the concept of protecting your money from external liability such as Legal or Medical liability, creditors etc. Think of how much money people spend in Attorney and CPA fees setting up and maintaining Private Trusts to protect their assets. Did you know that money inside an IRA is as well protected as it would be in a trust for only a small percentage of the cost?
Finally, let’s think for a moment about some of the fraud and theft that occurs in any down market. I realize that this is very unlikely to happen to any of us as individuals, but it is almost certain to happen to some among us.
Consider for a moment how much harder it would be for a dishonest person with evil intent to steal a mortgage, than it would be cash, or securities that can be sold and moved with the push of a button.
Transferring a mortgage, real estate contract or real estate itself, requires notarized signatures and recorded documents, as compared to the push of a few buttons for cash or securities.
And if someone with truly evil intent and talent does fraudulently transfer a mortgage or other real estate instrument, at least you have a chance to try and recover the asset. Real Estate and Mortgages don’t just vanish, the way cash does.

We will be covering all of this and more in the upcoming class: Real Estate the IRA solution on the 23rd of this month. Zia Trust will be providing space for the class in their office which will be passed on to the student in the form of a 25% price reduction on tuition. Also Zia Trust will have trust officers on hand to answer questions about the services they provide. Seating is limited to 15, so make your reservations early by giving me a call.
Until next month,

Wednesday, October 8, 2008

Fed, central banks cut rates to aid world economy

The Fed's action will reduce borrowing costs almost immediately for U.S. bank customers whose home equity and other floating-rate loans are tied to the prime interest rate. Bank of America, Wells Fargo and other banks cut their prime rate by half a point to 4.5 percent after the Fed announcement... click here for more.

Saturday, October 4, 2008

For bailout to work, housing market needs to mend

(AP) NEW YORK - Washington's financial bailout plan is now law. So the credit spigot will start flowing again, banks will resume lending, and an economic recovery can begin, right?... read more here.

Friday, October 3, 2008

Thank you REALTORS! Congress Passes, Bush Signs the Economic Stabilization Bill

Dear Brandon,

On behalf of the National Association of Realtors, I want to offer my heartfelt appreciation for responding to our Call For Action on the Emergency Economic Stabilization Act of 2008. Because of concerned members like you, who recognized the need for quick action, Congress has passed this important bill, and President Bush already has signed it into law.
We realize this bill is not perfect. However, we believe the additions made by the Senate, raising the FDIC insurance limit and several other measures that will benefit and protect taxpayers, make it a more favorable solution than the previous proposal.
NAR will continue to work with Congress and the Administration to make sure the measures included in this bill are implemented quickly. We will provide you with additional information on how you can help in the days and weeks ahead.
Thank you, again, for your participation and support of our advocacy efforts. You truly are the "Voice for Real Estate."


Richard F. Gaylord
2008 NAR President
National Association of Realtors

Historic bailout bill approved

AP - With the economy on the brink and elections looming, Congress approved an unprecedented $700 billion government bailout of the battered financial industry on Friday and sent it to President Bush who quickly signed it... click for more.

Thursday, October 2, 2008

Politics aside

· In this current marketplace, how does a 100% return on an investment sound and …
· Separating Facts from Myths.

Monday, September 29th, 2008 was the biggest drop on Wall Street in its history.

Tuesday, September 30th, 2008 was the third largest gain on Wall Street in its history.

The stock market’s volatility is directly impacted by “speculation” … is the economy going to improve or not, is unemployment going to go up or down, is the price of oil going to increase or decrease … and the list goes on and on. In the course of one day, records are set, as proven above.

Some Important Facts:

Mortgage loans are still available in abundance to the qualified borrowers.
Even though interest rates have increased slightly, FHA, VA, Conventional, and Jumbo loans are at historical lows.

Politics aside, Dave Ramsey, a popular Radio and TV financial advisor, was interviewed last night, September 30th, on Fox News Network, CNN, CNBC, (amongst others) and was asked: “In this current market turmoil, where would you advise people to invest their money?” He said, without hesitation: “The real estate market. There are great buys out there. There is an abundance of money available for those who qualify (have you heard that before) and the rates of return, purchased wisely, can be remarkable.” reports:
Starting in 2010, housing price appreciation in metro Albuquerque is projected to lead the nation, due to job and economic growth, along with other factors. Housing starts are anticipated to increase by 26.6%, with single family increases of 26.4% and multi-family increases of 27.1%. How that correlates into overall market appreciation is not certain, but it can’t be a bad thing.
Money will be coming into the metro economy from baby boomer parents who move once the last child departs the nest. Albuquerque placed seventh on the list of cities attractive to this target group, due to our outdoor activities, arts, and moderately priced homes.

∙ Now to the scenario of a 100% return on our investment …

If someone were to buy a $200,000.00 home and elected to put 10% down, their investment would total $20,000.00.
Let’s say that the Forbes start “speculation” (remember that term in my opening bullet point) is overzealous and a more conservative “market appreciation” (not 0.00 % … not 26.4%) … let’s say … 10.00% (for this example).
That $200,000.00 home is now worth $220,000.00. ($200,000.00 x 1.10% = $220,000.00.)
Again, you invested $20,000.00 … in the course of 1 year … you earned $20,000.00. My math = $100.00% return. If accurate …Not bad, if you ask me.
The bonus…every day they can enjoy owning their new home (and that is FREE)!

A great resource in tight times!

Here's a website with valuable information on all things financial... all sorts of money-saving tips.