Another FED Rate Cut

Wow. The discounting continues.

This just posted to the financial wires a few minutes ago:

Federal Reserve cuts key interest rate by quarter-point
Wednesday April 30, 2:20 pm ET

Fed cuts key rate by quarter-point and says economic activity remains weak

WASHINGTON (AP) -- The Federal Reserve cut a key interest rate by a quarter-point, a smaller move than the aggressive easing it undertook earlier this year.

The Fed action, announced Wednesday after a two-day regular meeting, pushed the federal funds rate down to 2 percent, its lowest level since late 2004. It marked the seventh consecutive rate cut by the central bank since it began easing credit conditions last September to combat the growing threat of a recession brought on by a deep housing slump and credit crisis.

The rate cut will mean lower borrowing costs throughout the economy as banks reduce their prime lending rate, the benchmark for millions of consumer and business loans.

The Fed move was in line with expectations. Wall Street believes this could well wrap up the Fed's rate cuts unless the economy threatens to fall into a worse slump than expected.


Interesting. I also read that Bank of America is dropping the Countrywide name by mid-Summer 2008. I guess the Countrywide name has a bit of a stigma to some folks....

- Jim

Is a Lease-Option a Good Idea?

I’ve had a few clients recently ask me about lease options and whether or not they are a good idea.

First of all, they are a bit misunderstood. It is not a risk-less way to get into a piece of property that you simply can’t afford now. Nor is it an absolute guarantee that entering into this arrangement will “land” you the property within a year or two.

You will find that many investor out there are willing to “buy the house for you and lease it back” while you save away enough for the down payment (when the purchase option is exercised). As an investor myself, I think this is wonderful. Someone pays the mortgage from me, I potentially benefit from appreciation, or at least I can theoretically use this arrangement to hedge against devaluation. Nice.

Is it the right thing for the Buyer? As a step of last resort, perhaps it is necessary. But if you can’t qualify for a standard loan in today’s market where rates are at a nearly all time low and FHA has jumped in to help, does that then say something about your financials to begin with? Are you ready for such a commitment?

Obviously it’s a case by case analysis and decision I would not make for a client family of mine. They would have to weigh the pros and cons (articulated with my help) for moving forward and make their own decision.

Here’s an article from the California Association of Realtors on Lease Options. One thing for sure… investigate wisely, as if you were going to be purchasing the home now.

Lease-Options are Back

A lease-option is utilized when a potential buyer wants to lease or rent the property with an option to buy it at a later date. The potential buyer pays separate consideration for the option to purchase at a later date to remain open for a specified period of time. If the potential buyers does not exercise the option, or does not purchase the property within the option time period, then the potential seller keeps the option consideration and retains the property.

Generally, lease-options are done in a slower real estate market when the reseller simply cannot sell the property outright. In this situation, a buyer, who may not have enough money for a down payment, can lease the property while they accumulate the money for a down payment. Often, a portion of the monthly payment by the potential buyer will go toward the down payment.

The option agreement must designate a price or state the price that will be determined by some objective standard when the option is exercised. Because the parties have entered into a binding agreement, the potential buyer may sue for specific performance on the option, requiring the potential seller to sell the property to the potential buyer under the terms of the agreement. The agreement must, therefore, contain all “material” terms for a purchase and sale to proceed.

Before proceeding with the lease-option, the potential buyer should consider:

a) Documenting the need for repairs with a property inspector

b) Checking for liens recorded against the property

c) Ensuring payment of the mortgage and taxed during the lease. Also, negotiating payment of insurance on the property

d) Ensuring that potential buyer will have the funds to make the down payment and qualify for any loan needed at the time of exercise of the option

e) Negotiating what will happen if the option period ends and potential buyer has not exercised the option.

f) Speaking with an attorney regarding removal of contingencies, disclosures, property inspections, etc.

After the lease-option is agreed upon, the option should be recorded to retain the potential buyer’s rights to the option.

Many thanks to CAR and Nicole Briggs for this article.

- Jim

Home Equity Lines of Credit (HELOCs)

If you have a home equity line of credit, you may have had a recent "discovery". A letter in the mail from your lender, indicating your credit limit has been reduced. This has happened to several of our clients and friends - and now our own family too.

WAMU (Washington Mutual) sent us a letter saying that our credit limit is now roughly 28% of what it was initially - WOW! That's a pretty significant change. We have no balance on the account either, not a dollar in outgoing loans. Our use for this account was our own real estate investing. Many of our clients have been using it for the same - and some to live on as their own financial situations are getting back on track.

Here's an article from Money Magazine on the situation, and what a borrow can (potentially) do to keep their HELOCs alive.

Thanks Money Magazine for the article,

- Jim

When a HELOC freezes over
What to do if the bank tries to put your credit line on ice.

(Money Magazine) -- When Diane Carr, 55, received word in February that her home-equity line of credit would be canceled, she was dumbfounded. The HELOC had been open since 2003, when she bought her Woodside, Calif. home. And Carr had never even tapped it.

"It was just a security thing," she says. No matter. In recent months, tens of thousands of homeowners like Carr have been shut off from their equity as lenders try to stem losses from subprime mortgages and other high-risk loans.

As of September, delinquencies on HELOCs were up 47% year over year, according to Economy.com; the numbers are expected to be worse in 2008. In response, Countrywide has already suspended an estimated 122,000 lines, many in high-foreclosure-rate states, and USAA has frozen or reduced some 15,000 accounts. Bank of America (BAC, Fortune 500), Chase (JPM, Fortune 500) and Citibank (C, Fortune 500), among others, are following suit.

Not all HELOCs will be frozen or downgraded, but you can be sure lenders will scrutinize every account - including yours.

If your HELOC hasn't been frozen (yet)

Know your risk. Areas where housing prices have fallen by 10% or more are prime targets for freezes, says Susan McHan, president of Opes Advisors, a mortgage banking firm in Palo Alto, Calif. Because of new lending standards, your HELOC could also be in danger if you bought your home in the past few years with little money down.

Last year consumers could easily borrow up to 100% of a home's value through a combination of a HELOC and a first mortgage. Today you'd be lucky to get up to 90%; 60% is the max in areas hit hardest by home-price declines.

Lenders are beginning to apply the same standards to existing HELOC customers. Call your bank and ask what the loan-to-value cap is on new HELOCs. If your house debt is above that, your line could be at risk. A change in credit score or a missed payment could also flag your account. Reread your contract to see if such factors allow the lender to cut you off.

Access cash now. If your line is in jeopardy and you need the HELOC to finish a renovation, you could draw a lump sum. On the downside, you'll cut your equity; you'll owe interest now; and if prices keep falling, your loan values could top your home's value. So borrow only as much as you need and put the cash in a high-yielding savings account or CD until the bills in question come due.
If your HELOC is on ice

Fight for a defrost.

The letter from your lender should explain why the line was suspended and how to appeal. Some banks use automated processes to identify troubled markets.
To prove that your house hasn't been affected, ask a realtor to pull prices for houses sold within three miles in the past six months, ask your mortgage originator to intervene, or have your house reappraised. The latter can run $400, but if you were counting on the line, it may be worth it.
If a change in your risk profile is the cause, check your credit reports. Carr was told that her HELOC had been canceled because of a drop in her FICO score. But when she checked, it was above 800, so the lender reinstated her line.

Compromise.

If your efforts fail, ask for a lower credit line instead of a total freeze. The bank may be more amenable if you hold your primary mortgage there, as that's an insurance policy of sorts.
Shop around. Not all banks have the same standards. If you have at least 10% equity, you may qualify with another lender. Search at bankrate.com, or click on the link above and to the right.

Thanks Money Magazine for the article,

- Jim

The Sac Bee - Optimism?

Not likely, as they wouldn't go quite that far!

I was in a builder's office until nearly 10:00pm last night, helping a couple of families buy their first homes. Great fun.

The builder's sales lady said she remembered well "one bad day in October" when the Sac Bee just about killed their business. She said that visits to the sales office went from a constant stream to almost nothing - overnight.

The Sac Bee isn't our friend. They have been terribly unkind to the Real Estate business. Some of it warranted, but much of their negative energy misplaced.

So imagine the surprise... when the Sac Bee actually posted a few upbeat notes about our real estate market !! Here are a few direct quotes:

"There may actually be a bottom out there."

"But amid the dreary statistics there appears to be the suggestion of a market in the beginning stages of stabilizing."

"Bank-owned homes have come to account for about half of the sales in the region, a factor that has scrambled standard market indicators."

"Real estate ....of Sacramento see a sign that things are looking brighter in bidding wars occurring on bank-owned listings in the suburbs. He suggests the market already is "bouncing off the bottom."

"...bank-owned homes in Elk Grove that once sold for $120 a square foot have risen to $135 per square foot and are going higher."

"We've seen prices stabilize and even go up in some of our communities," he said. Centex, the region's leading builder this year, has started saying no to buyers who ask for concessions that might have been routinely granted earlier.

"There are just a heck of a lot of foreclosures to burn off before the market can kick into gear in any big way,"

The whole article:

http://www.sacbee.com/142/story/854196.html

Wow. If the Sac Bee is noting a change, then it must be real.........

- Jim

Foreclosures Still on the Rise

The market continues to be on fire! Offers are coming in by the truckloads on bank owned and short sale property. The last two weeks of March and the first week of April have seen a dramatic swing in how those properties are being marketed and put into escrow – Offers now must be at list price or above to compete! Nothing I’ve submitted for a client has “stuck” if it has been below list price. Amazing.

Yet even as we are clearing out some of this bank owned “inventory”, new homes in this class are still coming to market. Here’s an update on that rate of new “inventory”. Many thanks to Yahoo Finance for this update on Foreclosure rates.

NEW YORK (Reuters) - Home foreclosure filings surged 57 percent in the 12 month-period ended in March and bank repossessions soared 129 percent from a year ago, as homeowners struggled to make mortgage payments, real estate data firm RealtyTrac said on Tuesday.

For the month of March, foreclosure filings, default notices, auction sale notices and bank repossessions rose 5 percent, led by Nevada, California and Florida, RealtyTrac said.
The rise in March to filings on a total of 234,685 properties followed a 4 percent decline in February, RealtyTrac reported.

RealtyTrac said the peak has yet to be reached. "What we're really looking at is ongoing fallout from people overextending themselves to buy homes they couldn't afford and using highly toxic loan products to get into the houses in the first place," Rick Sharga, vice president of marketing at RealtyTrac, based in Irvine, California, said in an interview.

"We're going to see quite possibly a record amount of foreclosure activity in the third or fourth quarter," reflecting sharp payment increases on adjustable-rate subprime mortgages in May and June, Sharga said.

One in every 538 U.S. households living in single-family dwellings received a foreclosure filing in March. The single-family dwellings can include condominiums.

There are three phases of the foreclosure process in most states -- an initial default notice, notice of a scheduled auction, and an "REO" filing if the property is not sold at auction but instead repossessed by the bank, Sharga said. REO refers to real estate-owned property. All of the households in the report received at least one of these filings last month.

AUCTION NOTICES UP 32 PERCENT

While default notices and repossessions soared in March, auction notices rose a relatively small 32 percent, James J. Saccacio, chief executive officer of RealtyTrac, said in a statement.
That suggests "more defaulting homeowners are simply walking away and deeding their properties back to the foreclosing lender," he said. "This deed-in-lieu-of-foreclosure process allows the lender to take possession of a property without putting it up for public foreclosure auction."

The states with the highest foreclosure filing rates -- Nevada, California and Florida -- also are among those that had the biggest price appreciation in the five-year boom before the housing meltdown that began in 2006.

These states tend to also be plagued by defaults on unoccupied homes bought by speculative investors. In many cases, home prices have now fallen below the size of the mortgages and some owners are walking away.

In Nevada, one in every 139 households received a foreclosure filing in March, keeping the state at the top of the ranks for the 15th straight month.

The 7,659 Nevada properties receiving foreclosure filings last month represented a 24 percent jump from February and a nearly 62 percent spike from March 2007.

California had the second highest rate of foreclosure filings, one for every 204 households, followed by Florida with one of every 282 households.

Arizona's filings fell about 5 percent, but it retained its standing as with the fourth highest pace of foreclosure activity for the third month straight.

Foreclosure activity in Colorado dropped 8 percent in March from February and 1 percent from a year ago, but it ranked No. 5, with one filing for each 339 households.

Georgia, Ohio, Michigan, Massachusetts and Maryland were the other states with the highest foreclosure rates in March.

The states with highest total number of foreclosure filings were California, Florida and Ohio.
Foreclosure filings were reported on 64,711 California properties in March, the most of any state for the 15th consecutive month, up nearly 21 percent from February and up almost 106 percent from March 2007.

Florida posted the second highest total, with foreclosure filings reported on 30,254 properties in March. While down about 7 percent from February, filings were about 112 percent higher than last March.

Georgia, Texas, Michigan, Arizona, Illinois, Nevada and Colorado were the other states with the highest foreclosure totals in March.

PLEASE LISTEN - The Market is Changing

Hello Neighborly Realty friends and clients,

Every offer we've made in the last few weeks on Short Sale property or bank owned (REO) property has been rejected.

I have 9 active families right now trying to buy homes. Everything we've offered on has been rejected - in some cases, even when the offers are all cash !!

Why?

Short Sale properties and REOs - that are in decent condition - are getting offers above or at list price. Our offers are being beaten by higher priced offers.

Now, if a client wants something that is in poor condition, there is still inventory to go after. But for the most part the good homes are going into escrow. Even the poor condition homes are getting offers quickly. We offered on one home in Roseville that was truly trashed, yet it's $215,000 list price pulled in offers in the $280,000 mark! The home is worth roughly $310,000 - $320,000 in nice condition.

Another example in Roseville: A beautiful bank owned 2400+ square foot home listed at $379,000. We offered on it within just a few days of it going live in MLS. We lost on that one too. The home had several offers above list price, from buyers not even in the area (these buyers were on the East Coast).


What about "standard" transactions (family to family sales, not REOs or Short Sales)?

My own listing in Rocklin SOLD IN 13 DAYS !!

My clients and I were stunned ! (happily)

Legally I can't disclose the price we've agreed too... but it is VERY close to asking price.


New Construction?

We've had a few builders in Roseville actually raise prices! ...and when I've walked in to try and get a deal for a client, they've basically sent me away empty handed.


What does this mean?

At the micro-economic level, this market is changing. It's changing fast. Pent up demand is starting to jump. Inventory levels will be dropping. It matters not what the local news is saying... actual data from my own listings, my own offers, my own clients, and my own phone calls to my fellow Realtors shows that this market is changing.

I genuinely believe we have bottomed out - or are about to.

- Jim

Juli Marty & Neighborly Realty

She's fully on board!

Our newest Broker Associate. Very exciting indeed.

Take a look at Juli's web site and send her a note: http://www.JuliMarty.com/

We expect big things from Juli!

- Jim