Being FICO wise

By Chris Moles, Brokerage Counsel, Intero Real Estate, Inc.

A recent study shows that foreclosures and short sales have a similar immediate impact on a property owner’s Fair Issac Company (FICO) Score.

Data from the three major credit reporting agencies suggests that a typical distressed homeowner with a FICO score of 620 was likely to see his score fall to between 575-595 after either closing a short sale or defaulting to foreclosure. The same study suggested that those with a score of 720 could expect a drop to between 570-590 and those with a score of 780 could expect a drop to between 620-640. The manner of parting with the property did not seem to affect the average FICO drop, indicating that a short sale is not “better” for a person’s credit score than a foreclosure.

Those secondary credit considerations that some use to justify selling short (like trying to “settle a debt” or “work with the bank”) are not factored into the strict FICO equation. Therefore, short sales and foreclosures are weighed the same – each is a "failure to pay as agreed.”

Giving FICO advice
These results simply reinforce the real estate agent’s duty to manage the client’s expectations and not give financial advice. Short sale listing agents do not exist to give credit advice. Rather, they exist to facilitate the client’s decision to sell short and avoid foreclosure. Whether the client should sell short or strategically default is ultimately a choice that the client must make with his own professional legal and/or financial advisor.

Of course, if advising clients on FICO matters, real estate agents should always disclose that short sales and foreclosures have the same general effect on the client’s FICO score. It is not accurate to say, “a short sale will have a less detrimental effect on your credit score than a foreclosure.”

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"Flip" by Another Name

Here's an article about "investors" buying foreclosured properties and selling them quickly - once repairs have been made and the property can qualify for government-sponsored guarantees or conventional financing. Team Patereau says this is not new - it's the very common practice of flipping. It happens in Gilroy and the surrounding area regularly.

We should all say a big "Thank You" to these investors who have the cash to take distressed properties off the market, more cash to fix them up, and the time to have their cash tied up until a new homeowner, oftentimes a first time buyer, can be found.

Real Estate Is This Summer's Biggest Blockbuster for Buyers

Summer is almost here – typically a busy season for home sales. But, what about this year? Will high gas prices and the rising cost of just about everything else from inflation dampen a typically active time of year in real estate? We're on shaky ground, but could there be a better market for buyers? I don't think so. Let's look at what we know...

Realtor Nationwide Open House Weekend Opens Doors to Home Ownership

Team Patereau will be hosting open houses both Saturday and Sunday. We'll be at our Eagle Ridge listing as well as our Church Street listing. Please stop by to see these beautiful homes. Both are well priced and the owners are motivated. Hope to see you at one or both. And, remember, even if you own your home, you may be able to teall a friend or family member about one of the homes that will be perfect for them.

The Intero Insider says, "Know Your Market..."

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

Want to know the best strategy for selling a house regardless of how the economy is doing? It's dead simple: Know your market.

Part of knowing your market is knowing where your market is – where it ends and begins, because your market is not your city, your state or your region. Your market is your neighborhood. It's your school district. It's even your street and block. Here's the rest of the story...

Memorial Day 2011

Staging is important in Gilroy too!

Fixed mortgage rates touch new lows for 2011

Fixed mortgage rates fell this week to the lowest point of the year, offering incentives for homeowners to save money by refinancing their loans. Read the full Marcury News story...

Government Likely to Drop the Level at which It will Back Home Mortgages

By Chris Moles
Brokerage Counsel
Intero Real Estate, Inc.

A New York Times article this week revealed that the federal government is set to drop the levels at which it will back home mortgages in September. The sobering news identified that mortgages in Monterey County will likely be slashed by a third and re-set at $483,000. Other California counties will see similar cuts. This could negatively affect the California market because buyers will have to increasingly depend on private loans to purchase in this region.

Current Policy
At present, government backed loans for most bay area counties cap around $729,750. This is substantially higher than the national average and it reflects the above average cost of land in the bay area. Government backed loans are insured by the Federal Housing Administration, so lenders are somewhat protected from default. Lenders face less risk when making these loans to borrowers and borrowers are able to purchase more expensive homes with a smaller down payment and at a lower interest rate then they might otherwise expect. Suffice it to say that many government backed loans are offered at terms that would not be available in a purely private transaction.

The New Proposal
Democrats and Republicans in Congress seem to agree that the federal taxpayer should no longer bear the risk on loans that far exceed the national average for home mortgages. On September 30th, the Congress is posed to cut the levels for government backed mortgages across the board. The new caps will be re-set from county to county with most bay area counties seeing a 15% or so decline. Some anticipate that Santa Clara County’s new government backed mortgage cap may be set at $625,500 – representing a potential loss of more than $100,000 in the purchasing power of the average south bay buyer.

Of course, this could pull prices down as many local buyers are pushed out of the market. California borrowers will likely start to depend more heavily on private mortgages, and this means borrowers will be subject to greater scrutiny about credit worthiness and finances before securing an adequate loan. This also means that buyers may have to settle for higher interest rates and less favorable terms.

Some listing prices will have to decrease to reflect the diminished purchasing power of the average buyer.

The National Association of Realtors Lobbyists
NAR is presently lobbying against these measures in Washington. While it is clear that the government must remake its affordable housing laws, many Realtors argue that an overly simplistic policy based on the national average for home mortgages will have a disparate impact on those living in pricier regions of the country.

However, elected officials have become increasingly blunt in light of political pressure to address the causes of the last housing bubble and the subsequent mortgage crises. The Times reported that, according to a recent White House position paper on government backed mortgages, “Larger loans for more expensive homes will once again be funded only through the private market.”

Assuming Congress does as expected in September, this summer may present the best opportunity to buy and sell for a while.

We hope you enjoy this post by guest blogger, Chris Moles. Thanks, Chris, for providing Intero agents with the most updated legal information in your weekly post.