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A recent news article by Reuters states that “The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011.”  

Meaning? Half of us will be upside down, underwater, or whatever you want to call it over the next 2 years?  Pretty scary.  How do they know that?   One indicator they use may be the Shadow Inventory of Homes, which will eventually enter the market place over the next 3 years. 

So, what is a Shadow Inventory of Homes and How Does it Affect Future Home Values?  Technically, a property is not in foreclosure until the lenders files against a deliquent loan.   Lenders are purposefully not filing to foreclose, in order to control the present inventory by keeping homes off the market.  This creates a Shadow Inventory of Homes in Default.  Why do they do this?  Simple economics, really.   Less supply creates more demand (ie: higher prices) for the property they already have for sale.

Since, we know lenders are holding back the number of homes that should be in foreclosure, how many “shadow” distressed properties will come into the market in the future?  Truefully, we can’t know the exact number.  That is the reason it is referred to as a Shadow Inventory.  We can all see that the problem is lurking out there, but we can’t identify the exact numbers or the amount of future damage because “only the shadow knows…”.

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InfoTube has been blogging that Something is Wrong with real estate appraisals for quite some time now.   A new rule, called “Home Valuation Code of Conduct”, which went into effect on May 1st, has derailed sales and wrecked havoc on homeowners and buyers, with the worst possible timing.

The intent of the new rule for loan funding was to eliminate inflated appraisals.  Lawmakers found that lenders, such as Washington Mutual, pressured appraisers to inflate values in order to make more money on higher priced loans.  Although accurate appraisals are necessary to prevent fraud, the policy has had unintended, devastating effects on the entire real estate industry.

Take the case of the Mann family from San Jose, CA.  David and Penny Mann decided to sell their downtown Victorian home in order to move to a retirement community closer to their children and grandchildren.  They knew the market was tough, but they priced the home to sell and they were rewarded with back to back offers.   They accepted an offer for $560,000 from an excited young couple, buying their first home.

The Mann’s home appraised for full value, but it was deemed to be invalid, because it was done before the new rule took effect.  The second appraiser,  sent by an appraisal management company, came in $100,000 below the contract price, resulting in the buyer being turned down for their loan.  After the initial tears and panic, both parties did some frantic research.  They discovered that the appraiser didn’t live in San Jose and had never worked there.  Both buyer and seller decided to take action versus lying down and rolling over.

The buyer’s, a lawyer and student, toured at least 40 homes before buying the Mann’s house, and had lived in San Jose their entire lives.  They knew that the 100 year old home was perfect for them and they insisted that the management company send an appraiser, from the 408 area code to value the property.  The 33 year old lawyer said, “I am an educated person.” …”I’ve lived in the Bay Area my whole life”.  “I had no question it was worth $560,000, plus.  Neither did my agent or the mortgage broker or the first appraiser.  “Nor, as it turned out, did a third appraiser”,… who valued the property at the full sales price.

After all the drama, buyer and seller recently celebrated their victory at the Mann house.  The first time buyer’s brought the wine.  The Mann’s provided fresh peaches from the tree in the backyard.   Finally, a happy ending.

Unfortunately, not all victims of the new appraisal law are as fortunate as these couples.  75 percent of Industry professionals said they have had at least one low appraisal problem since May 1st, with the average loss being around $13,000.  In addition, 90 percent of real estate professionals site that at least one transaction had fallen apart because of the new law.

Something is definitely wrong, but you can take action:

To read more about what you can do if you are the victim of a low ball appraisal, Click Here.

To sign a petition to repeal the law, Click Here.  Gary Miller, Rep from California is co-sponsoring legislation.

Thank you for visiting InfoTube.net homes for sale and lease website. If you have experienced a financial loss due to the new law, please leave a comment in the space below. Your identity is completely confidential.

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A frequent question we receive about correctly pricing a home is “Should we use Comparable Listing Prices or Comparable Sales Data to correctly price our home?”

The answer is overwhelming, Comparable Sales Data.

Looking at the prices of listed property is a big mistake, when determining the correct asking price for a home.  Take a moment and think about it.  If the neighbors list price was motivating, the property would be Sold, not Still for Sale. 

Always use accurate a Comparable Market Analysis (CMA) to correctly price your home.   A CMA features only properties that have sold for all cash or a funded loan.  This is important because many properities aren’t appraising or closing for anything near their “under contract” price.   In our declining market, a home that is worth $250,000 today, may only be worth $220,000, 60 days later when it closes.   Appraisers are aware of this fact and generally appraise very conservatively these days.

Click here To Read more about Appraisal Problems and What you Can do About it.

To obtain accurate Sales data about competing properties in your neighborhood, visit your local county tax assessor website.  Or, research MLS data which can be viewed at sites like zillow.com.

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In what could be a “Here we go, again” scenario, Barney Frank (D) and Anthony Weiner (D) have ask Fannie Mae and Freddie Mac to back off on  tightening loan standards for condominum’s.

In March, Fannie and Freddie announced that they would no longer underwrite mortgages on condo’s located in buildings where less than 70 percent of the units were Sold.   Their previous policy required that 51 percent of the units be Sold, before loans were guaranteed.

In addition, the mortgage giants announced that they will not purchase mortgages in buildings that have more than a 15 percent deliquency on association dues, or those in which one owner owns more than 10 percent of the units in the complex.  

In a letter to both companies, Frank and Weiner warned that …70 percent occupancy…”may be too onerous” and the rules could have a “real chill on the ability to get these condos sold”.  The two law makers asked the two companies to “make appropriate adjustments” to their underwriting standards for condos.

Is the tail wagging the dog, yet again???  On one hand, Fannie and Freddie have done their research on past loan failures and determined that their new underwriting criteria is essential in avoiding future financial trouble.   On the other hand, Frank and Weiner fear the restrictions may stop condo sales in new developments where they are desperately needed.

Fannie and Freddie could not be reached for comment, but according to the Wall Street Journal, both are preparing a response to the lawmakers.

What do you think about relaxing the new loan standards for condo’s??  Thousands of our readers would love to know.

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Charles McMillan, president of the National Association of Realtors, spoke in Ft. Worth, TX and reported to attendee’s that ”The dream of homeownership is alive and well in the US.”

Mr. McMillan began his real estate career in Ft. Worth, TX in 1983, one year after the Texas real estate market crashed in 1982.  Although McMillan did not address it, Texas home prices have not recovered to pre-1982 levels over the past 27 years.

Highlights from the speech include:

1. Consumers will buy houses if two conditions are met.  The home and financing costs must be at a bargain, basement price levels.
2. Keeping interest rates low and stable are necessary to stabilize the housing market.
3. The tax credit is working.  43 percent of all property sales have been first-time buyers.
4. Thanks to distressed property price declines of up to 52 percent, sales of existing home inventory has increased in CA, NV, AZ and FL.
5. The two biggest issues facing the real estate industry going forward are appraisal issues and healthcare.  Half of all real estate agents have no insurance.

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The worst housing market since the Great Depression is taking a huge toll on senior citizens in this country.  The crash in housing values, especially in retirement haven’s such as Nevada, Florida, California and Arizona, is robbing these long, hard working Americans of their retirement and adequate health care.

While most people believe that seniors have no mortgage on their homes, the reality is that hundreds of thousands of retiree’s owe money on their homes.  Even for those lucky enough to own their house outright, the unprecedented drop in home values means they have less equity to live on or exchange for a move to retirement housing or health care facilities.

• According to the AARP, 25.5 million people over the age of 50 have a mortgage on their home.  More than 680,000 (which represents 30 percent of all distressed property) baby boomers are deliquent on their mortgage or are in the process of foreclosure. 
• Many seniors have little saved, other than the equity in their homes.  36 percent of all retiree’s state that their savings and investment nest egg is less than $25,000, excluding home equity and benefit plans.
• Seniors banked on rising home prices and leveraged their primary asset through equity loans and reverse mortgages.   Those that leveraged assets to afford retirement owe an average of $150,000 on their houses.
• Retirement communities and long term care facilities are suffering from the housing market, too.  Seniors usually sell their homes to finance admission into senior housing facilities.   Dire market conditions often mean no sale at all, or one at substantially discounted prices.  Many people are left with no choice or options, forcing them to cancel plans to move to housing that fits their changing needs.

Although seniors and retiree’s are often overlooked in the news, the housing and stock market crash have taken a huge toll on their lives and well being.   Most have worked all their lives to build secure nest eggs for their golden years, only to discover that half a lifetime of work and savings vanished in the blink of an eye. 

Click Here to Read More from USA Today

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Low home appraisals are becoming a huge obstacle for homeowners and sellers. 

After years of succumbing to pressure to inflate appraisals for greedy lenders, anxious to make loans, it seems that appraisers have done an “about face”.  Now, the biggest obstacle to selling a home or refinancing one is the appraisal.   Like with all back lashes, it seems that the recently lax appraiser has now “over corrected” the problem to the determent of the housing market.

To read more about how to address low appraisal issues, Click HERE.

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In light of a new wave of foreclosures and distressed property sales, home seller’s may need to lower their expectations about home asking prices.

Recent reports find that nearly one in every four current home sellers (not seller’s of bank owned property) have dropped asking prices an average of 10.6 percent from their original listing price.   In dollar terms, that is equal to another $27.4 BILLION, yes BILLION, slash in the equity of  US homes.  Ouch!

The good news for home seller’s is that higher interest rates and a rapidly approaching deadline for an $8000 tax credit is creating urgency among buyers.   A recent uptick in sales proves that homes priced aggressively are selling very fast.  But, homes priced above the competition continue to sit and languish on the market for months on end.  Simply put, there is great demand in the market now…at the right price.  Seller’s may need to sharpen their pencils, but buyers are actively purchasing homes.

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Although all the news about real estate, housing and lending isn’t particularily bullish, there are some compelling new motivations for buying now.   Rising interest rates, Inventory Decreases and the $8000 tax credit which expires December 1.

1. Interest rates are soaring, as the dollar falls.  Economists predict that the low rates we saw only a month ago, aren’t likely to return anytime soon.   In April, 30 year fixed rate mortgages averaged 4.5 percent.  Last week, rates hit 4.98 percent.  And, this week, Bankrate.com is quoting 30 year fixed rates for prime borrowers at just over 5 percent.  Note: An increase of only 1/2 percent in interest rates raises the mortgage payment for a $170,000 loan by $52/month, $624/year or $18,720/over the life of the loan.
2. The deadline for qualifying for an $8000 tax credit is rapidly approaching.   Although, the December 1st deadline may seem a long way off, in real estate terms it really isn’t.  A lot of people are sitting on the sidelines, waiting to see if prices will drop another 1 or 2 percent over the next 6 months.   Lenders are already warning us that when all those buyers rush into the market in August or September, the backlog in loan applications will mean a wait of 60-90 days to close an average loan.  Note:  Given that the average buyer in this market looks at over 30 homes, over a 3 month period, buyers who don’t want to miss the boat on their $8000 gift, should get serious now.

For those buyer’s hoping to time the market perfectly, we think their ship may be sailing by.    Home inventories are dropping, prices are stabilizing, interest rate increases erase potential gains made by a further fall in prices and $8 grand is on the line, if the December 1 closing deadline can’t be met.   Serious buyer’s should jump on board now, before they find out that the ship has sailed and they missed the boat!!

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On Thursday, the government announced two programs that may help thousands of homeowners that are sinking in debt avoid foreclosure.

Treasury Secretary, Tim Geithner, said “Today we are announcing a new program component to help homeowners obtain modifications in areas suffering from price declines.  If a modification is not possible, we are announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future.”  Geithner went on to say that, “These are critical steps in stemming the foreclosure crisis and stabilizing the housing market, both of which are critical to your economic recovery”

The Program in a Nutshell:

1. Foreclosure Alternatives:  The program increases the odds of closing a short sale by streamlining the process and offering incentives to lenders for participation.  The program is designed for homeowners who are eligible for a loan modification, but can not qualify for one.  Under the new program, lenders may receive compensation up to $1000 for completing a short sale.  Borrower’s may receive up to $1500 for relocation expenses.  Holders of 2nd mortgages will receive up to $1000, if they agree to the terms of a short sale.

Why This New Program May Help:

1. A short sale is the last step before foreclosure, and is far less costly for lenders and borrowers.   Selling short is less damaging to the homeowners credit and they are less costly for banks and lenders.   Survey results show that losses from short sales average 19 percent versus losses of 40 percent in the case of foreclosure.
2. Currently, more than 75 percent of short sale contracts fall apart, despite sometimes heroic efforts on the part of the borrower.  Lenders have for the most part been uncooperative when responding to offers on short sales, which means the properties sit vacant and pull down values in the entire area.
3. The new program may provide a much needed boost to the current Making a Home Affordable program.  Despite good intentions, the program has only helped 55,000 homeowner’s modify their loans.   In comparison, there were 342,000 foreclosure filings in the month of April, alone.

  Stop The Sinking Feeling.   If you are struggling to pay your mortgage or you are falling behind on your payments…CALL YOUR LENDER TODAY!!   Don’t procrastinate, the problem will only become larger if you wait.   You may also waste valuable time in stopping a foreclosure on your property, which is the worst case scenario for borrower and lender alike.

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Finally, the house is under contract.  The inspections are done.  Repairs have been negotiated.  Everyone is ready to move…then, the buyer’s appraisal comes in below the agreed upon sales price. 

Don’t Panic.  It’s Not the End of the World.  Read this helpful article about how to keep the deal alive.

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In the annual Berkshire Hathaway shareholder’s meeting, Warren Buffett, the oracle of Omaha, predicted that inflation will hit the US economy due to the financial crisis.  Buffett told shareholders, “I haven’t had my taxes raised.  My guess is the ultimate price will be paid by a shrinkage of the value of the dollar”.  

If Warren is right, and he usually is, the average person can use his wisdom to profit with a smart real estate investment.    

• To invest safely, a home buyer should put 20 percent down and take out a 30 year fixed rate mortgage, locking in an interest rate around 4.5 percent.   If you haven’t owned a home over the past 3 years, you can cash in immediately with the $8000 tax credit.   When inflation hits, your mortgage costs will remain the same, as your salary increases.  This means that you have even more money to save and invest later on.
• If you are currently renting, there is another compelling reason to invest.   During periods of inflation, rents will rise.  If you don’t own a home, your monthly rent obiligations will soar. 
• Another reason to invest in real estate is that during times of inflation, home prices appreciate, if even at a slower pace.  History shows that during inflationary periods, real estate appreciation tends to beat inflation by 2-3 percentage points.
• Leveraged assets, such as real estate, outperform other asset classes.  Leverage magnifies gains because as your income rises, your debt payments will not.   You’ll be able to pay off the mortgage with money that is worth less than it was when you borrowed it.
• With home prices and interest rates hovering at historic lows, now may be the perfect time for investor’s to withdraw the cash they have sitting in savings accounts that is paying only a 2-3percent and buy a piece of property.   If you buy a property where the tenant covers the expenses and costs of ownership, then the investor can relax and wait for inflation to move up rents and home prices.

InfoTube.net and Warren Buffett agree that inflation, over the next 5 years, is a sure bet.   And, when we get rampant inflation, real estate is the perfect hedge.   Throw in low prices, cheap money, ridiculously low returns on cash investments and thousands of dollars in tax savings, and you have a powerful case for buying a home now.   

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In a bad economy, housing con’s, scams and fraud are on the rise.   The increase in real estate related scams is up so much this year that the Obama administration is involved, and promises “We will shut down fraudulent companies more quickly”.

Here are some of the most common scams seen in the housing industry and tips about how to protect yourself and your family.

Promise to Stall or Halt Foreclosure

Foreclosure scammers are the worst of the worst.  Like vultures, they swope down to pick at the flesh and bones of weak and vulnerable.   These companies promise to stall, avert or stop the foreclosure process.  Many families which are facing the loss of their homes interupt their “pitch” as an answered prayer.   Don’t Fall for It. 

Homeowner’s can identify these companies because they always ask for an upfront fee for their service.   In addition to losing thousands of dollars to these con men, the victims also waste precious time in working with their lenders, which means that this scam can actually speed up the foreclosure process.

Homeowner’s are advised to check with the Better Business Bureau, their lender and the Hope Now organization, before doing business with any company promising the stop a Foreclosure.  

Loan Modificiation

The state of California issued permits to real estate agents for loan modifications.  The state now has almost 600 Realtors, so far, that can collect upfront fee’s for negotiating loan modifications and short sales with lenders on behalf of the homeowner.

We have heard reports that some of these companies charge $2500-$3000 to negotiate with lenders, saying they provide more service and expertise than overworked non-profits do.

Consumers should ALWAYS be on High Alert if they are ask to pay upfront fee’s to anyone, especially when the service provider can not guarantee results.   There are a lot of starving real estate agents out there, so beware and always verify credentials before paying for any upfront service.

Where to go for Real Help.

1. Homeowner Preservation Foundation.  1-888-995-4673 
2. Hope Now    Website Link
3. Making Home Affordable. gov   Website Link
4. Your Lender
5. Beware:  Don’t be fooled into working with companies because they have official sounding names and copy cat websites.  The government recently shut down 5 companies and issued warning letters to 71 others who are operating under names that sound legit, but aren’t. 

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Foreclosures and loan delinquency’s wreck havoc on the budgets of Homeowner’s Associations (HOA’s) across the country. 

Many condominium communities are glutted with nonpaying units that swamp their operating budgets, force cutbacks on promised services and increase monthly dues for owners who are paying their mortgage and association dues.

Crisis In Florida:

In Florida, the land of the condo dweller, things are spinning out of control for HOA’s and property owners.  As a result, Florida constituents are turning to legislators for an help they can provide.

Under the current system in Florida and other states, lenders can avoid paying homeowner’s fee’s until they foreclose and become the owner of the unit.   Lenders face a continuing avalanche of foreclosures and loan defaults, which means that up to 2 or more years can pass before the property transfer gets through the court system.  

During the lengthy legal process, homeowners often continue living in the units, using the ammenities and facilities for free.  Some even rent the units for income, after they have stopped making payments on the property.  Many associations are forced to cover the costs of water, cable, laundry, lawn and pool maintenance and garbage collection for paying and non-paying owner’s alike.  To make up for the added expenses, paying unit owner’s have to foot the bill or the entire association goes down.   

And, things get even more complicated.  Some banks stall on taking title to units because they have a cap that limits the amount of past-due fee’s they have to repay to 6 months or 1 percent of the original loan amount.   Some luxury condo associations report that some units have as much as $50,000 in unpaid fee’s by the time the bank takes ownership.

Downward Spiral:

Lenders are also denying financing for financially unstable buildings, which essentially means the property can not be sold, even if a buyer is found.  In January, mortgage giant Fannie Mae said it would no longer fund loans in buildings if more than 15 percent of the units were 30 or more days past due with their association fee’s.  

The problem has reached a crisis point for many HOA’s that are struggling to cover basic utilites such as water and electricity.   If they raise fee’s on paying owners for the shortfalls, they risk pushing even more residents into delinquency.  Most owners are already upside down on the property and they simply can not afford a higher payment.

Renting out units could offset loses, but rentals are usually prohibited or they are limited to a very small percentage of the number of units in the complex.  Furthermore, lenders such as Fannie Mae also deny funding for buildings that are less than 51 percent owner occupied.   So, raising money with rent income does not appear to be a viable solution, nor does it maintain the quality of life for the paying residents.

The housing crisis has uncovered many problems that we have never encountered before, but the number of failing HOA’s is an imminent crisis.   Unfortunately, it isn’t simple and if solving it isn’t done correctly, more permanent damage may occur.

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As bargain hunters everywhere turn their attention to foreclosures, many buyers discover that for all the hype, the homes can not be purchased.   Banks are so overwhelmed by the sheer numbers of REO (Real Estate Owned) properties, that they hold up sales and leave buyers stuck with thousands of dollars in extra costs.

Distressed properties now make up 25 percent of all homes for sale.   Many foreclosed homes have been vandalized, neglected and cause a blight on otherwise good neighborhoods.  Selling these properties would help stabilize house prices and remove inventory from the market, but the banks simply can’t keep up with the paperwork.

Take the case of the Collins family, who in January, rushed to buy a foreclosure on a picuresque, tree lined street in southern California.   They immediately obtained their financing, paid for inspections, appraisals and completed other paperwork the lender required from them.  It is now mid-April and the Collins family finds themselves still sitting in limbo.  They have yet to receive confirmation of a closing date or signed paperwork.

While common sense tells us that the housing market can not recover until the foreclosures are sold, the reality is that the banks can not keep up with the paperwork required to transfer the property.   There are a lot of layers and people, with varying degree’s of work ethic, that are involved with the sale of any bank owned property.  Further frustrating to “would be” buyers, is that they can’t just call the bank and ask what is going on.  There is no one to ask for help, as there is when buying from a real owner.

As the nation’s banks anticipate owning another 1.5 million foreclosed homes in 2009, things will likely get worse in terms of getting rid of them quickly.   Maybe outraged buyers, and the neighbors who tolerate these blights on our communities, should all cry out to their congressmen for help.  Perhaps, they can force the banks to step up their management of foreclosed homes, and force the agents and servicers to do their jobs.

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