Archive for the 'Finance' Category
Do You Like To Play Dominos?
July 14th, 2008 categories: Finance, Market Trends
“IF you can keep your head when all about you
Are losing theirs…”
While the weekend past didn’t witness the height of the current mortgage crisis, the announcement of the financial troubles of Fannie Mae and Freddie Mac resulted in both to lose half their stock value, and more than a bit hand wringing by the Treasury Secretary, Henry M. Paulson. Fortunately, despite the government’s longstanding claim of not backing the debt of both these agencies, in the midst of a near financial stroke, Mr. Paulson seemingly did a “one eighty” by announcing on Sunday that the government would not let either of these agencies fail. One could hear the loud and long sigh of relief from Main Street to Wall Street upon hearing Paulson’s words of assurance. Unfortunately, the weekend’s news came on the heels of IndyMac Bank’s collapse and subsequent takeover by the Federal Deposit Insurance Corp (FDIC) on Friday. Predictably, the mortgage crisis dominos continue to fall with little relief in sight.
With many analysts indicating that failed banks are “lagging” and not “leading” indicators, how much more ”road kill” will the mortgage mess deliver? Will the next casualty be another national bank like Wachovia or Wells Fargo, or, is it the local banks who are due to walk the sub-prime gangplank? And, just who caused this mess in the first place? A sample line-up of likely suspects would probably look something like AJ Nisen’s list:
-
Sub-prime Mortgage Brokers
-
Banks
-
Rating Services (Standard & Poors, Moody’s, etc.)
-
Wall Street Investment Banks
-
Bond Insurers
-
Government Agencies (The Federal Reserve, Congress, Federal Trade Commission, The Accounting Regulatory Agency, just to name a few)
While his list is fairly comprehensive, what about the borrower? Was the borrower asleep when the lender was explaining the loan options to him? Does the borrower have a responsibility to do a risk assessment/analysis at some point prior to committing to the loan? Or, are they blameless?
What about the borrower’s real estate agent? What are their fudiciary duties? Since many of us don’t “pre-qualify” our buyers any longer, can we look after their best interest in what loan vehicle they choose? Or, do we simply take the word of the lender, even one we aren’t familiar…you know, the internet kind.
Well, enough of the finger pointing. Where we sit is the reult of a journey chock full of bad choices by many of those involved. It didn’t happen overnight. As Robert Louis Stevenson said, “Sooner or later in life, we all sit down to a banquet of consequences.” Little did we know that in this case, the meal just happens to be gruel!
| Discussion: No Comments »
What’s “short” About A Short Sale - Part II?
June 29th, 2008 categories: Finance, Market Trends, Real Estate News, Repairs
So, despite the promise and benefits of a “short sale“, why do they seldom work? Why does there seem to be such a huge disconnect between the seller and their real estate agent, and the lender?
Unfortunately, there are a number of reasons for the general failure of the short sale process.
1) One of the biggest obstacles to a successful short sale is the lack of communication between the listing agent and the lender. Coordination between the real estate agent, who has listed the property, and the lender, or the asset manager handling the property is crucial for a successful transaction. Communication between the asset manager and real estate agent is problematic at best. In almost all short sale cases, attempts to contact the lender’s loss mitigation department or asset manager are rarely successful.
As any agent whose handled a short sale transaction will tell you, in a transaction whose success depends on coordination, frequent and easy communication with the asset manager handling the transaction is rarer than rare. Despite agent’s best efforts, it’s normally a struggle (and that’s putting it midly!) to contact the lender’s point of contact. Building this bridge between the listing agent and the lender is crucial to the success of any short sale. Without this relationship, the short sale is destined to be Dead on Arrival (DOA).
2) The asset managers are overwhelmed by their case loads. Like most of America, lenders were blind sided by the subprime mortgage mess, and are in the crisis management mode attempting to stop the financial bleeding. In other words, the lender’s employees, especially those in loss mitigation, are peddling as fast as they can.
3) The real estate community, much like the lenders on the other side of this short sale joy ride, are, in most cases, lacking the preparation needed to properly market the property in coordination with the lender. To begin the process of coordiation with the lender, the listing agent must compile a full package with supporting documentation from the seller. Rarely, if ever, will the lender even begin to listen to an agent without a complete short sale package in front of them. This short sale submission package should include, among other things:
1. A synopsis of items enclosed.
2. Completed financial disclosure.
3. A hardship letter, preferrably hand written. Remember, this the opportunity to relay the seller’s “story” to let the lender know why they’ve missed payments and won’t be able to make them in the future.
4. Purchase contract.
5. Net sheet or HUD1.
6. Proof of income for the last two pay periods.
7. Copies of last two bank statements.
8. Copies of last two years tax returns with W-2s and 1099s.
9. Third party authorization form.
Some additional items that may be helpful include, a Broker Price Opinion (BPO) or Comparative Market Analysis (CMA), neighborhood foreclosure stats & proof of active listings in the area that are priced low but aren’t selling. All of these will assist you in presenting the seller’s case to the lender.
Pricing the property correctly is another must. A simple method is to take the low end of the comparables, and price the property $10,000-$20,000 lower. It’s important to price the property to peek interest, but the pricing needs to be realistic as well.
An opportunity for a short sale is beneficial to both the seller and lender. For both parties, it’s an escape from a difficult financial predicament. The seller unloads a property they can no longer afford, as does the bank, with minimal damage to the credit rating they need for future investments. The bank, unlike a foreclosure, can avoid managing a property, and unload one on much better terms than if foreclosed.
With the attractions of the short sale option, we can only hope the practice gets much better before the window of opportunity for this “bargain” creeps closed. There’s work to be done on both sides of the transaction. For lenders, establishing a routine and regular avenue of communication with the real estate agent listing the property is a necessary first step. For agents, taking the time to learn the steps necessary to comply with lender requirements might make the coordination process on the other end a bit easier to navigate. In either case, progress is measured in dollars, not finger pointing. So, what are we waiting for?
| Discussion: No Comments »
Finally - The Housing Crisis is Over!
May 6th, 2008 categories: Finance, Market Trends, Real Estate News
Yes, folks, that’s right. According to today’s Wall Street Journal (WSJ) the housing crisis that’s been upon us since 2005, is at an end. Kind of, anyway. The article’s author, Cyril Moulle-Berteaux, is a managing partner of Traxis Partners LP, a hedge fund or investment advisory firm based in New York city. He cites a number of indications that the worst of the housing “crunch” is behind us, and that current trends indicate we’ve bottomed out, or, as he puts it, “is bottoming out.”
Moulle-Berteaux mentions the market indicators include:
- Homes sales peaked in 2005. New home sales are down 63% from peak levels of 1.4 million.
- Housing starts have fallen more than 50%, and adjusted for population growth, are back to 1982 levels
- Many that were priced out of the market during the downturn can now afford to get back in. Three primary factors have contributed to this:
- Home values have fallen
- Mortgage rates have decreased
- Personal income has increased
Home construction deline is another indicator cited by the author. New home inventories peaked in July of 2006 at 598,000 homes. That figure had declined to 482,000 by the end of March. This decline is due to a drop-off in home completions which have resulted in an increase in the rate of undershooting new home sales. This “under supply” will reduce the inventory. He expects a seven month inventory supply by the end of this calendar year. Once we reach the five month supply mark, which Moulle-Berteaux predicts will occur in ‘09, home prices should hit bottom.
And, while the WSJ’s news is welcome, these views aren’t shared by all, as evidenced here.
Forecasting the long term direction of any market is risky at best. I don’t know about you, but, at this point, I’ll take Mr. Moulle-Berteaux at his word.
| Discussion: No Comments »
