Spend, Spend, Spend...

Homeowners, new and old, will soon be receiving their “Economic Stimulus” checks in the mail. What are you going to do with yours? Here’s a few suggestions:

Save it. If you don't have that three to six months-worth-of-income emergency savings fund, now's a good time to begin. Stuff happens around the home when you least expect it. And you'll need some pocket money for incidentals during your home purchase. Look for a savings account that offers the best return. Online bankers generally offer the best interest rates, but shop around for other liquid savings, checking or investment accounts you can start up for the amount of your rebate.

Rent a safe deposit box. After you buy a home, you'll need somewhere to securely stash all those important documents including your mortgage note, title and escrow papers, insurance policies, home improvement contracts, tax returns and estate documents. In many cases, the rebate will give you enough cash to rent a safe deposit box for decades. The boxes cost from $10 to $100 a year, plus a key deposit. If you sock the cash in an interest-bearing account and let the bank automatically withdraw the fee each year -- or do it yourself manually -- you'll earn a small return in the process.

Buy enough homeowners insurance. For small homes, condos and townhomes the largest rebates available will cover many policies for a year. That doesn't mean only buy what your rebate can afford. Make sure you buy enough replacement value coverage. If you work at home, use the rebate to buy extra business coverage as well as special liability coverage for your business.

Complete deferred "green" maintenance. Caulk the windows and doors. Add insulation. Have your furnace or HVAC (heating-ventilation-air conditioning) system inspected and cleaned. Swap out incandescent bulbs for CFLs (compact fluorescent lamps) and otherwise make your home more energy efficient and you'll get your money back from savings on utility costs.

Splurge, but shop around. The real purpose of the tax rebate is to get you to spend money on stuff in the retail sector that will help kick-start the economy. If, after buying a home, you have you financial basics covered, shop around for the best deals at the lowest cost on goods and services for your home. For example, for around $1,000 Consumer Reports found Panasonic, Samsung and Sony offering the best 32 inch LCD TVs and LG, Samsung and Hitachi offering the best 42 inch plasma models. The key is to get the most "stuff" for your money.

If you’re like us, you’ll probably end up putting it in your gas tank!

Tax Day

Today, April 15th, is tax filing day. (In case you needed me to remind you!)

You're not thinking about buying or selling a house today. Neither are we.

We're thinking about taxes.

Here's the link you will need.

We've been there already.

Let's talk later...

Headlines

Team Patereau looks to the online version of Realty Times for the most current real estate news. Today’s postings included an item on Silicon Valley:

Wild, Wild West: Hard to Keep Silicon Valley Down

Realty Times has a video version, as well as the old fashioned text version. Check it out – or let Team Patereau do it for you. We’ll keep you up to date.

Someone Else's Opinion

Here’s a letter I wish I had written:

Dear Editor:

As a Realtor, I am not in favor of bailing out lenders who issued subprime loans, 100 percent no-qualifying loans or loans with "teaser" adjustable-rate mortgages during the boom time. What happened to the billions of dollars they profited from by making such risky loans? I'll tell you what happened: They paid themselves insane amount of bonuses and raped any cushion the company could have kept for the time when their loans began falling into foreclosure. They had to know the risks, calculate the cost and charge up front for subprime loans. Then they went and spent their profits.

I run a business. When times are good I sock away profits knowing times will change and I will have to reach into savings or a "rainy day fund" to keep my business going. Uncle Sam, a.k.a. "We the People," does not bail me out when my business needs more money due to my poor management. We should in no way bail out the lenders and their investor portfolio managers for greed and poor management skills.

Nor should we bail out greedy home investors who swept into communities overbidding for homes and artificially ballooning prices. Many then took out equity lines of credit with their newfound equity to purchase more homes. Or worse still, became involved in loan fraud, inflating the prices of homes with cash back to "third parties" at close of escrow for "property improvements" that never happened. Let the chips fall where they may -- grownups buy houses, not children. We all learn valuable lessons when the consequences are painful. If they are not painful we, like children, will repeat the behavior again.

Susan Ramsey
Glendale, Ariz.

When there are adverse conditions, such as the market that we are currently experiencing, we often have to find new ways to navigate through these conditions. Short Sales, (where the lender agrees to allow the property that they have loaned against to be sold for less than the loan amount and release of their interest in on the title, resulting in some loan forgiveness or at least additional time to pay the deficient amount), have become a leading way for many sellers to survive and move on in this market.

There are a number of challenges and barriers with this type of transaction that require abundant patience, persistence and perseverance on the part of everyone involved. One of the major challenges is to persuade the lender to agree to a Short Sale in the first place. To achieve this, the lender must be convinced that it is to their benefit to agree to to a short sale rather than foreclose on the property. Also, unless you have a buyer in hand, you will have to convince the lender of the viability of the marketing plan on the property.

Below are two lists that will help you convince a lender to agree to this plan of action. The first list shows the benefits of a Short Sale vs. Foreclosure for the lender. This should help you persuade the lender to go the Short Sale direction.

SHORT SALE VS. FORECLOSURE
TEN CONSIDERATIONS

FORECLOSURE

1. More legal costs


2. Recovery of lesser amount


3. More non-performing loans


4. Higher reserve requirements


5. Possible negative impact on salability of existing loans to secondary market


6. More R.E.O. marketing costs


7. Negative perception by public


8. Possible extensive property repairs


9. Marketing challenge of extensive inventory
   Likely lower appraisal value can have negative impact on neighborhood & community

SHORT SALE

1. Fewer legal costs


2. Greater recovery ratio


3. Fewer non-performing loans


4. Lower reserves


5. Existing loans more marketable to secondary market


6. Fewer R.E.O. marketing costs


7. Fewer repairs likely


8. Greater marketability of property


9. Likely greater value from broker price opinion


10. Less negative impact on neighborhood

In addition to sharing this list with the lender, it will also be worth your while to highlight special steps that will be taken to market the property. Presenting these ideas will significantly differentiate and distinguish you from.

TEN SHORT SALE MARKETING STEPS

1. Promote property as a short-sale property on the MLS. (Review agency issues with seller.)


2. Identify and target top-producing agents who specialize in working with investors.


3. Have an "Agent Open House" promoting the property as a short sale opportunity and invite the target agents.


4. Promote the property in publications that cater to different cultural/ethnic groups. (Be sure to observe the Fair Housing advertising laws.)


5. Target foreign investors by contacting consular offices.


6. Contact boutique brokers associated with the EUROPEAN REAL ESTATE NETWORK.


7. Approach banks and private trust companies that have extensive foreign clientele.


8. Canvass the neighborhood about the property being offered on a short sale.


9. Have an Open House highlighting the home is available on a short sale basis.


10. Invite the neighbors, their friends and relatives to this Open House event.

Helpful Cell Phone Information

Here’s some interesting information. It’s particularly pertinent to real estate agents, but the rest of you out there will probably find it helpful too. The info came to me from Jackie DiSalvo, our local Financial Title representative.

Wireless Telephone Laws FAQs

Two new laws dealing with the use of wireless telephones while driving go into effect July 1, 2008. Below is a list of Frequently Asked Questions concerning these new laws.

Q: When do the new wireless telephone laws take effect?
A: The new laws take effect July 1, 2008

Q: What is the difference between the two laws?
A: The first prohibits all drivers from using a handheld wireless telephone while operating a motor vehicle. (Vehicle Code (VC) §23123). Motorists 18 and over may use a hands-free device. Drivers under the age of 18 may NOT use a wireless telephone or hands-free device while operating a motor vehicle(VC §23124).

Q: What if I need to use my telephone during an emergency, and I do not have a hands- free device?
A: The law allows a driver to use a wireless telephone to make emergency calls to a law enforcement agency, a medical provider, the fire department, or other emergency services agency.

Q: What are the fines if I’m convicted?
A: The base fine for the FIRST offense is $20 and $50 for subsequent convictions. According to the Uniform Bail and Penalty Schedule, with the addition of penalty assessments, a first offense is $76 and a second offense is $190.

Q: Will I receive a point on my drivers license if I’m convicted for a violation of the wireless telephone law?
A: NO. The violation is a reportable offense: however, DMV will not assign a violation point.

Q: Will the conviction appear on my driving record?
A: Yes, but the violation point will not be added.

Q: Will there be a grace period when motorists will only get a warning?
A: NO. The law becomes in effect on July 1, 2008. Whether a citation is issued is always at the discretion of the officer based upon his or her determination of the most appropriate remedy for the situation.

Q: Are passengers affected by this law?
A: No. This law only applies to the person driving a motor vehicle.

Q: Do these laws apply to out-of-state drivers whose home states do not have such laws?
A: Yes

Q: Can I be pulled over by a law enforcement officer for using my handheld wireless telephone?
A: YES. A law enforcement officer can pull you over just for this infraction.

Q: What if my phone has a push-to-talk feature, can I use that?
A: No. The law does provide an exception for those operating a commercial motor truck or truck tractor (excluding pickups), implements of husbandry, farm vehicle or tow truck, to use a two-way radio operated by a “push-to-talk” feature.

Q: What other exceptions are there?
A: Operators of an authorized emergency vehicle during the course of employment are exempt as are those motorists operating a vehicle on private property

DRIVERS 18 AND OVER

Drivers 18 and over will be allowed to use a hands-free device to talk on their wireless telephone while driving. The following FAQs apply to those motorists 18 and over.

Q: Does the new “hands-free” law prohibit you from dialing a wireless telephone while driving or just talking on it?
A: The new law does not prohibit dialing, but drivers are strongly urged not to dial while driving.

Q: Will it be legal to use a Blue Tooth or other earpiece?
A: Yes, however you cannot have BOTH ears covered.

Q: Does the new hands-free law allow you to use the speaker phone function of your wireless telephone while driving?
A: Yes.

Q: Does the new “hands-free” law allow drivers 18 and over to text page while driving?
A: The law does not specifically prohibit that, but an officer can pull over and issue a citation to a driver of any age if, in the officer’s opinion, the driver was distracted and not operating the vehicle safely. Text paging while driving is unsafe at any speed and is strongly discouraged.

DRIVERS UNDER 18

Q: Am I allowed to use my wireless telephone hands free?
A: NO. Drivers under the age of 18 may not use a wireless telephone, pager, laptop or any other electronic communication or mobile services device to speak or text while driving in any manner, even hands free. EXCEPTION: Permitted in emergency situations to call police, fire or medical authorities. (VC §23124).

Q: Why is the law stricter for provisional drivers?
A: Statistics show that teen drivers are more likely than older drivers to be involved in crashes because they lack driving experience and tend to take greater risks. Teen drivers are vulnerable to driving distractions such as talking with passengers, eating or drinking, and talking or texting on wireless phones, which increase the chance of getting involved in serious vehicle crashes.

Q: Can my parents give me permission to allow me to use my wireless telephone while driving?
A: NO. The only exception is an emergency situation that requires you to call a law enforcement agency, a health care provider, the fire department or other emergency agency entity.

Q: Does the law apply to me if I’m an emancipated minor?
A: Yes. The restriction applies to all licensed drivers who are under the age of 18.

Q: If I have my parent(s) or someone age 25 years or older in the car with me, may I use my wireless telephone while driving?
A: NO. You may only use your wireless telephone in an emergency situation.

Q: Will the restriction appear on my provisional license?
A: No

Q: May I use the hands-free feature while driving if my car has the feature built in?
A: NO. The law prohibits anyone under the age of 18 from using any type of wireless device while driving, except in an emergency situation.

Q: Can a law enforcement officer stop me for using my hands-free device while driving?
A: No. For drivers under the age of 18, this is considered a SECONDARY violation meaning that a law enforcement officer may cite you for using a hands-free wireless phone if you were pulled over for another violation. However, the prohibition against using a handheld wireless telephone while driving is a PRIMARY violation for which a law enforcement officer can pull you over.

Mortgage Lending Today

Mortgage companies have changed the face of home loan lending as we come to the end of 2007. Here’s a look at the emerging landscape:

What’s Out

• 100% Financing: Banks have mostly stopped entertaining home loans where borrower makes no down payment. Earlier this year the California Association of Realtors said 41% of first-time California buyers were getting 100% financing. Now, in the fourth quarter of 2007, lenders won’t make loans without at the very least 5% down, and more likely will require 10% and 15% down payments.
• Adjustable rate mortgages offering 4 payment options: These loans, called Option ARMs, are risky because mot people make the absolute minimum payment. At a specified point after 30 months the loan payment can jumb by hundreds of dollars per month. In 2006, 27% of borrowers buying or refinancing houses in Santa Clara County used this loan.
• Interest only loans: The only way you can get them now is by showing you can pay not only the interest but the full principal and interest load when it becomes due later. Last year an estimated 28% of borrowers in Northern California used these loans to buy and refinance houses.
• Subprime 2/28 loans: Nearly all the biggest subprime mortgage lenders have stopped making these loans. The 2/28 offers low “teaser” interest rates for the first two years, and then resets to higher floating rates that can add hundreds, and many times thousands, of dollars to a monthly payment. Last year 80% of subprime loans nationally were 2/28s. They were typically made to people with weak credit histories. In 2006, 22% of home purchases in Northern California were with subprime loans.
• Stated income loans: Lenders have almost entirely stopped giving money to people who simply “state” their income on a mortgage application.

What’s In

• 30-Year Fixed Rate Loan: The traditional workhorse loan with its unchanging monthly payment across three decades is back.
• Mom & Dad: Parents are offering gifts to their children to reach a down payment of at least 5% (often from the equity in the parent’s home). Parents are making sure their children get a fixed-rate loan, too.
• Saving money and renting for another year or two: It’s old fashioned, but real estate agents say building up savings can be the ticket to buying a house.
• Income verification: Lenders now want to know all the specific details of borrowers’ financial situation. This means knowing their exact salary and other sources of income.
• High credit score: Lenders say a credit score of 700 or higher – and a down payment – will help deliver a mortgage to borrowers who intend to live in the house.

There’s Two Sides to the Real Estate Burst Bubble Story

Looking around we see information about real estate foreclosures, short-sales, and borrowers defaulting on loans. There is article after article on the Internet, in the newspaper, and on TV. It’s not just about the first-time buyer, either.

The “Real Estate Guru” at Real Estate Investing Blog posted an item about a real estate investor in Las Vegas reporting that he feels forced to walk away from 16 homes he bought and financed just two years ago.

The Guru’s article source was the Real Estate Journal, a blog posting from The Wall Street Journal.

That’s one side of the story.

I know another side.

A couple I know, let’s call them Ray and Edna, had a house with 2 mortgages, 7 credit cards, brand new cars and new furniture. They couldn’t keep up with the payments when they were both employed and Ray supplemented with side jobs. They didn’t lose any jobs, and there wasn’t a disaster in their lives, but for their own reasons they walked away. The bank foreclosed on the home. The creditors nagged. They declared bankruptcy.

That was eight years ago. In that eight years, Ray and Edna have paid cash for everything. They bought many money orders and certified checks. They bought used cars and paid cash for repairs. They rented an apartment closer to their jobs. They ate at relatives houses many times, and never went to a restaurant. They are not addicted to Starbucks.

I could go on and on about what people without credit do. The point is that people without credit can do. They can survive. Having money problems and being in over your head is not a death sentence. It’s tough – no doubt about that. But Ray and Edna picked up the pieces of their shattered lives and moved on.

Today, eight years later, Ray and Edna sought the advice of a mortgage lender about what they would have to do to be homeowners again.

The lender checked their credit score and informed Ray and Edna that they had a score of zero. That’s right, their score was a big fat nothing. They not only don’t have anything bad on their report, they don’t have anything good on it either. The lender told them that they need to get some credit in order to get ready to get a mortgage. He wants them to get one credit card, probably through the bank where their checking account is. He also wants them to buy a car. New cars are being sold at really good prices right now because it’s the end of the model year and there’s a huge amount of inventory that hasn’t sold this year. Financing is available at really good rates, even for people with zero credit scores.

Once Ray and Edna have established the two accounts, credit card and car, they need to make regular and timely payments for 8 to 12 months. Then, and only then, will they be ready to look at buying a house.

A little more work and they will be homeowners again. This time they know more about money and about mortgages, and about being responsible when it comes to money. It was a hard lesson, but they learned it well.

If you are just starting your money lessons, here’s a little more encouragement. It takes seven years to have bankruptcy and foreclosure to clear off your credit record. That’s a long time. But it’s not endless.

Think about what you were doing seven years ago. Where did you live? What were you being paid at your job? Who were your friends? Now that you think about it, doesn’t seven years seem short? It is. And you, too, can get through it.

Don’t do it alone, but get started.

"Buy-Down" as a Seller Incentive

Sellers are looking for ways to get their homes sold. The first thing they do is reduce the price. Sellers also pay for all repairs, especially the Section 1 items from the Termite Report. There can be an allowance for new carpet, or bathroom remodeling. There’s also the NRCC (Non-Recurring Closing Costs) category where Sellers pay for the costs of the buyer’s financing.

Sometimes they stop there. We’re here to tell you that there might be something else Sellers can offer. What we’re talking about here is an interest rate buy-down. This is one of the things New Home Sellers use to stimulate activity when sales start to slow down at their new subdivisions. However, individual Sellers rarely turn to buy-downs as a sales stimulus. Not because the move doesn’t work for them, but because their real estate agent doesn’t realize the option is available, and doesn’t advise them of the option.

A buy-down is a tactic where the Seller pays the buyer’s lender money to lower the Buyer’s interest rate on the new loan. Although the rate can be bought down for the life of the mortgage, it is common to have Sellers buy down the rate for the first two or three years of the mortgage.

Buy-downs are not part of a strong Sellers Market. After all, who needs them when potential buyers are knocking down doors to become home owners? But, now that we are in a Buyers Market, buy-downs have returned.

Lew Sichelman writes in a special article to The Chronicle, “The object of a temporary buy-down is to bring the initial rate down to a point where the buyer can either qualify for financing or can’t resist the lower monthly payment.”

Sichelman goes on to point out that buy-downs usually come in two versions: The “3-2-1 Model,” where the rate is bought down by the Sellers to three percentage points below the market for the first year, two points for the second year, and one point for the third year. The second model is the “2-1 Model,” works the same way except the rate is bought down by two percentage points in the first year and one point for the second year. A third version is a permanent one in which the rate is bought down just enough to make the property purchasable, for the entire life of the loan.

Once the buy-down period ends the rate returns to where it would have been had there been no reduction.

To see Sichelman’s complete article click here.
Here’s another opinion by Henry Savage.

Your real estate agent should be able to talk to you about Buy-Down options, whether you are selling or buying, or both.

What the Heck is a Short Sale?

As we have all read and heard and seen, real estate is not normal these days. Today’s real estate market is a great value for home buyers. There is currently a 15 month inventory of homes available in Silicon Valley. Life goes on and buyers need to move, or want to upgrade, but they must sell their current homes first, and homes are sitting on the market for a long time.
In addition, foreclosures are at a record high. However, there is this thing called a “Short Sale” that isn’t a foreclosure, and isn’t just listing and selling a house by the owners. It is our experience that most people don’t know what a Short Sale is, so here is the scoop.

Basically, a Short Sale is the sale of a property for less than what is owed on it, Owners do this by obtaining permission from all the secured creditors to complete this kind of transaction, and transfer clear title to a new owner (purchaser). When lenders agree to a Short Sale it means the lender is accepting less than the total amount due, and will transfer clear title to a purchaser. Not all lenders will accept short sales, or discounted payoffs, especially if it would make more financial sense to foreclose.

Short Sales leave the homeowner/borrower free of debt when the sale closes. However, they also leave with no money in hand to move on to the next home – no down payment, and not even money for first and last months rent and security deposit if the seller now has to rent.

Another thing Short Sale Sellers should be aware of is that the IRS will consider debt forgiveness as income. As an example, the owner owes $789,000 on the home. They get agreement from the lender that it can only sell now for $725,000. The home gets put on the market and is sold for $719,000. There is a forgiveness from the borrower(s) for $70,000. The IRS will consider the $70,000 as income in the year of the sale.

Short Sales appear on the owner’s credit history for three years. That’s less than the seven years for a foreclosure, but it still has a long-lasting effect on credit.

There’s lots to do in a Short Sale, but of the utmost importance is that the owner keep in contact with the lender. The owner should also have an experienced real estate agent to represent them in this complicated transaction.

Here’s a couple of links to Short Sale information:

About.com: Short Sales in Real Estate - How to Handle Real Estate Short Sales

eHow.com: How to Do a Short Sale

Real Estate Journal.com: Short Sale May Be an Option WhenMortgage Debt Looms Too Large

Losing your home can be very emotional and most people don’t want to face up to the reality until foreclosure sets in. Our recommendation is to talk to your lender. If you cannot pick up the phone and call the lender, then at the very least, call Team Patereau. We can help you get started on this very difficult project.