Find out about Real Estate on the Monterey Peninsula

2011 is going to be an interesting year to buy a house. Fannie Mae and Freddie Mac, the two government back mortgage institutions, are buckling under debt. The Obama administration is determined to find a solution between total privatization of the mortgage market (no government backed loans) and total nationalization (all loans government backed).

Right now, federal control of the market is close to 90%. The administration would like to see that reduced down to about 20% or less. What that means could be a serious jolt to the housing market for buyers. In order to do that, the government will have to make their loans less attractive and more difficult to obtain. Guidelines will be stricter and buyers will be encouraged to find non-government backed loans with better terms.

Some specific ideas being considered:

Higher interest rates for FHA and other government loans

Higher down payment requirements. Currently FHA loans require 3.5% down. Under consideration is a requirement for 5% down payment.

Higher funding fees to buyers. FHA loan fees went up last year. They will likely go up another quarter of a percent this year as well.

Cutting the maximum loan limit for FHA loans in high cost areas from $729,500 to $625,500. Some are even pushing a return to the traditional FHA maximum of $417,000. That change would adversely affect areas like Monterey County beach communities and damage the move-up buyer market that counts on reasonably low cost jumbo loans. This means the “upper-middle” class could be in for some high interest rate loans soon. This will likely cause an already declining market to accelerate that decline faster.

Lower allowed closing costs credits. Currently guidelines allow the sellers to credit buyers up to 6% of the purchase price on FHA loans to cover the buyer’s closing costs. It’s expected that FHA will change that to only 3% closing cost contributions from the seller allowed.

This means buyers will have to have a lot more cash to use these loans and they will have to pay a higher interest rate as well.

Right now, FHA loans account for almost 30% of the home purchases nationally. The government is determined to revert to the “historic” average market share of 10 to 15 percent. These changes will help them do that, but home affordability will also suffer. Clear message: buy now! A 1% increase in interest rate means a 10% decrease in buying power. As always, you are encouraged to email me at kharvell@rwnetwork.com

It seems like some good news for the poor investors that bought mortgage securities from Fannie May and Freddie Mac. I’m noticing more and more short sales transactions getting approved.

This helps the investors because they don’t have to endure the costly expenses of forcing a foreclosure. Deals that were NOT coming together in past years are moving rapidly through the banking system now.

There are still some communication issues, but they are minor compared to past years.

That should be a pretty obvious statement, but it just seems like people don’t believe in it anymore. The Real Estate industry has taken a beating in the public’s opinion during this whole market downturn. Ethics have come into question, especially the use of “liar’s loans” (stated income and stated assets) and adjustable rate mortgages. You would think we would have learned some lessons and maybe, just MAYBE, we would strive to do things the right way.

Unfortunately, I can still see too many questionable tactics being employed to buy real estate. The latest one that is becoming a problem in my area are buyers being coached to get accepted offers on multiple short sales. The theory being that if you have enough in contract, something will approved by a bank and you can bail out on the other sellers and take the first that goes through.

This is wrong on so many levels, but some agents and buyers don’t seem to care. Why should they worry about a seller getting dumped out of escrow and having their bank foreclose the home? Or all the hard working agents, brokers, lenders and escrow people who thought they had a deal, only to find out they were being lied to and they won’t be getting paid? It certainly doesn’t matter to them that they’ve lowered inventory for other buyers that might actually go through with the purchase.

At least 5 people have contacted me to say they were taken in and one person wired money, the others gave sensitive financial information. If 5 people admitted to getting scammed, there are likely twice as many that I don’t know about.

Bottom line, protect yourself when dealing with Craig’s List. Insist on meeting the landlords or management companies at the property. If they are real, they will have access to the home. If they give you excuses, you need to be wary. Be especially careful with anyone who says they are “out of the country”. People don’t rent homes that way. They will at least hire a local management company to watch over their home.

Man, you have to feel sorry for those poor people who were talked into 100% financing with adjustable rate mortgages they just can’t get out of.

It’s bad enough to try to sell when they are underwater on their mortgage, but to add insult to injury, they are now being squeezed by the junior lien holders in the short sale process.

It works something like this. Seller puts home on market and does a “short sale”. First lien holder bank agrees to market price, and makes a deal with the second lien holder bank to sign off on the deal in exchange for a small payoff (junior lien holder would make NOTHING if the first forecloses on property). After months and months of the short sale process, the final week comes to close escrow.

Surprise! The junior lien holder has sold his note to another investor. And guess what? The new investors wants more money then the previous deal. So now you’ve got three parties, the buyer, the seller and the first lender who are all counting on this transaction to close and you’ve got a deal in chaos.

It may be legal, but it’s certainly a shady way to make a buck. Sadly, I expect to see more and more short sale transactions held hostage by junior lien holders hoping to make a fast buck.

The news on the real estate front seems to indicate higher interest rates, buyer’s tax credit ending and less REO foreclosed properties. This seems to be worrying many of my buyers.

Everyone wants to get in while the deals are good.

Ok, another exciting Super Bowl is over and it has me thinking about the housing market. We’re about to see what happens to the market without the first time homebuyer’s tax credit (that ends in April), without Fannie Mae and Freddie Mac buying mortgages on the Secondary Market (that ends in March) and the end of the bank’s stimulus money. Any guesses what’s going to happen to interest rates? I can promise you with absolute certainty that they will go up.

So the big question is, are you going to stay on the sidelines or jump into the game before prices start to climb and your buying power starts to erode by 10 to 20%?

Poor buyers. First the prices were too high, then the interest rates were to high. Finally stuff started to make financial sense, and then they ran into too many buyers, not enough inventory….it’s enough to drive people to drink!

Now that things have sort of “settled out”, we’re facing another dilemma. Banks are having major difficulties processing loans in a timely manner. New, stricter guidelines have made a loan officer’s job into a calendar nightmare.

With the clients that I have that trust me to recommend a lender, I’m moving them to Master’s Team Mortgage out of Folsom. They are one of the very few that have kept up with all the new regulations and know how to get an escrow closed in the required time frame.

You are familiar with “buyer beware”, right? Well that term is especially important when you look for properties to buy and rent on Craig’s List.

It seems criminals have discovered how easy it is to convince someone that they can uncover “incredible” deals on the internet. The latest scam I’ve been dealing with on Craig’s List works like this. I list a new property for sale and soon afterward that home appears on Craig’s List as a “rental”. The thieves simply take my photos and home address and advertise a terrific rent.

Of course renters get excited and many rush out to “drive by” the rental. They suddenly get confused by the presence of a “for sale” sign and that’s when I get the phone calls asking about the home.

It seems that people will get so desperate to grab that great deal, that when they follow up on the ad, they will be advised that many others are interested and if they want to be the one chosen, they need to:

Supply personal info like bank statements and other financial documents.

Or:

Quickly wire a deposit amount to hold the property.

Of course you’re wondering why people would do that, but let’s face it. Who wants to see that great deal get passed up? It’s sad, but it’s important to find out factual information these days. Such as, who is the legal owner of the property? Why would an owner attempt to rent or sell a home if they are out of the area? (oh, we just moved to Europe and didn’t have time to get a renter in there…..)

Make sure you don’t get taken in by the scammers.

Every now and then you have a quiet little experience that forces you to look at deeper truths. That happened to me this weekend when I took my wife and little daughters hiking in the Big Sur Wilderness.

My little girls are 5 and 8 and full of energy. It was a blast for them to skip up the trail and they loved hopping on rocks and balancing on tree branches as we crisscrossed back and forth several times over a small creek running towards the ocean.

Midway up the trail we came around a bend and saw a wondrous stack of 20 plus stones in the middle of the creek. My daughters were enthralled by the site. “What is that, Daddy?” I explained that someone had carefully created a work of natural art that would have taken a long time to arrange. “Cool! I like it”

We continued up the trail for another 30 minutes and rested before the return journey down the canyon. Several other people passed by and smiled at us, obviously enjoying their day in the Wilderness. A few looked weary, like a teenager that acted as if he was hiking against his will with his Dad.

We finally turned back and made our way down the canyon. A couple of times my daughter commented “I think the art is around the next corner”, only to be disappointed. Coming over a rise, my daughter’s voice rose in excitement. “I know this is the spot Daddy, I’m going to go look at it again”. She raced forward, only to stop with a confused look on her face. “I don’t see it”.

Sure enough, the stone tower was nowhere to be found. There was clear evidence why the tower was gone by looking at footprints in the wet sand leading up to the place where the stones had stood. The teenager had taken pleasure in kicking the tower down.

What had taken a long time to create had been destroyed in less than a second. For one person’s amusement, many people were deprived of it’s magic. Hoping my daughter didn’t see the clues I saw, I told her the tower must have fallen over by itself.

As we continued down, my mind drifted into thoughts on what had just happened and how it had affected me. The conclusion was simple. I realized I could be a creator or a destroyer. I could enrich other people’s lives or poison them for my own amusement.

I constantly had a choice to make. What path would I walk? How would I teach my daughters to chose the wisest path? Have you ever consciously made the choice to walk up to someone Else’s artwork and kick it down because you weren’t happy yourself?