Category Archives: Real Estate

Real Estate

Bay Area Medium Home Prices Plunge

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According to an article in the San Francisco Chronicle today, home prices in the Bay Area have dropped dramatically since its peak in spring 2007.

Spring 2007, median Bay Area home sale price $720,000

February 2009, median Bay area home sale price $295,000

The large drop in home prices is the result of more than half the homes sold in January and February were foreclosures, compared to two years ago when only about 2.6 percent were foreclosures. This drop in home prices has created a surge of buyers. Among those buying, first time home buyers with an incentive of an $8,000 Federal tax credit to savvy investors who are buying to rent and waiting for the appreciation of home prices which will surely come.

According to the SF Chronicle:

“A Chronicle analysis of sales data from MDA DataQuick, a San Diego real estate research firm, indicates that the majority of local buyers are either first-time homeowners or investors taking advantage of the huge glut of fire-sale-priced distressed properties – bank-owned foreclosures, short sales and homes surrounded by foreclosures and short sales.

“At least two-thirds of the market is split between investors and first-time buyers,” said LePage. “The balance is mainly the people who have to buy because of a new job or other life events.”

Many homes here have returned to the realm of reasonable prices, with the median sale price hovering below $300,000. That means that even people with incomes around the Bay Area’s median of $80,000 or so can find properties within their price range. ”

An increasingly larger share of the buyers are investors. They’ve either made the calculation that, for the first time in years, they can make money by renting out the properties, or they think they can re-sell them at a profit. “

I agree with the investors, real estate prices will come back. In 1982 when the Savings and Loans crashed, people were saying, real estate prices will never come back. I say, history repeats itself.

Real Estate

California Bill Passed to Delay Foreclosures

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In order to delay foreclosures and give homeowners more time to deal with their lenders, California has passed a bill to delay the foreclosure proceedings another 90 days beyond the filing of a notice of default. The primary method of foreclosure in California involves what is known as non-judicial foreclosure. This means that court action is not required to foreclose a home. The normal length of time once foreclosure proceedings are started is about 120 days. However there is a 90 day (three months) waiting period prior to the final 30 day foreclosure proceeding. This bill will extend the waiting period from three months to  six months.

The bill was signed into law on February 20th, and became effective until May 22, 2009

This is an excerpt as of the original posted on JD Supra. “As an add-on to the California budget package, Governor Arnold Schwarzenegger signed into law a 90-day moratorium on home foreclosures. This new law, which will become effective on May 22, 2009, requires that lenders wait an additional 90 days from the date of filing of a notice of default before the trustee can give notice of sale in a non-judicial foreclosure. Currently, lenders have to wait three months from the filing of a notice of default before providing the notice of sale, so this law, in effect, creates a six-month waiting period. This extended waiting period is intended to encourage lenders to work with their borrowers and enter into loan modifications. However, whether this aim will be achieved — and even whether this moratorium will apply in a significant number of foreclosures — remains to be seen since there are a number of requirements in the bill that must be satisfied for the moratorium to apply.

The moratorium applies only if:

1. the loan in question is a first lien loan (though it need not be a purchase money loan);

2. the loan was recorded against residential real property between January 1, 2003 and January 1, 2008, inclusive;

3. the borrower occupied the property as the borrower’s principal residence at the time the loan became delinquent;

4. the loan is serviced by a loan servicer that has not implemented a “comprehensive loan modification program”;

5. the loan is not made, purchased or serviced by a California state or local public housing agency or authority and the loan is not collateral for securities purchased by any such agency;

6. imposing such moratorium will not “require a servicer to violate contractual agreements for investor-owned loans;”

7. the borrower has not surrendered the property, as evidenced by a letter confirming surrender or the delivery of keys to the lender;

8. the borrower is not currently in bankruptcy; and

9. the borrower has not contracted with “an organization, person or entity whose primary business is advising people who have decided to leave their homes regarding how to extend the foreclosure process and avoid their contractual obligations to mortgagees or beneficiaries.” “

To read more details go to NuWire”

For further information on foreclosure proceedings go to Foreclosure.com

Real Estate

The Russians Are Coming, To Buy Real Estate That Is.

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Residence is 80,000 square feet with nine-bedrooms, a ballroom, a conservatory and a 48-car (yes, you read that right) garage, bought by Russian fertilizer billionaire Dmitry Rybolovlev for $95 million.
Residence is 80,000 square feet with nine-bedrooms, a ballroom, a conservatory and a 48-car (yes, you read that right) garage, bought by Russian fertilizer billionaire Dmitry Rybolovlev for $95 million.

I wrote in an earlier blog about the Chinese buying property in the United States because of the bargain prices of our real estate. Along with the Chinese the Russians are also buying American real estate. During the crash in the real estate market in the 1980’s the Japanese came in and bought a tremendous amount of real estate. The crash in the 80’s was due to the failure of the Savings and Loans Institutions.  Now we have a repeat of the 1980’s, with banks failing just like it was predicted when the banks were deregulated. Just like then, now some people feel that the real estate market will never be the same, but it seems people from other countries appreciate the long term value of American real estate. Consequently they are taking advantage of the real estate market while it’s at current bargain prices. .

In addition to luxury cars, vacations, branded clothing, high-end footwear, and race horses, Russia’s elite is also passionate about buying international properties. This can be illustrated by a few recent noteworthy real estate transactions such as the purchase of Donald Trump’s beachfront mansion in Palm Beach, Florida by a Russian fertilizer oligarch, Dmitry Rybolovlevy for $95 million (supposedly the most expensive residential sale recorded in U.S.) The purchase of a Manhattan townhouse by investor Len Blavatnic for $50 million, just a few blocks away from his $31.5 million townhouse he bought a few years ago, The purchase of a condo on Central Park West by former Kremlin insider Boris Berezovsky, The purchase of a ranch in Colorado by the Chelsea football club owner Roman Abramovich for $36.4 million, and the purchase a beautiful multi-million condo by Aleksey Morozov, Captain of the IIHF World Champion Russian Hockey Team.

 Moscow’s real estate is among the world’s costliest. So property in the politically stable U.S. environment is a boon for well-to-do Russians. According to Hall Willkie, president of real estate firm Brown Harris Stevens, foreign buyers now make up about 15% of the New York City real estate market and Russians are the largest contingent. The Miami area in particular, with its upscale shopping and hip nightlife, is attracting Russians and is increasingly viewed as a fashionable escape from Moscow’s harsh winters.

By the way, I see an uptick in real estate sales. As of yesterday, in Nevada County, there was 176 pending sales compared to about 120 sales pending around the first of the year. .

Real Estate

Buy a New Home, Get Income Tax Credit From State of California

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In order to help the construction industry and sales of newly constructed homes in California, a $10,000 tax credit is now available for reducing California State income tax. The home, either attached or detached, must be a principal residence and have never been occupied. As of March 18, 2009, 1,189 applications have been received. This represents, if all the applications are approved, $11,599,825 in tax credits. There is $100,000,000 available, so if you are going to buy a brand new house that’s never been in lived in, hurry and get your application in. Once the $100,000,000 is claimed, there will be no further tax credits.

Here is part of the text from the Franchise Tax Board:
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“This tax credit is available for qualified buyers  who on or after March 1, 2009, and before March 1, 2010, purchase a qualified principal residence  that has never been occupied. The buyer must reside in the new home for a minimum of two years immediately following the purchase date.

California allocated $100,000,000 for this tax credit. Buyers must apply for credit allocation from us. Applications will be reviewed and credit allocations will be made on a first-come, first-served basis. Once $100,000,000 has been allocated, the tax credit will no longer be available. Please check this page for updates on the allocated and remaining credits available.

California allows qualified new home buyers a total tax credit amount equal to either five percent of the purchase price or $10,000, whichever is less. Taxpayers must apply the total tax credit in equal amounts over three successive taxable years (maximum of $3,333 per year) beginning with the taxable year (2009 or 2010) in which the new home is purchased.

Qualified Principal Residence/New Home:

A qualified principal residence means a single-family residence, whether detached or attached, that has never been occupied and is purchased to be the principal residence of the taxpayer for a minimum of two years and is eligible for the property tax homeowner’s exemption.

Types of residence: Any of the following can qualify if it is your principal residence and is subject to property tax, whether real or personal property: a single family residence, a condominium, a unit in a cooperative project, a houseboat, a manufactured home, or a mobile home.

Owner-built property: A home constructed by an owner -taxpayer is not eligible for the New Home Credit because the home has not been “purchased.”

To apply and for further information go to Franchise Tax Board”

Real Estate

Countrywide Sues AIG, AIG Sues Countrywide

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American International Group also well known as AIG, and Countrywide Financial Corporation have sued each other. Countrywide sued AIG’s United Guaranty Indemnity Company for breach of contract in a dispute over insurance losses for subprime mortgage loans now in default.

In turn, AIG sued Countrywide last week in a California federal court, contending the lender had misrepresented risks tied to more than one billion dollars of mortgage loans that United Guaranty insured.

According to Reuters  ”United Guaranty said in its court papers that unlike the traditional use of mortgage insurance, used to facilitate home purchases by responsible borrowers, Countrywide wanted coverage to increase the credit rating of its mortgage-backed securities offerings.

It said Countrywide traded on a long-standing relationship between the two companies to induce it to insure loans it says were too risky and not issued according to proper underwriting standards. It says it has already paid out insurance claims of more than $30 million tied to the Countrywide loans and is exposed to additional claims of “several hundred million dollars more.”

A Bank of America spokeswoman declined to comment on the litigation on Friday. The bank bought Countrywide, once the largest U.S. mortgage lender, for about $4 billion in stock last July as the lender’s risky subprime mortgage loan business began to fail.

An AIG spokesman said Countrywide made misrepresentations and did not follow appropriate underwriting standards, and as a result “exposed us to claims we would not have had to pay out. Now we want the court to order them to make us whole.”

If I had to bet who is going to win this lawsuit, I would place my money with AIG. Having heard much about Countrywide lending practices while we were in a heated real estate and mortgage lending market, I don’t think AIG is going to have much trouble finding problems with the way Countrywide made their subprime loans before the company went belly up. But anyhow, that’s just my opinion based on hearsay.

By the way, can Congress get over the bonus that AIG gave out and get on with the important business of getting this Country back up and running? I think the news media and Congress have spent enough time on this that the CEO’s of large corporations “get it”.

Real Estate

Mortgage Rates Drops to Near-Record Lows

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Mortgage rates are dropping to near record lows – below 5%. This is in the wake of the Federal Reserve’s decision to buy up Treasury bonds and mortgage securities. Lower rates may help spur home sales, but analysts expect much of the action to come from homeowners seeking to refinance.

If you are in the category of refinancing, expect tighter rules and regulations, meaning you have to have a good credit score, equity in your home and there will be tighter debt to income ratio requirements. Keith Gumbinger of HSH Associates, a publisher of mortgage information, said good interest rates were available to all kinds of borrowers in all kinds of credit circumstances when the market was running flat out five years ago. That’s not the case today. “You must be a much better borrower than you had to be before,” he said. “For some borrowers, you might have to get used to hearing ‘no.’”

Be careful when you apply for your refinancing. I have a client who is in the process of refinancing her home. She applied at Countrywide and had me look at what they were going to charge her to refinance. They started out with 2 points or 2 percent of her loan to as part of the cost for refinancing. In addition, they had enough garbage fees that the total refinancing would have cost her $11,000 for a $417,000 loan. I had her shop at two other loan companies, and her costs dropped to about $6,000. Countrywide, when they were made aware of the pricing from the other two mortgage brokers, dropped their cost to refinance to match the other two brokers.

Home buyers and owners who want to refinance should be prepared for a longer process, and for different rates or costs, depending on their credit scores and loan-to-value ratios. Now, there might be three or four different levels for transactions that previously would have been priced equally.

By the way, after April 27, 2009 Countrywide will shed its name that it had since 1969 and will be morph into Bank of America Home Loans. Bank of American acquired Countrywide, once one of the biggest subprime lenders last year. More on Countrywide tomorrow

Real Estate

Fannie Mae Eases Credit To Aid Mortgage Lending

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Fannie Mae announced that in order to help ownership rates among minorities and low-income consumers, they are going to ease the credit requirements on loans it purchases from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets — including the New York metropolitan region — will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Quoting the New York Times:

“In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.

”Fannie Mae has expanded home ownership for millions of families in the 1990’s by reducing down payment requirements,” said Franklin D. Raines, Fannie Mae’s chairman and chief executive officer. ”Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.”

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

OH, BY THE WAY, THE DATE OF THIS PUBLICATION WAS SEPTEMBER 30, 1999 
Read the article at New York Times

Real Estate

AIG, Bad Management Gets Rewarded

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So what do you think of AIG receiving $160 million dollars in bonuses?  AIG (American International Group) is an international insurance and financial services organization. You may know that’s only part of a larger package of $450 million of bonuses that are due by contractual agreement with upper management. Who is running AIG anyway?  How can a company that was facing bankruptcy ever come up with a contract that awards money to executives that can’t manage?

AIG received $170 billion in bailout funds and may need more. Some pundits are saying so what, that the bonus payout only amounts to .0097 of one percent of the total bailout monies given to AIG. Are we missing the point here? You reward bad management because it’s only a pittance of the company’s bailout or earnings?

I think that executives that receive large salaries and bonuses lose touch with what’s going on in their company.  Receiving large amounts of money, private jets, all kinds of perks, places the CEO’s and managers in their own separate world, far removed from day to day operations. You only have to look at Merrill Lynch’s CEO, John Thain, remodeling his office in the amount of $1.2 million dollars along with giving a couple of billion dollars in bonus as the company failed and had to be taken over by Bank of America.  Hey, if you’re going to get that kind of money win or lose, what’s the incentive to make sure your company is going to make money? Whatever happened to the concept that your earnings are tied to the earnings of the company you’re running?

Here’s a comment from Jessie M. Fried:

 “If the government were to go in now and try to renege on these contracts, people would just leave the company and the company would collapse,” said Jesse M. Fried, a University of California, Berkeley law professor and co-director of the Berkeley Center Law, Business and the Economy.

Excuse me, in this job market, if the managers don’t get a bonus, where are they going to go? In fact, I understand that some have gotten their bonus and then quit. Finally, here’s a little more detail of what American International Group bonus payouts were.

Fox News reports “New York Attorney General Andrew Cuomo says 73 employees at American International Group received bonuses of $1 million or more, with one receiving more than $6 million. 

In a breakdown of the figures, Cuomo reported that the top recipient at AIG got more than $6.4 million and the top seven received more than $4 million each. 

“These payments were all made to individuals in the subsidiary whose performance led to crushing losses and the near failure of AIG. Thus, last week, AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout,” Cuomo wrote. “Something is deeply wrong with this outcome.” 

Yes, there is something wrong with this outcome and with a lot of the upper management of our large companies.

Real Estate

Jon Stewart vs Jim Cramer

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It seems bad enough that as I wrote in my blog yesterday, when subprime mortgage loans were showing signs that they were toxic, Wall Street simply re-packaged subprime mortgages into a new costume and called the loans Al-A mortgages. In other words, they took the subprime loans and called it by a different name. Both subprime and Alt-A loans were sold across the financial industry as funds called securitisatins. Insurance firms who bought the re-dressed Alt A securitisatins will be forced sellers since they cannot hold securities below investment grade.

Now, watching  Jon Stewart weight into Jim Cramer, it’s obvious that Wall Street has been playing with our 401K and retirement funds. Cramer admitted under stress, that Wall Street is taking our funds and playing the stock market with it by short selling.  He also admitted that he did short selling and at one time advised people that it was OK to do so. But now he says that it should be stopped! 

I’m the last one to believe in Government intervening in the public sector, but the boys on Wall Street are playing with your money and mine. So where was the oversight of Bernard Madoff, Sir Allen Steward, the repackaging of the subprime  loans, the large intuitional short sellers that can sway the market? Are we asking the fox to guard the hen house?

Many people are being forced into foreclosure because they are losing their jobs and can’t afford to make their mortgage payments.  You know, people who are saying that the Government should not help people who are defaulting on their mortgage may be right.  Maybe Wall Street and the banks should be the ones bailing out the homeowners that have lost their jobs because of their greed.

If you missed the show here is the link

Real Estate

Subprime Foreclosures, Move Over for Alt-A Foreclosures!

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Gone are the days when subprime loans were what kept bankers up at night, thanks to explosions in other corners of finance. But, In terms of toxicity, subprime loans had no equal. That is until now. The loans of better heeled people are now beginning to go bad at an alarming rate.Alt-A troubled loans have already brought down some banks, including IndyMac, a California bank. Mooney’s, a rating agency, has recently quadrupled its loss projections on bonds backed by Alt-A loans. It now projects losses for 2006-2007Alt-A securities to top 20%, compared to a historical average of under 1%.

 

The problem is that much of the Alt-A lending came at the tail-end of the credit boom in late 2006 and 2007. By then subprime was already getting a bad name. So Wall Street hit on a ruse. What it did was to take borrowers who in normal times would have been subprime and dressed them up as mid-prime!  Many of these loans were doomed from the start.  According to the Bank for International Settlements, a staggering 40% of these American mortgages originated in the first quarter of 2007 were interest only or negative amortization loans.

Alt-A mortgages, were offered to borrowers sandwiched between subprime and prime. These loans were supposed to be for people who had reasonable credit standing but unsteady income, such as the self-employed. The lending institutions had very low standards for these loans, using scant documentation and any way to make a loan, such as exotic negative-amortization mortgages, which allow borrowers to pay less than the accrued interest, with the difference added to the loan balance. Like I said before, the main requirements were to put a mirror in front of your face, if the mirror steamed, it meant you were breathing and you had a loan.

Analysts at Goldman Sachs put possible write downs on the $1.3 trillion of total Alt-A debt, including both securitized and un-securitized loans, at $600 billion, almost as much as expected subprime losses.

So, prepare yourself for another wave of foreclosures, this time the Alt-A mortgages, due to poor lending practices by banks and Wall Street.