By Joel Persinger
Earlier this month U.S. Comptroller of the Currency, John C. Dugan, while speaking at a panel discussion with other government big wigs, shared some data from a new government report. Referring to loan modifications, he said, “After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent." Knowing a good sound bite when they hear one, the media did what the media does best. It beat the drums until people all over began looking at loan modifications as if they were just the latest creative way for crooked real estate agents and lender to rip people off.
National TV news programs have aired investigative stories, newspapers have published damning articles and radio talk show hosts, including a very popular fellow here in San Diego, have launched into tirades bemoaning the evils of loan modifications and why they don’t work. Are all these media “know it alls” right? I hate to burst their inflated egos, but the answer is, “NO.”
Loan modifications are exactly what their name implies. They modify the terms of a borrower’s loan. That is the limit of what they do. They do not modify that borrower’s spending habits or alter that borrower’s understanding of how money works. Those changes in behavior are left to the borrower to undertake on his or her own. Borrowers who make changes to their lifestyle and adjust their spending do just fine once their loan terms have been modified. Others, and apparently the number is upwards of 58%, continue to live as they did when they got themselves in trouble in the first place. So, within a few months they find themselves in trouble again. What amazes me is that anyone is actually surprised by this fact.
Have you every met anyone who got themselves into deep credit card debt and decided to refinance their home to pay off the credit cards? Did you know that most of those folks charge the credit cards back up within months of being bailed out? Refinancing to pay off the cards only addresses the symptoms and leaves the disease of poor financial habits to rage on. Loan modifications are no different. Therefore, if you have your loan terms modified, you must understand that some lifestyle changes may be required in order for you to make the payments. If you simply continue spending as you always have, you will likely be in trouble again in just a few months. It’s that simple.
If you think I’m wrong, just go to a financial seminar sometime. You will quickly learn that the overwhelming majority of Americans wouldn’t know a family budget if it hit them in the face. We may teach reading, writing and arithmetic in school, but we don’t teach how money works or how to be successful using it. Those lessons are taught by parents, most of whom have no idea what they’re doing either. So, here’s the bottom line on loan modifications: If you want to keep your house rather than sell it or lose it to foreclosure, a loan modification may be just the ticket for you. However, you MUST address the spending habits that got you into trouble in the first place by putting in place a family budget and sticking to it.
Thursday, December 18, 2008
Monday, December 8, 2008
Can You Get Your Loan Modified Yourself?
By Joel Persinger
Loan Modification is a hot topic among folks who are struggling financially and hoping to find some way to afford rising house payments. Not surprisingly, a cottage industry has come to life for the purpose of negotiating loan modifications for those who need them. But, what exactly is a loan modification and why would you need someone else to get it done for you?
When lenders are faced with situations in which borrowers are either unable to make their payments or soon will be, only three choices present themselves: foreclose on the property, allow the homeowner to sell the property for less that what is owed (a short sale) or modify the terms of the loan so that the homeowner can make the payments. In both a foreclosure and a short sale it is a certainty that the lender will take a significant loss. However, by modifying the terms of the loan, the lender can preserve the amount of principle owed by altering terms such as the interest rate charged or the length of the loan. The lender wins by minimizing losses and the homeowner wins by avoiding the loss of the home and the financial devastation resulting from a foreclosure.
Over the past week I have been asked about loan modifications by a number of people. Each one told me that such things were not possible. When asked how they came to such conclusions, each one said, “I’ve already tried to get my lender to do that and they won’t help me.” The point they were missing is that some things simply do not lend themselves to the idea of doing them yourself and negotiating a loan modification is among them.
Approaching a lender to modify the terms of a loan is like standing in line at the airport to board a flight. Homeowners fly coach and must wait in long lines and deal with grumpy airline employees when they finally reach the service counter. Real estate and mortgage brokers fly business class. The lines are shorter and the airline employees are nicer, but the service is still marginal, at best. Attorneys, on the other hand, fly first class. They await their flight in the first class lounge, board the plain first and sit in the cushy seats being served by their own personal flight attendants.
As the analogy above illustrates, attorneys enter the negotiation with your lender through a completely different door and deal with completely different people than you do. This is because lenders are afraid of attorneys and you don’t frighten the lender at all. When you call asking lenders to modify your terms, they feel like you’re asking for a favor that they don’t owe you. An attorney approaches the problem differently. The attorney reviews your entire file looking for any mistakes the lender made in the process of selling you the loan. Then the mistakes are bundled into a legal club, which the attorney begins beating the lender over the head with until the lender finally says, “Uncle” and agrees to the modification. This is why my office employs attorneys to negotiate loan modifications for our clients.
So, can you get your loan modified successfully by yourself? Probably not, and if you do manage it, you will likely have gotten less of a modification than you might have gotten if you had used a qualified attorney. Remember, the lender’s employees are looking after the lender, not you. You will need someone who is trained and knowledgeable in your corner if you are going to have any chance of winning.
Loan Modification is a hot topic among folks who are struggling financially and hoping to find some way to afford rising house payments. Not surprisingly, a cottage industry has come to life for the purpose of negotiating loan modifications for those who need them. But, what exactly is a loan modification and why would you need someone else to get it done for you?
When lenders are faced with situations in which borrowers are either unable to make their payments or soon will be, only three choices present themselves: foreclose on the property, allow the homeowner to sell the property for less that what is owed (a short sale) or modify the terms of the loan so that the homeowner can make the payments. In both a foreclosure and a short sale it is a certainty that the lender will take a significant loss. However, by modifying the terms of the loan, the lender can preserve the amount of principle owed by altering terms such as the interest rate charged or the length of the loan. The lender wins by minimizing losses and the homeowner wins by avoiding the loss of the home and the financial devastation resulting from a foreclosure.
Over the past week I have been asked about loan modifications by a number of people. Each one told me that such things were not possible. When asked how they came to such conclusions, each one said, “I’ve already tried to get my lender to do that and they won’t help me.” The point they were missing is that some things simply do not lend themselves to the idea of doing them yourself and negotiating a loan modification is among them.
Approaching a lender to modify the terms of a loan is like standing in line at the airport to board a flight. Homeowners fly coach and must wait in long lines and deal with grumpy airline employees when they finally reach the service counter. Real estate and mortgage brokers fly business class. The lines are shorter and the airline employees are nicer, but the service is still marginal, at best. Attorneys, on the other hand, fly first class. They await their flight in the first class lounge, board the plain first and sit in the cushy seats being served by their own personal flight attendants.
As the analogy above illustrates, attorneys enter the negotiation with your lender through a completely different door and deal with completely different people than you do. This is because lenders are afraid of attorneys and you don’t frighten the lender at all. When you call asking lenders to modify your terms, they feel like you’re asking for a favor that they don’t owe you. An attorney approaches the problem differently. The attorney reviews your entire file looking for any mistakes the lender made in the process of selling you the loan. Then the mistakes are bundled into a legal club, which the attorney begins beating the lender over the head with until the lender finally says, “Uncle” and agrees to the modification. This is why my office employs attorneys to negotiate loan modifications for our clients.
So, can you get your loan modified successfully by yourself? Probably not, and if you do manage it, you will likely have gotten less of a modification than you might have gotten if you had used a qualified attorney. Remember, the lender’s employees are looking after the lender, not you. You will need someone who is trained and knowledgeable in your corner if you are going to have any chance of winning.
Monday, November 24, 2008
Being Thankful in Difficult Times
By Joel Persinger
Like almost every morning at the Persinger home, this morning was a study in chaos. The phone was ringing, the kitchen was bustling, my daughter couldn’t finder her favorite jacket, my son was rushing around the house with his backpack hung over his shoulder, his basketball gear in one hand and a half-eaten “something” that nobody could identify in the other. My wife was threading in and out between the children trying to get ready for work and I was just doing my best to stay out of the way. When all was said and done, the house was quiet once again. My wife was on her way to work, my kids were both in school and I had settled into my office with a hot cup of tea and a chance to check out the financial news before starting, what was certain to be, a very fast and furious day.
Two cups of tea and two hours later, the day was beginning to take shape. I had accomplished a few key tasks, put out three small fires and taken a look at the financial news. As usual, the financial news was bad. Citigroup was going down the tubes, like so many other financial institutions, a government bailout using your taxes and mine was in the works, and home sales were down again by about 3.1%. When you consider that news of that sort is a daily occurrence at present and that the majority of our clients are folks who are forced to sell their homes because of financial woes, the weight of the economic news can be almost too much to bear at times.
I was thinking about that fact and working on my third cup of tea when the phone rang. It was one of our clients who had just been informed that her house had finally closed escrow. She and her husband had been forced to sell for less than what they owed and it had taken nearly four months for the lender to approve the sale. The lady had just lost her home and did not receive a dime from the sale of the property, yet she thanked me for getting it sold and spoke of how grateful she was that she and her family would be moved into their rented home before Christmas.
That conversation reminded me that we live in the greatest country on the face of the Earth. Sure, people are losing their homes to foreclosure. No matter how you slice it, that is a sad thing. But, in my office alone, we have sold or are currently in the processes of selling a great many pre-foreclosure properties and not one of our clients has missed a meal or been forced to sleep on the street. Every one of them is simply moving from one house to another.
As I write this, Thanksgiving is only a few days away and I cannot escape the feeling that the client who just called me has set a shining example of what it means to be thankful. She is thankful for what she has, even though it may not be what she wants. Here’s hoping that you and I will do as well. Happy Thanksgiving!
Like almost every morning at the Persinger home, this morning was a study in chaos. The phone was ringing, the kitchen was bustling, my daughter couldn’t finder her favorite jacket, my son was rushing around the house with his backpack hung over his shoulder, his basketball gear in one hand and a half-eaten “something” that nobody could identify in the other. My wife was threading in and out between the children trying to get ready for work and I was just doing my best to stay out of the way. When all was said and done, the house was quiet once again. My wife was on her way to work, my kids were both in school and I had settled into my office with a hot cup of tea and a chance to check out the financial news before starting, what was certain to be, a very fast and furious day.
Two cups of tea and two hours later, the day was beginning to take shape. I had accomplished a few key tasks, put out three small fires and taken a look at the financial news. As usual, the financial news was bad. Citigroup was going down the tubes, like so many other financial institutions, a government bailout using your taxes and mine was in the works, and home sales were down again by about 3.1%. When you consider that news of that sort is a daily occurrence at present and that the majority of our clients are folks who are forced to sell their homes because of financial woes, the weight of the economic news can be almost too much to bear at times.
I was thinking about that fact and working on my third cup of tea when the phone rang. It was one of our clients who had just been informed that her house had finally closed escrow. She and her husband had been forced to sell for less than what they owed and it had taken nearly four months for the lender to approve the sale. The lady had just lost her home and did not receive a dime from the sale of the property, yet she thanked me for getting it sold and spoke of how grateful she was that she and her family would be moved into their rented home before Christmas.
That conversation reminded me that we live in the greatest country on the face of the Earth. Sure, people are losing their homes to foreclosure. No matter how you slice it, that is a sad thing. But, in my office alone, we have sold or are currently in the processes of selling a great many pre-foreclosure properties and not one of our clients has missed a meal or been forced to sleep on the street. Every one of them is simply moving from one house to another.
As I write this, Thanksgiving is only a few days away and I cannot escape the feeling that the client who just called me has set a shining example of what it means to be thankful. She is thankful for what she has, even though it may not be what she wants. Here’s hoping that you and I will do as well. Happy Thanksgiving!
Monday, November 17, 2008
Frustrated With The Short Sale Process?
By Joel Persinger
A large percentage of the homes currently sold in San Diego County are either pre-foreclosures (also called “Short Sales”) or foreclosures (also know as REOs). That being the case, the average buyer will run into a ton of these properties and likely make offers on many. While the REOs can be frustrating because the banks that own them are difficult to deal with, the short sales can be challenging because of the length of time it takes to negotiate them to a successful conclusion.
When a property is being sold for less than what is owed to the lender, the term that is used to describe it is, “short sale.” Short sales require that the lenders agree to take a loss on the sale of the properties. Consequently, homeowners do not have much control over whether their properties actually sell. The control is in the hands of the short sale lenders. Some lenders are easier to deal with than others. But, it is fair to say that all lenders hope to mitigate their losses by selling the properties for as much as possible.
Buyers approach short sales because they want to get a deal and lenders sell properties short because they want to get as much money out of the house as possible. They know that if they foreclose, they will receive far less. The parties often do not agree. So, the negotiations go on and on until the two parties come to some agreement that meets both of their goals. This process can take months and many buyers simply do not want to wait.
I checked with one of our clients the other day to see how her search for a new home was going. She is working with one of my agents in North County. When I spoke with her my first question was, “How is my agent treating you.” She said, “We’re doing great. I’m just frustrated with the short sale process.” A few questions later and I discovered that she was mostly frustrated by the length of time it takes to get a short sale transaction to close escrow. Still, she is hanging in there because it is very likely that she will get a terrific deal on the house.
If you are thinking about buying a short sale property, you must be prepared for the fact that the process is confusing, lengthy and challenging. You should also prepare yourself for the reality that you may work on a short sale purchase for months only to have it fall apart and never get the house. I have one client currently who has been attempting to buy the same house for about a year. It should be noted that in that particular case the house and lot are one of a kind! Still, long negotiations and long escrows are the norm for short sales. You need to know that before you get involved in one.
On a positive note, some of the best deals you will find are short sales. This is because many buyers don’t try to buy them because they’re difficult. That leaves you to take advantage of the situation by being one of the few buyers who will hold out long enough to succeed. As my grandfather used to say, if you want to be successful, find out what everyone else is doing and then do the opposite.
A large percentage of the homes currently sold in San Diego County are either pre-foreclosures (also called “Short Sales”) or foreclosures (also know as REOs). That being the case, the average buyer will run into a ton of these properties and likely make offers on many. While the REOs can be frustrating because the banks that own them are difficult to deal with, the short sales can be challenging because of the length of time it takes to negotiate them to a successful conclusion.
When a property is being sold for less than what is owed to the lender, the term that is used to describe it is, “short sale.” Short sales require that the lenders agree to take a loss on the sale of the properties. Consequently, homeowners do not have much control over whether their properties actually sell. The control is in the hands of the short sale lenders. Some lenders are easier to deal with than others. But, it is fair to say that all lenders hope to mitigate their losses by selling the properties for as much as possible.
Buyers approach short sales because they want to get a deal and lenders sell properties short because they want to get as much money out of the house as possible. They know that if they foreclose, they will receive far less. The parties often do not agree. So, the negotiations go on and on until the two parties come to some agreement that meets both of their goals. This process can take months and many buyers simply do not want to wait.
I checked with one of our clients the other day to see how her search for a new home was going. She is working with one of my agents in North County. When I spoke with her my first question was, “How is my agent treating you.” She said, “We’re doing great. I’m just frustrated with the short sale process.” A few questions later and I discovered that she was mostly frustrated by the length of time it takes to get a short sale transaction to close escrow. Still, she is hanging in there because it is very likely that she will get a terrific deal on the house.
If you are thinking about buying a short sale property, you must be prepared for the fact that the process is confusing, lengthy and challenging. You should also prepare yourself for the reality that you may work on a short sale purchase for months only to have it fall apart and never get the house. I have one client currently who has been attempting to buy the same house for about a year. It should be noted that in that particular case the house and lot are one of a kind! Still, long negotiations and long escrows are the norm for short sales. You need to know that before you get involved in one.
On a positive note, some of the best deals you will find are short sales. This is because many buyers don’t try to buy them because they’re difficult. That leaves you to take advantage of the situation by being one of the few buyers who will hold out long enough to succeed. As my grandfather used to say, if you want to be successful, find out what everyone else is doing and then do the opposite.
Thursday, November 13, 2008
How does loan modification work?
By Joel Persinger
The problems in the housing and lending markets have caused the births of several new “industries” designed to help struggling homeowners address their financial woes. One such approach is called, “Loan Modification.” This is a process by which a negotiation is undertaken with the lender, usually by an attorney, for the purpose of renegotiating the terms of the loan. It should be clearly stated that the overwhelming majority of successful loan modifications DO NOT include a reduction in the amount of principle owed. The figures I have been quoted from a number of experts indicate that less that 2% of loan modifications include a principle reduction.
The loan terms are generally what are modified. For example: the lender may agree to reduce the interest rate, change the loan from an adjustable to a fixed rate of interest, lengthen the overall life of the loan (from 15 years to 30 years, for example), wave any late fees, tack the amount of late payments owed onto the end of the loan and so on. But, the one thing the lenders are least likely to do is reduce the total amount of principle you owe.
I’ve mentioned the principle reduction a couple of times because this is precisely what scam artists promise. The crooks understand that distressed homeowners are looking for a way to owe less on their homes. So, they promise to get the lenders to reduce the principle in order to entice the homeowners into the scam. As I was writing this column, I received a call from a homeowner who had been referred to me for a loan modification. She was shocked when I told her the truth about principle reduction. “I just spoke to some guy who told me he could get my loan amount down by half,” she said. “He told me to write him a check and he would get it done, guarantied,” she told me. After she had calmed down, she expressed her utter amazement that people take advantage of struggling families in that way. Unfortunately, I was not amazed.
On November 3rd, the California Attorney General announced the arrests of three members of a fraud ring who preyed on desperate Southern California homeowners by falsely promising to renegotiate their home loans. Instead these scam artists ripped them off for thousands of dollars while their homes fell into foreclosure. Among the other things these folks are accused of, is telling their victims that their mortgage loans had been renegotiated when they had not been. They told the homeowner that the lenders needed a “good faith” payment to secure the new accounts. Homeowners made payments to accounts under business names such as “Reinstatement Department” or “Resolution Department” that made it appear as if the payment had been applied toward the loan. According to the California Association of Realtors who reported the story, Bank records indicate that more than $700,000 was stolen from homeowners who fell victim to this scheme.
Loan modification can be a wonderful opportunity and it should be explored by struggling homeowners who wish to remain in their homes and avoid a short sale or foreclosure. Still, it is important to do your homework. There are some wolves in sheep’s clothing out there and the last thing I want you to be is their victim.
The problems in the housing and lending markets have caused the births of several new “industries” designed to help struggling homeowners address their financial woes. One such approach is called, “Loan Modification.” This is a process by which a negotiation is undertaken with the lender, usually by an attorney, for the purpose of renegotiating the terms of the loan. It should be clearly stated that the overwhelming majority of successful loan modifications DO NOT include a reduction in the amount of principle owed. The figures I have been quoted from a number of experts indicate that less that 2% of loan modifications include a principle reduction.
The loan terms are generally what are modified. For example: the lender may agree to reduce the interest rate, change the loan from an adjustable to a fixed rate of interest, lengthen the overall life of the loan (from 15 years to 30 years, for example), wave any late fees, tack the amount of late payments owed onto the end of the loan and so on. But, the one thing the lenders are least likely to do is reduce the total amount of principle you owe.
I’ve mentioned the principle reduction a couple of times because this is precisely what scam artists promise. The crooks understand that distressed homeowners are looking for a way to owe less on their homes. So, they promise to get the lenders to reduce the principle in order to entice the homeowners into the scam. As I was writing this column, I received a call from a homeowner who had been referred to me for a loan modification. She was shocked when I told her the truth about principle reduction. “I just spoke to some guy who told me he could get my loan amount down by half,” she said. “He told me to write him a check and he would get it done, guarantied,” she told me. After she had calmed down, she expressed her utter amazement that people take advantage of struggling families in that way. Unfortunately, I was not amazed.
On November 3rd, the California Attorney General announced the arrests of three members of a fraud ring who preyed on desperate Southern California homeowners by falsely promising to renegotiate their home loans. Instead these scam artists ripped them off for thousands of dollars while their homes fell into foreclosure. Among the other things these folks are accused of, is telling their victims that their mortgage loans had been renegotiated when they had not been. They told the homeowner that the lenders needed a “good faith” payment to secure the new accounts. Homeowners made payments to accounts under business names such as “Reinstatement Department” or “Resolution Department” that made it appear as if the payment had been applied toward the loan. According to the California Association of Realtors who reported the story, Bank records indicate that more than $700,000 was stolen from homeowners who fell victim to this scheme.
Loan modification can be a wonderful opportunity and it should be explored by struggling homeowners who wish to remain in their homes and avoid a short sale or foreclosure. Still, it is important to do your homework. There are some wolves in sheep’s clothing out there and the last thing I want you to be is their victim.
Home Sales are Picking Up!
November 3, 2008
By Joel Persinger
Just because the media is all up in arms over the economy, doesn’t mean that everything is going badly. The economy is having a tough time, but in the real estate world, things are beginning to look up.
The California Association of Realtors recently reported home sales figures for the month of September. According to the Association, “Home sales increased 96.7 percent in September in California compared with the same period a year ago, while the median price of an existing home fell 40.9 percent. Statewide sales in September edged past the 500,000 threshold for the first time in more than two years, rising 2.3 percent compared with August and 96.7 percent compared with a year ago.”
C.A.R. President William E. Brown said, “This dramatic increase in sales owes as much to market weakness a year ago in the early stages of the credit crunch, as it does to the growth of sales in September this year. Similar increases occurred in the early 1980s when the market was climbing out of a comparatively steep downturn in sales.
It is true, that much of the increase is due to the terrible condition of the market the previous year, but we should not forget that this year’s market could be just as bad as the previous year’s, but its not! On the contrary, real estate sales are showing the kind of gradual improvement that can be expected when recovering from the damage done by the disintegration of the mortgage market. It may not be anything worth throwing a party over, but its one solid step in the right direction and some believe it is a harbinger of things to come. Association President Brown said, “We expect the market to register significant year-to-year percentage gains in the coming months as current sales are compared against extremely low numbers that prevailed during the fourth quarter of last year.”
Nobody can state definitively that the housing market is on the rebound. There simply is not enough data available to tell. Still, a year over year increase in sales of almost 100 percent in September is unquestionably good news. If nothing else, it tells us that sales are increasing and that the San Diego real estate market, while injured, is not dead!
By Joel Persinger
Just because the media is all up in arms over the economy, doesn’t mean that everything is going badly. The economy is having a tough time, but in the real estate world, things are beginning to look up.
The California Association of Realtors recently reported home sales figures for the month of September. According to the Association, “Home sales increased 96.7 percent in September in California compared with the same period a year ago, while the median price of an existing home fell 40.9 percent. Statewide sales in September edged past the 500,000 threshold for the first time in more than two years, rising 2.3 percent compared with August and 96.7 percent compared with a year ago.”
C.A.R. President William E. Brown said, “This dramatic increase in sales owes as much to market weakness a year ago in the early stages of the credit crunch, as it does to the growth of sales in September this year. Similar increases occurred in the early 1980s when the market was climbing out of a comparatively steep downturn in sales.
It is true, that much of the increase is due to the terrible condition of the market the previous year, but we should not forget that this year’s market could be just as bad as the previous year’s, but its not! On the contrary, real estate sales are showing the kind of gradual improvement that can be expected when recovering from the damage done by the disintegration of the mortgage market. It may not be anything worth throwing a party over, but its one solid step in the right direction and some believe it is a harbinger of things to come. Association President Brown said, “We expect the market to register significant year-to-year percentage gains in the coming months as current sales are compared against extremely low numbers that prevailed during the fourth quarter of last year.”
Nobody can state definitively that the housing market is on the rebound. There simply is not enough data available to tell. Still, a year over year increase in sales of almost 100 percent in September is unquestionably good news. If nothing else, it tells us that sales are increasing and that the San Diego real estate market, while injured, is not dead!
Fixing the Housing Market
October 27, 2008
By Joel Persinger
There is an old saying that goes like this, “Lord help us when the day comes that a politician can outthink an entrepreneur.” Over the last seven or eight weeks I have given this saying a great deal of thought. Bank after bank has failed, the stock market has been riding a rollercoaster that has frightened most everyone and politicians everywhere have been promising to fix everything, even though in large part, they helped create the problems in the first place.
All of this turmoil has given rise to an election year in which throngs of people seem to be gravitating toward more and bigger government. But, can the government really fix things? Are politicians truly adept at solving the very problems they bring about? The simple and direct answer to these questions is, “No.” The actions taken by politicians are in direct proportion to the number of votes they feel might be gained or lost as a result. Thus, such actions are generally calculated to make voters happy rather than to offer real solutions. After all, the problem being solved is political damage control.
By contrast, entrepreneurs are always looking for ways to provide solutions to problems in order to make a living by doing so. This means that the solution MUST address a real problem and provide a real, workable solution in order to be a success. This is precisely why there has never been and will never be a politician who can outthink an entrepreneur, and this is precisely what is great about this country. We are a country of inventors, a nation of entrepreneurial thinkers, a people who love a good puzzle and have the talent and skill to solve it. Our forefathers new this and had the good sense to stay out of the way. They knew we needed a government, but they also understood how oppressive governments can be. So, they rebelled against the tyranny of the English aristocracy and created a governmental structure meant to support free thinking and the free flow of the inventive and entrepreneurial spirit that is America.
So, if we fast forward to 2008 and compare the solutions to the problems in our current real estate market, we find that government solutions don’t work any better now than they did when the country was formed. Government, at all levels, has floundered in its attempt to address the issues affecting the real estate market. In fact, while more than one “government bail-out” has been implemented, none have accomplished the goals set out for them. Worse yet, none of these government solutions are self-supporting. They all spend money that the government doesn’t have.
In the meantime, free thinking business folks have hammered out real solutions that work, make money and create jobs. Here are just two examples:
Loan modification: One new company with a mission to negotiate the restructuring of home loans on behalf of homeowners who cannot make their mortgage payments is Debt Advisory Alliance. They are a private company which, by all reports, is having significant success in helping their clients stay in their homes by negotiating a modification of the terms of their home loan directly with the lender. My staff and I attended a meeting with this company last week and we were very impressed!
Short sales: Some enterprising real estate brokers have made a science out of helping people by negotiating directly with the lender in order to get their homes sold for less than what is owed. The key is that some brokers have become experts at this and are quite successful at negotiation away much of the bad consequences that would normally afflict the homeowner after the sale. Such things include, negotiating away the lender’s option to chase the homeowner for the balance of the money owed. Since we work with an investor who buys short sales, this is a good chunk of the business that we do in my office. So, I know that it works.
While nobody has a perfect solution for the problems that face the real estate industry, it has been my experience that quick thinking entrepreneurs will end up providing the answers, while quick talking politicians will only manage to get elected or re-elected. Keeping that in mind when you’re looking for someone to help you or when you’re heading to the ballot box could make finding real help a whole lot easier.
By Joel Persinger
There is an old saying that goes like this, “Lord help us when the day comes that a politician can outthink an entrepreneur.” Over the last seven or eight weeks I have given this saying a great deal of thought. Bank after bank has failed, the stock market has been riding a rollercoaster that has frightened most everyone and politicians everywhere have been promising to fix everything, even though in large part, they helped create the problems in the first place.
All of this turmoil has given rise to an election year in which throngs of people seem to be gravitating toward more and bigger government. But, can the government really fix things? Are politicians truly adept at solving the very problems they bring about? The simple and direct answer to these questions is, “No.” The actions taken by politicians are in direct proportion to the number of votes they feel might be gained or lost as a result. Thus, such actions are generally calculated to make voters happy rather than to offer real solutions. After all, the problem being solved is political damage control.
By contrast, entrepreneurs are always looking for ways to provide solutions to problems in order to make a living by doing so. This means that the solution MUST address a real problem and provide a real, workable solution in order to be a success. This is precisely why there has never been and will never be a politician who can outthink an entrepreneur, and this is precisely what is great about this country. We are a country of inventors, a nation of entrepreneurial thinkers, a people who love a good puzzle and have the talent and skill to solve it. Our forefathers new this and had the good sense to stay out of the way. They knew we needed a government, but they also understood how oppressive governments can be. So, they rebelled against the tyranny of the English aristocracy and created a governmental structure meant to support free thinking and the free flow of the inventive and entrepreneurial spirit that is America.
So, if we fast forward to 2008 and compare the solutions to the problems in our current real estate market, we find that government solutions don’t work any better now than they did when the country was formed. Government, at all levels, has floundered in its attempt to address the issues affecting the real estate market. In fact, while more than one “government bail-out” has been implemented, none have accomplished the goals set out for them. Worse yet, none of these government solutions are self-supporting. They all spend money that the government doesn’t have.
In the meantime, free thinking business folks have hammered out real solutions that work, make money and create jobs. Here are just two examples:
Loan modification: One new company with a mission to negotiate the restructuring of home loans on behalf of homeowners who cannot make their mortgage payments is Debt Advisory Alliance. They are a private company which, by all reports, is having significant success in helping their clients stay in their homes by negotiating a modification of the terms of their home loan directly with the lender. My staff and I attended a meeting with this company last week and we were very impressed!
Short sales: Some enterprising real estate brokers have made a science out of helping people by negotiating directly with the lender in order to get their homes sold for less than what is owed. The key is that some brokers have become experts at this and are quite successful at negotiation away much of the bad consequences that would normally afflict the homeowner after the sale. Such things include, negotiating away the lender’s option to chase the homeowner for the balance of the money owed. Since we work with an investor who buys short sales, this is a good chunk of the business that we do in my office. So, I know that it works.
While nobody has a perfect solution for the problems that face the real estate industry, it has been my experience that quick thinking entrepreneurs will end up providing the answers, while quick talking politicians will only manage to get elected or re-elected. Keeping that in mind when you’re looking for someone to help you or when you’re heading to the ballot box could make finding real help a whole lot easier.
FHA’s New “Hope for Homeowners” Program
October 14, 2008
By Joel Persinger
With all the news about the recent Wall Street bail-out, you may have forgotten the Federal Housing and Economic Recovery Act that was signed into law by President Bush earlier this year. As a quick reminder, this Act was designed to provide ways for struggling homeowners to stay in their homes and avoid foreclosure. One of the key components, which became available this month, is the FHA Hope for Homeowners program.
Hope for Homeowners is a program designed to provide homeowners a way to: reduce the amount they owe on their homes, refinance their existing loans into FHA-insured mortgages, stay in their homes and avoid foreclosure. For lenders, the hope is that this program will provide another viable option for mortgage lenders wishing to avoid costly foreclosures. But, make no mistake, the lenders will take a hit.
Among other things, the program requires mortgage lenders to write off a portion of what is owed to them. This amount could be significant since the program requires the property to be re-appraised. The original lender is then required to “write down” the current loan to a maximum of 90% of the home’s new appraised value. For example, if a lender is owed $500,000 on a home which has been dropped in value to $400,000, the lender would be required to accept 90% of the $400,000 (or $360,000) as full satisfaction for the debt. That means the lender would have to agree to take a $140,000 loss in this example. This may sound ridiculous, but given the losses lenders are currently taking in foreclosure, participating in this program may make good business sense.
At the end of the day the lender at least receives some payment, foreclosure is avoided and the homeowner gets a new, FHA-insured mortgage for around 90% of the home’s current value. Many homeowners may find that this program will work for them and allow them to stay in their homes while reworking their home loan into a much more manageable payment. However, this program will not work for everyone and it does have other requirements and drawbacks.
Among the things homeowners should know are these: only 30-year fixed rate mortgages are offered, the home loan the borrower wishes to replace must have been originated on or before January 1, 2008, the home must be owner-occupied and the original lender must agree to take the loss. In addition, the homeowner must agree to share any current or future equity in the home with the federal government. That means, when the homeowner sells, Uncle Sam is going to take his cut.
For more information on this program, homeowners can call the Hope Now Alliance at 888-995-HOPE or visit the U.S. Department of Housing and Urban Development website at www.HUD.gov.
By Joel Persinger
With all the news about the recent Wall Street bail-out, you may have forgotten the Federal Housing and Economic Recovery Act that was signed into law by President Bush earlier this year. As a quick reminder, this Act was designed to provide ways for struggling homeowners to stay in their homes and avoid foreclosure. One of the key components, which became available this month, is the FHA Hope for Homeowners program.
Hope for Homeowners is a program designed to provide homeowners a way to: reduce the amount they owe on their homes, refinance their existing loans into FHA-insured mortgages, stay in their homes and avoid foreclosure. For lenders, the hope is that this program will provide another viable option for mortgage lenders wishing to avoid costly foreclosures. But, make no mistake, the lenders will take a hit.
Among other things, the program requires mortgage lenders to write off a portion of what is owed to them. This amount could be significant since the program requires the property to be re-appraised. The original lender is then required to “write down” the current loan to a maximum of 90% of the home’s new appraised value. For example, if a lender is owed $500,000 on a home which has been dropped in value to $400,000, the lender would be required to accept 90% of the $400,000 (or $360,000) as full satisfaction for the debt. That means the lender would have to agree to take a $140,000 loss in this example. This may sound ridiculous, but given the losses lenders are currently taking in foreclosure, participating in this program may make good business sense.
At the end of the day the lender at least receives some payment, foreclosure is avoided and the homeowner gets a new, FHA-insured mortgage for around 90% of the home’s current value. Many homeowners may find that this program will work for them and allow them to stay in their homes while reworking their home loan into a much more manageable payment. However, this program will not work for everyone and it does have other requirements and drawbacks.
Among the things homeowners should know are these: only 30-year fixed rate mortgages are offered, the home loan the borrower wishes to replace must have been originated on or before January 1, 2008, the home must be owner-occupied and the original lender must agree to take the loss. In addition, the homeowner must agree to share any current or future equity in the home with the federal government. That means, when the homeowner sells, Uncle Sam is going to take his cut.
For more information on this program, homeowners can call the Hope Now Alliance at 888-995-HOPE or visit the U.S. Department of Housing and Urban Development website at www.HUD.gov.
The Bail-Out Passed! Are The Problems Fixed?
October 6, 2008
By Joel Persinger
By late morning on Monday San Diego time, I had received three telephone calls from folks lamenting the fact that the stock market had taken an almost 800 point dive. This, in spite of the fact that the much touted government bail-out plan had actually passed both Houses of Congress just days before. Although I desperately wanted to say, “I told you so,” I decided to wait a bit longer to find out if the markets would level out by the end of the trading day. All things considered, it was worth the wait. By the end of the day the Dow had climbed back up a bit, but still closed down some 328 points and below the 10,000 level for the first time since October 2004.
What this means for real estate in San Diego County remains to be seen. But, what it teaches us about government bail-outs and market reactions would fill volumes. The financial markets react to most things one way or the other and overreact to just about everything. Many thought that passing the bail-out plan would spur Wall Street to new heights based upon a new found confidence in the American and worldwide economies. No such result has materialized. Some seemed to feel that government intervention was a panacea that would cure the ills of suffering homeowners across the nation. I suspect that this will fail to come to pass as a direct result of the bail-out as well.
The unfortunate fact is that government, in most cases, is not the answer to what ails us. Even in the rare instances in which government is the answer, any effect government action such as the bail-out may have doesn’t typically materialize for quite some time. However, there are three things that are fairly certain to come out of such government intervention: Politicians can brag about having done something, money will be skimmed off by the wrong people and probably not get to the right people, and the very practices which got us into this mess in the first place will remain unchanged and unaffected.
If you disagree with my thinking, consider this; the same Congressional leaders who legislated and leveraged us into a high risk system in which borrowers who could not pay the money back were given loans, are still in power today. If that isn’t enough, those same leaders have just been given almost a trillion dollars more to waste. Still, they are only half of the problem. The same average Americans who took out crazy loans so they could use their homes like ATM machines or who lived off of the equity in homes they should never have been able to buy in the first place, are going to have their actions validated and be officially dubbed “victims” by a political process all too eager to buy a vote. Thus, they will not only be allowed to repeat their actions, but will most likely be encouraged to do so once more.
So, if you want a prediction from a fellow who knows real estate, here it is. If you were thinking about buying because prices are low and there are hundreds of distressed homes for sale, have at it. The situation is not likely to change any time soon.
By Joel Persinger
By late morning on Monday San Diego time, I had received three telephone calls from folks lamenting the fact that the stock market had taken an almost 800 point dive. This, in spite of the fact that the much touted government bail-out plan had actually passed both Houses of Congress just days before. Although I desperately wanted to say, “I told you so,” I decided to wait a bit longer to find out if the markets would level out by the end of the trading day. All things considered, it was worth the wait. By the end of the day the Dow had climbed back up a bit, but still closed down some 328 points and below the 10,000 level for the first time since October 2004.
What this means for real estate in San Diego County remains to be seen. But, what it teaches us about government bail-outs and market reactions would fill volumes. The financial markets react to most things one way or the other and overreact to just about everything. Many thought that passing the bail-out plan would spur Wall Street to new heights based upon a new found confidence in the American and worldwide economies. No such result has materialized. Some seemed to feel that government intervention was a panacea that would cure the ills of suffering homeowners across the nation. I suspect that this will fail to come to pass as a direct result of the bail-out as well.
The unfortunate fact is that government, in most cases, is not the answer to what ails us. Even in the rare instances in which government is the answer, any effect government action such as the bail-out may have doesn’t typically materialize for quite some time. However, there are three things that are fairly certain to come out of such government intervention: Politicians can brag about having done something, money will be skimmed off by the wrong people and probably not get to the right people, and the very practices which got us into this mess in the first place will remain unchanged and unaffected.
If you disagree with my thinking, consider this; the same Congressional leaders who legislated and leveraged us into a high risk system in which borrowers who could not pay the money back were given loans, are still in power today. If that isn’t enough, those same leaders have just been given almost a trillion dollars more to waste. Still, they are only half of the problem. The same average Americans who took out crazy loans so they could use their homes like ATM machines or who lived off of the equity in homes they should never have been able to buy in the first place, are going to have their actions validated and be officially dubbed “victims” by a political process all too eager to buy a vote. Thus, they will not only be allowed to repeat their actions, but will most likely be encouraged to do so once more.
So, if you want a prediction from a fellow who knows real estate, here it is. If you were thinking about buying because prices are low and there are hundreds of distressed homes for sale, have at it. The situation is not likely to change any time soon.
Monday, September 29, 2008
Why the Bail-Out May Not Matter
By Joel Persinger
As of this writing, the House of Representatives, under pressure from constituents who vehemently opposed the 700 billion dollar bail-out of the country’s financial system, defeated the measure on a vote of 226 to 207. Both Democrats and Republicans opposed the measure in large numbers. Stocks tumbled on the news with the Dow losing nearly 800 points. But, what does this mean for the real estate market?
To answer this question, let me take you back in time. In spite of what you may have heard, the U.S. Congress has been pressuring Fannie Mae and Freddie Mac to increase the availability of home loans to low income families for many years. That is how the “sub-prime” market was born. Many high ranking members of government argued against the expanding of such lending practices without success. Most notably, then Treasury Secretary Snow made such arguments and urged Congress to change its ways and further regulate Fannie and Freddie back in 2001. Former Fed Chairman Greenspan did the same some time later. In fact, for the past seven years, members of the current administration have been warning Congress that the financial system might well collapse under the strain if Fannie and Freddie were not reigned in. Congress did nothing. Thus, if we are honest about it, we can clearly see that Congress’s effort at forcing our financial system to provide loans to those who have no way to pay them back was a recipe for disaster.
Now that we’ve figured that out, we must ask why the same Congress which refused to address the coming train wreck, even after having been warned repeatedly, is now attempting to use the White House’s proposed bail-out for the purpose of rescuing the failed system they refused to correct. Instead of allowing the marketplace to replace homeowners who cannot pay their mortgages with new homeowners who are financially sound, many in Congress would like to keep those who cannot pay in their houses by passing the cost along to the taxpayers. In order to accomplish this, the news has spread the notion that nobody can get loans because lenders aren’t lending and banks are collapsing all over the place. Nothing could be further from the truth!
The truth is that homebuyers are buying! Prices are low, interest rates are great and the banks which are strong because they did not get involved with the sub-prime market are happily lending to qualified buyers. In addition, the banks which are failing are being gobbled up by banks which are financially strong. I had money in Washington Mutual and guess what… my money is still there because a strong bank purchased WAMU when it failed.
Our financial system is working, but it isn’t pain free. People who acted wisely are winning and those who acted foolishly are losing. That is how life works and if the government stays out of it, the market will heal itself. The problem is, you don’t win an election by letting people experience the natural consequences of their choices.
Does the bail-out really matter? The answer is both yes and no. If you are trying to win an election, then perhaps the answer is yes. If you are concerned about the health of the market and the future of our country, then the answer is a resounding no. If left alone, the real estate and financial markets will take care of themselves.
As of this writing, the House of Representatives, under pressure from constituents who vehemently opposed the 700 billion dollar bail-out of the country’s financial system, defeated the measure on a vote of 226 to 207. Both Democrats and Republicans opposed the measure in large numbers. Stocks tumbled on the news with the Dow losing nearly 800 points. But, what does this mean for the real estate market?
To answer this question, let me take you back in time. In spite of what you may have heard, the U.S. Congress has been pressuring Fannie Mae and Freddie Mac to increase the availability of home loans to low income families for many years. That is how the “sub-prime” market was born. Many high ranking members of government argued against the expanding of such lending practices without success. Most notably, then Treasury Secretary Snow made such arguments and urged Congress to change its ways and further regulate Fannie and Freddie back in 2001. Former Fed Chairman Greenspan did the same some time later. In fact, for the past seven years, members of the current administration have been warning Congress that the financial system might well collapse under the strain if Fannie and Freddie were not reigned in. Congress did nothing. Thus, if we are honest about it, we can clearly see that Congress’s effort at forcing our financial system to provide loans to those who have no way to pay them back was a recipe for disaster.
Now that we’ve figured that out, we must ask why the same Congress which refused to address the coming train wreck, even after having been warned repeatedly, is now attempting to use the White House’s proposed bail-out for the purpose of rescuing the failed system they refused to correct. Instead of allowing the marketplace to replace homeowners who cannot pay their mortgages with new homeowners who are financially sound, many in Congress would like to keep those who cannot pay in their houses by passing the cost along to the taxpayers. In order to accomplish this, the news has spread the notion that nobody can get loans because lenders aren’t lending and banks are collapsing all over the place. Nothing could be further from the truth!
The truth is that homebuyers are buying! Prices are low, interest rates are great and the banks which are strong because they did not get involved with the sub-prime market are happily lending to qualified buyers. In addition, the banks which are failing are being gobbled up by banks which are financially strong. I had money in Washington Mutual and guess what… my money is still there because a strong bank purchased WAMU when it failed.
Our financial system is working, but it isn’t pain free. People who acted wisely are winning and those who acted foolishly are losing. That is how life works and if the government stays out of it, the market will heal itself. The problem is, you don’t win an election by letting people experience the natural consequences of their choices.
Does the bail-out really matter? The answer is both yes and no. If you are trying to win an election, then perhaps the answer is yes. If you are concerned about the health of the market and the future of our country, then the answer is a resounding no. If left alone, the real estate and financial markets will take care of themselves.
Is The Proposed Market Bail-Out a Good Thing?
By Joel Persinger
Sept 22, 2008
A few days ago the Secretary of the United States Treasury proposed a massive bail-out of U.S. (and foreign) financial institutions. The details of the plan are sketchy at best, but the initial price tag was estimated at around 700 billion dollars at the time it was announced. This is in addition to the already astronomical costs associated with bailing out insurance giant A.I.G and financial hulks Fannie Mae and Freddie Mac.
Apparently, the idea is for the government to buy up all the bad mortgages out there and use tax-payer money to do it. That way the banks, which made the foolish decisions to provide shaky loans in the first place, won’t have to suffer the consequences of their foolishness. The U.S. tax-payer will simply pick up the tab and along with it, the risk of failure. According to the Secretary of the Treasury, this is a good thing.
Some members of Congress want to provide a bail-out plan for homeowners as part of the package. If John and Jane Doe can’t make their house payments, the Congress believes that its only fair that the tax-payer step up to the plate and make sure that John and Jane don’t have to suffer the consequences either. Never mind the fact that, in many cases, John and Jane are not victims at all, but rather, folks who made foolish decisions and dug themselves into a financial hole. But, we can’t let them fail! That would be un-American… wouldn’t it?
There was a time when Americans held the deep and abiding belief that the opportunity to succeed also included the opportunity to fail. Immigrants came to this country from all over the world in search of the very opportunity provided by that strong belief. Only in America did every person have the right to embark upon the dream of owning a business, buying a home and enjoying prosperity without government interference in the form of unfair taxation and crushing regulation. However, it was implicit in the design that having an opportunity to take a crack at success came with the very real risk of ending in failure.
That is not today’s America. In today’s America, people are not supposed to succeed too much, lest they be taxed and their money distributed to those who have failed. In today’s America, people are not supposed to fail. If they do, they can count on the government to give them some of the money it has taken forcefully from those who have succeeded. Dear reader, this is the essence of socialism and it bares no resemblance to the freedom upon which this nation was built. While it may serve to prop up the real estate and financial markets in the short term by controlling what happens at the top, it has every possibility of eliminating opportunity and freedom by destroying the foundations at the bottom.
Sept 22, 2008
A few days ago the Secretary of the United States Treasury proposed a massive bail-out of U.S. (and foreign) financial institutions. The details of the plan are sketchy at best, but the initial price tag was estimated at around 700 billion dollars at the time it was announced. This is in addition to the already astronomical costs associated with bailing out insurance giant A.I.G and financial hulks Fannie Mae and Freddie Mac.
Apparently, the idea is for the government to buy up all the bad mortgages out there and use tax-payer money to do it. That way the banks, which made the foolish decisions to provide shaky loans in the first place, won’t have to suffer the consequences of their foolishness. The U.S. tax-payer will simply pick up the tab and along with it, the risk of failure. According to the Secretary of the Treasury, this is a good thing.
Some members of Congress want to provide a bail-out plan for homeowners as part of the package. If John and Jane Doe can’t make their house payments, the Congress believes that its only fair that the tax-payer step up to the plate and make sure that John and Jane don’t have to suffer the consequences either. Never mind the fact that, in many cases, John and Jane are not victims at all, but rather, folks who made foolish decisions and dug themselves into a financial hole. But, we can’t let them fail! That would be un-American… wouldn’t it?
There was a time when Americans held the deep and abiding belief that the opportunity to succeed also included the opportunity to fail. Immigrants came to this country from all over the world in search of the very opportunity provided by that strong belief. Only in America did every person have the right to embark upon the dream of owning a business, buying a home and enjoying prosperity without government interference in the form of unfair taxation and crushing regulation. However, it was implicit in the design that having an opportunity to take a crack at success came with the very real risk of ending in failure.
That is not today’s America. In today’s America, people are not supposed to succeed too much, lest they be taxed and their money distributed to those who have failed. In today’s America, people are not supposed to fail. If they do, they can count on the government to give them some of the money it has taken forcefully from those who have succeeded. Dear reader, this is the essence of socialism and it bares no resemblance to the freedom upon which this nation was built. While it may serve to prop up the real estate and financial markets in the short term by controlling what happens at the top, it has every possibility of eliminating opportunity and freedom by destroying the foundations at the bottom.
Should the Government Bail-Out Lehman Brothers?
By Joel Persinger
Sept 15, 2008
If you’ve been follow the business news, you must be amazed at the number of historic events that have occurred in 2008. Bear Stearns collapsed only to be rescued by the U.S. Government, Countrywide Home Loans was saved by Bank of America, Fannie and Freddie were bailed out by Uncle Sam last week and this past weekend, Lehman Brothers filed for bankruptcy and Merrill Lynch decided to sell out to Bank of America. Wow, what a year!
With what the presidential candidates have both dubbed a “financial crisis” upon us, the news is full of talking heads on every side of the issue. Some say the Government should come to the rescue of Lehman Brothers just as it has for other companies. Others say, “Let the free market system heal itself.” Meanwhile, the stock market is going nuts and the news media is circling the story in a feeding frenzy like so many ravenous sharks smelling blood.
To figure out what should be done to fix this mess, we need only think about what kind of financial system we have in this country. It’s called capitalism. In a free market, capitalistic system companies rise and fall depending upon their financial success or failure. The strong survive and the weak do not. When failing companies collapse, they are absorbed by stronger companies, which often provide the same services in a more effective and successful way then did the failing companies they purchased.
Take Bank of America for example. Obviously, Bank of America is in a better financial position than both Countrywide and Merrill Lynch. Otherwise, how could Bank of America buy the two failed firms? Somehow I suspect that if Bank of America actually ends up with both of these companies, home loans and investment products will still be offered to its customers. Even if nobody rescues Lehman Brothers and it goes down the tubes after 158 years, investors will still be able to invest and homebuyers will still be able to secure a loan. So, what exactly have we lost with the collapse of theses poorly run, failed companies? That’s right… we’ve lost a few poorly run, failed companies. Maybe I’m crazy, but that’s a good thing, isn’t it?
My Grandfather always said, “Joel, if you want to be successful, find out what everyone else is doing and do the opposite.” Grandpa was right. If you want to see the opportunities in today’s marketplace, you must turn away from the idiot box and look at what is positive in the financial world. Remember, the news media does not exist to inform you. It exists to make money, period. It sells more advertising and makes more money by pushing sensational stories. Where do you think the old saying, “If it bleeds, it leads”, came from? I spent 18 years in the broadcasting business. Believe me, I know.
There is a lot of great economic news that you should know about. Here are some examples from today’s news: the price of oil is down under $100 per barrel, investors are putting their money into bonds, mortgage rates are down because investors are buying bonds, home prices are very low, home buyers are buying all over town, the home loan business is picking up and real estate sales are improving.
The economy is not collapsing, the sky is not falling and if Lehman Brothers goes out of business it’s because it should! As tax payers, we should not; we must not continue to bail out poorly run, failing companies. Let the market do what it is meant to do. The strong will survive and the weak will be absorbed by the strong. That is called a free market. That is called capitalism, and it works.
Sept 15, 2008
If you’ve been follow the business news, you must be amazed at the number of historic events that have occurred in 2008. Bear Stearns collapsed only to be rescued by the U.S. Government, Countrywide Home Loans was saved by Bank of America, Fannie and Freddie were bailed out by Uncle Sam last week and this past weekend, Lehman Brothers filed for bankruptcy and Merrill Lynch decided to sell out to Bank of America. Wow, what a year!
With what the presidential candidates have both dubbed a “financial crisis” upon us, the news is full of talking heads on every side of the issue. Some say the Government should come to the rescue of Lehman Brothers just as it has for other companies. Others say, “Let the free market system heal itself.” Meanwhile, the stock market is going nuts and the news media is circling the story in a feeding frenzy like so many ravenous sharks smelling blood.
To figure out what should be done to fix this mess, we need only think about what kind of financial system we have in this country. It’s called capitalism. In a free market, capitalistic system companies rise and fall depending upon their financial success or failure. The strong survive and the weak do not. When failing companies collapse, they are absorbed by stronger companies, which often provide the same services in a more effective and successful way then did the failing companies they purchased.
Take Bank of America for example. Obviously, Bank of America is in a better financial position than both Countrywide and Merrill Lynch. Otherwise, how could Bank of America buy the two failed firms? Somehow I suspect that if Bank of America actually ends up with both of these companies, home loans and investment products will still be offered to its customers. Even if nobody rescues Lehman Brothers and it goes down the tubes after 158 years, investors will still be able to invest and homebuyers will still be able to secure a loan. So, what exactly have we lost with the collapse of theses poorly run, failed companies? That’s right… we’ve lost a few poorly run, failed companies. Maybe I’m crazy, but that’s a good thing, isn’t it?
My Grandfather always said, “Joel, if you want to be successful, find out what everyone else is doing and do the opposite.” Grandpa was right. If you want to see the opportunities in today’s marketplace, you must turn away from the idiot box and look at what is positive in the financial world. Remember, the news media does not exist to inform you. It exists to make money, period. It sells more advertising and makes more money by pushing sensational stories. Where do you think the old saying, “If it bleeds, it leads”, came from? I spent 18 years in the broadcasting business. Believe me, I know.
There is a lot of great economic news that you should know about. Here are some examples from today’s news: the price of oil is down under $100 per barrel, investors are putting their money into bonds, mortgage rates are down because investors are buying bonds, home prices are very low, home buyers are buying all over town, the home loan business is picking up and real estate sales are improving.
The economy is not collapsing, the sky is not falling and if Lehman Brothers goes out of business it’s because it should! As tax payers, we should not; we must not continue to bail out poorly run, failing companies. Let the market do what it is meant to do. The strong will survive and the weak will be absorbed by the strong. That is called a free market. That is called capitalism, and it works.
U.S. Government Takeover of Fannie & Freddie
By Joel Persinger
Sept 8, 2008
As a card carrying tax payer who dreads the ever increasing involvement of government in our day to day lives, I must admit to having a feeling of foreboding as a result of Sunday’s government takeover of Fannie Mae and Freddie Mac. Uncle Sam raced in with a pot full of money (yours and mine) to prop up the ailing companies which have experience record losses. I should also mention that the CEOs of both companies are being bounced out the door.
The U.S. Government (that means you and I) will purchase some $1 billion of preferred shares in each company in an effort to make this deal work. You and I have apparently also pledged to provide as much as an additional $200 billion to help Fannie and Freddie deal with the heavy losses they’ve already suffered as a result of defaulting mortgages. When asked how much you and I, as tax payers, will eventually have to pay for this deal everyone says, “I don’t know.”
The “plan” places both companies into a conservatorship. What does that mean? Well, it means that the management of the companies will be controlled by the Federal Housing Finance Agency, also known as the FHFA. It also means that the U.S. Congress will now have its fingers in the Fannie and Freddie cookie jar to a much greater degree than ever before. This is the same Congress that can’t agree on where to have lunch on any given day let alone how to effectively manage the tax payer’s money.
While my knee jerk reaction is to slam the whole thing as just another unwanted intrusion by the government into affairs that it neither understands nor has the capability of addressing, it appears that the financial markets are rather keen on the idea, at least for the moment. Financial markets around the world surged this morning as a result of the news and just about every talking head on the planet is predicting lower interest rates for home buyers and greater stability in the lending market. Even the loan officers and loan manager in my office seem to be feeling rather positive about it.
Who knows, it may provide some needed breathing room for the financial markets in the short term. Just the same, I will reserve judgment for a while. In my experience, markets which are allowed to heal themselves come back stronger and healthier as a result. However, when the government inserts itself and takes on the mantle of, “Lord of the Marketplace” rather than allowing a holistic healing to take place, a new and greater set of problems are not far behind.
Sept 8, 2008
As a card carrying tax payer who dreads the ever increasing involvement of government in our day to day lives, I must admit to having a feeling of foreboding as a result of Sunday’s government takeover of Fannie Mae and Freddie Mac. Uncle Sam raced in with a pot full of money (yours and mine) to prop up the ailing companies which have experience record losses. I should also mention that the CEOs of both companies are being bounced out the door.
The U.S. Government (that means you and I) will purchase some $1 billion of preferred shares in each company in an effort to make this deal work. You and I have apparently also pledged to provide as much as an additional $200 billion to help Fannie and Freddie deal with the heavy losses they’ve already suffered as a result of defaulting mortgages. When asked how much you and I, as tax payers, will eventually have to pay for this deal everyone says, “I don’t know.”
The “plan” places both companies into a conservatorship. What does that mean? Well, it means that the management of the companies will be controlled by the Federal Housing Finance Agency, also known as the FHFA. It also means that the U.S. Congress will now have its fingers in the Fannie and Freddie cookie jar to a much greater degree than ever before. This is the same Congress that can’t agree on where to have lunch on any given day let alone how to effectively manage the tax payer’s money.
While my knee jerk reaction is to slam the whole thing as just another unwanted intrusion by the government into affairs that it neither understands nor has the capability of addressing, it appears that the financial markets are rather keen on the idea, at least for the moment. Financial markets around the world surged this morning as a result of the news and just about every talking head on the planet is predicting lower interest rates for home buyers and greater stability in the lending market. Even the loan officers and loan manager in my office seem to be feeling rather positive about it.
Who knows, it may provide some needed breathing room for the financial markets in the short term. Just the same, I will reserve judgment for a while. In my experience, markets which are allowed to heal themselves come back stronger and healthier as a result. However, when the government inserts itself and takes on the mantle of, “Lord of the Marketplace” rather than allowing a holistic healing to take place, a new and greater set of problems are not far behind.
Tuesday, August 26, 2008
A Matter of Perspective
By Joel Persinger
My wife can testify to the fact that she is not a Monday Night Football widow and she generally does not have to fight me for the remote in order to watch something other than sports. I must admit to being a basketball fan. But that is mostly due to the fact that our son plays basketball and we enjoy watching his team play. Still, once every four years, I turn into a sports nut. I find myself glued to the Olympic Games just as if I were a die-hard sports fan all year long.
Over the last two weeks I have enjoyed watching many Americans stand on the podiums and receive their medals. I could not resist standing every time our national anthem was played and I was so proud of each and every athlete. But, in spite of the grandness of the Olympics, the one event which touched me most did not happen in China. It was not the result of a hard won race or the spectacular flips and spins of gymnastics. It didn’t involve a swimming pool, a diving board or a track meet. In fact, it was a simple passing of the keys rather than the spectacular awarding of the medals. It was the quiet reading of the Scriptures rather than the triumphant playing of the anthem. There was no fan-fair and there were no fireworks. No records were broken and no international stars were born. And I suppose it should be noted that it happened in Mexico, not in China. No, this was a simple event that involved three families and three small houses.
It seems that there are poor people just to the south of us who do not watch the Olympics. A stalwart group of folks from our church discovered this some years back and decided to make a trip to Mexico each year to build houses. They built three while the Olympics were taking place. Frankly, the houses they built would be little more than tool sheds to you and me. But, to the families who had no home before those little houses were built those homes might as well have been mansions.
When the builders returned they brought video with them. They told the stories of the people and we watched as they cleared the land, laid the foundations and built the three little one room houses. When the houses were finished and painted so beautifully, one red and two yellow, the leaders of each home building team held a little ceremony. They prayed over the new houses, gave the heads of the families each a Bible and handed them the keys to their new homes. To see the looks on the faces of those families, you might have thought they had just been given gold medals. Somehow, I just could not resist standing.
Sometimes I look around and I feel like I’m missing out on things. The fellow down the street has a nicer car and one of the folks in my office has a bigger house. Why did that guy win a gold medal when I had hopes of doing so when I was young? But, then I have the chance to hear the stories of people who are so grateful for so little and I find myself realizing just how selfish I can be. Sure, the real estate market is down and people are having a tough go of it. But, I live in one of the richest cities in the richest state in the richest country in the world. Perhaps it’s time for me to take stock of just how blessed I really am. How about you?
My wife can testify to the fact that she is not a Monday Night Football widow and she generally does not have to fight me for the remote in order to watch something other than sports. I must admit to being a basketball fan. But that is mostly due to the fact that our son plays basketball and we enjoy watching his team play. Still, once every four years, I turn into a sports nut. I find myself glued to the Olympic Games just as if I were a die-hard sports fan all year long.
Over the last two weeks I have enjoyed watching many Americans stand on the podiums and receive their medals. I could not resist standing every time our national anthem was played and I was so proud of each and every athlete. But, in spite of the grandness of the Olympics, the one event which touched me most did not happen in China. It was not the result of a hard won race or the spectacular flips and spins of gymnastics. It didn’t involve a swimming pool, a diving board or a track meet. In fact, it was a simple passing of the keys rather than the spectacular awarding of the medals. It was the quiet reading of the Scriptures rather than the triumphant playing of the anthem. There was no fan-fair and there were no fireworks. No records were broken and no international stars were born. And I suppose it should be noted that it happened in Mexico, not in China. No, this was a simple event that involved three families and three small houses.
It seems that there are poor people just to the south of us who do not watch the Olympics. A stalwart group of folks from our church discovered this some years back and decided to make a trip to Mexico each year to build houses. They built three while the Olympics were taking place. Frankly, the houses they built would be little more than tool sheds to you and me. But, to the families who had no home before those little houses were built those homes might as well have been mansions.
When the builders returned they brought video with them. They told the stories of the people and we watched as they cleared the land, laid the foundations and built the three little one room houses. When the houses were finished and painted so beautifully, one red and two yellow, the leaders of each home building team held a little ceremony. They prayed over the new houses, gave the heads of the families each a Bible and handed them the keys to their new homes. To see the looks on the faces of those families, you might have thought they had just been given gold medals. Somehow, I just could not resist standing.
Sometimes I look around and I feel like I’m missing out on things. The fellow down the street has a nicer car and one of the folks in my office has a bigger house. Why did that guy win a gold medal when I had hopes of doing so when I was young? But, then I have the chance to hear the stories of people who are so grateful for so little and I find myself realizing just how selfish I can be. Sure, the real estate market is down and people are having a tough go of it. But, I live in one of the richest cities in the richest state in the richest country in the world. Perhaps it’s time for me to take stock of just how blessed I really am. How about you?
Tuesday, August 12, 2008
More on the Foreclosure Rescue Bill
By Joel Persinger
While the world is focused on the Olympic Games and parents are focused on getting their kid back into school, many families are focusing on the Housing and Economic Recovery Act of 2008 and whether it might help them keep their homes. Real estate and lending professional are also scrambling to figure the thing out and are only getting it piece by piece.
That said, here are some new pieces to the already complicated puzzle. According to a number of reports, homeowners must meet the following criteria in order to have a chance of being helped by the new law: the loan must be on their primary residence, the loan must have been originated between January 2005 and June of 2007 and the payment must add up to 31% or more of the homeowners gross monthly income.
There are additional FHA requirements as well. For example: the borrower must pay an annual fee to FHA in the amount of 1.5% of the loan amount as an insurance premium. If the homeowner sells the property within on year of making the deal, FHA keeps 100% of the profits realized from the sale. If they sell after one year FHA gets 90%. The percentage keeps dropping in increments of 10% until it reaches a 50% split after five years. The bottom line is, the government may help you to keep your house, but it won’t be for free. You’re going to have to pay up sooner or later.
Just like the problems it’s trying to solve, this law is complicated. Real estate and lending professionals are learning more about it every day and so far, it looks like it may be helpful for some folks. But, it won’t help everyone. Many of the people who are currently in trouble with their mortgage or whose mortgage interest rate is soon going to adjust, will not be helped by this legislation. This is particularly true when the property in question is a rental or a second home. Another sticking point is that all of the fixes require the lenders to agree to take hefty losses. As a result, it’s not surprising that many prognosticators are predicting that short sales and foreclosures are going to continue for some time to come.
While it’s not a perfect fix, it is a fix and it will help many people. In fact, for the right people in the right situation this new “bail out” plan could be a dream come true. So, if you think it might help you or someone you know, the best place to start is with your lender or your Realtor. Just don’t forget that there are other available options in case this one doesn’t work for you.
While the world is focused on the Olympic Games and parents are focused on getting their kid back into school, many families are focusing on the Housing and Economic Recovery Act of 2008 and whether it might help them keep their homes. Real estate and lending professional are also scrambling to figure the thing out and are only getting it piece by piece.
That said, here are some new pieces to the already complicated puzzle. According to a number of reports, homeowners must meet the following criteria in order to have a chance of being helped by the new law: the loan must be on their primary residence, the loan must have been originated between January 2005 and June of 2007 and the payment must add up to 31% or more of the homeowners gross monthly income.
There are additional FHA requirements as well. For example: the borrower must pay an annual fee to FHA in the amount of 1.5% of the loan amount as an insurance premium. If the homeowner sells the property within on year of making the deal, FHA keeps 100% of the profits realized from the sale. If they sell after one year FHA gets 90%. The percentage keeps dropping in increments of 10% until it reaches a 50% split after five years. The bottom line is, the government may help you to keep your house, but it won’t be for free. You’re going to have to pay up sooner or later.
Just like the problems it’s trying to solve, this law is complicated. Real estate and lending professionals are learning more about it every day and so far, it looks like it may be helpful for some folks. But, it won’t help everyone. Many of the people who are currently in trouble with their mortgage or whose mortgage interest rate is soon going to adjust, will not be helped by this legislation. This is particularly true when the property in question is a rental or a second home. Another sticking point is that all of the fixes require the lenders to agree to take hefty losses. As a result, it’s not surprising that many prognosticators are predicting that short sales and foreclosures are going to continue for some time to come.
While it’s not a perfect fix, it is a fix and it will help many people. In fact, for the right people in the right situation this new “bail out” plan could be a dream come true. So, if you think it might help you or someone you know, the best place to start is with your lender or your Realtor. Just don’t forget that there are other available options in case this one doesn’t work for you.
Monday, August 4, 2008
What does the new housing bailout bill do?
By Joel Persinger
The recent signing of the Housing and Economic Recovery Act of 2008 by President Bush has a great many distressed homeowners clambering to find out how much help the new law might actually provide. Many of these folks are desperate to find some way to keep their homes and are hopeful that this new law might provide some new options to help them do it.
Like most laws passed these days, this new housing act makes changes in many areas. Among other thing; it raises the conforming loan limits, increases regulation of Fannie Mae and Freddie Mac, modernizes some FHA programs, creates some tax incentives, establishes new licensing requirements and gives birth to something the House of Representatives called the “Hope for Homeowners Program.”
During the run up to the signing of this bill, just about every news story that I saw focused more on the possible bailout for distressed homeowners than on any other part of the bill. This is precisely because the law provides an opportunity for some distressed homeowners to refinance their existing high interest rate loans into new, affordable FHA-insured loans based upon the current market value of their homes. That’s right… current market value. If the home was worth $600,000 when you purchased it and it’s only worth $400,000 now, the new loan would be based upon the $400,000 current value. It sounds like a miracle! Still, there are some limitations that you should know about.
While the program appears to be a good one, there are some hitches that borrowers should be aware of before they dive in. First of all, this program is not available to everyone. In order to be eligible, borrowers must have taken out their current loan on or before January 1, 2008. They must also certify that they did not intentionally default on their original mortgage or any other debts as well as declare that they did not provide false information in order to obtain the loan. If the borrower has been convicted of fraud or has previously defaulted on a government loan that borrower is not eligible. The borrower must also meet other standards established by the program’s governing board, including documenting income by use of the borrower’s two most recent tax returns. But, the biggest obstacles for the homeowner to overcome are these: the borrower’s current lender has to agree to take the loss and the borrower has to agree to share any future equity they may gain the home with the government on a 50/50 split. Like my grandfather used to say, “There’s no such thing as a free lunch.”
Still, if you’re trying to save your home, this new law and the program it provides may just be the ticket. But, be careful, get lots of advice and remember that this is new to those in the real estate industry too, and it may take a while before we “experts” have a full grasp of all the possibilities.
The recent signing of the Housing and Economic Recovery Act of 2008 by President Bush has a great many distressed homeowners clambering to find out how much help the new law might actually provide. Many of these folks are desperate to find some way to keep their homes and are hopeful that this new law might provide some new options to help them do it.
Like most laws passed these days, this new housing act makes changes in many areas. Among other thing; it raises the conforming loan limits, increases regulation of Fannie Mae and Freddie Mac, modernizes some FHA programs, creates some tax incentives, establishes new licensing requirements and gives birth to something the House of Representatives called the “Hope for Homeowners Program.”
During the run up to the signing of this bill, just about every news story that I saw focused more on the possible bailout for distressed homeowners than on any other part of the bill. This is precisely because the law provides an opportunity for some distressed homeowners to refinance their existing high interest rate loans into new, affordable FHA-insured loans based upon the current market value of their homes. That’s right… current market value. If the home was worth $600,000 when you purchased it and it’s only worth $400,000 now, the new loan would be based upon the $400,000 current value. It sounds like a miracle! Still, there are some limitations that you should know about.
While the program appears to be a good one, there are some hitches that borrowers should be aware of before they dive in. First of all, this program is not available to everyone. In order to be eligible, borrowers must have taken out their current loan on or before January 1, 2008. They must also certify that they did not intentionally default on their original mortgage or any other debts as well as declare that they did not provide false information in order to obtain the loan. If the borrower has been convicted of fraud or has previously defaulted on a government loan that borrower is not eligible. The borrower must also meet other standards established by the program’s governing board, including documenting income by use of the borrower’s two most recent tax returns. But, the biggest obstacles for the homeowner to overcome are these: the borrower’s current lender has to agree to take the loss and the borrower has to agree to share any future equity they may gain the home with the government on a 50/50 split. Like my grandfather used to say, “There’s no such thing as a free lunch.”
Still, if you’re trying to save your home, this new law and the program it provides may just be the ticket. But, be careful, get lots of advice and remember that this is new to those in the real estate industry too, and it may take a while before we “experts” have a full grasp of all the possibilities.
A Good Alternative to Foreclosure
By Joel Persinger
With all the talk of increasing foreclosures, and fears of banking failures such as that which occurred with Indymac Bank and the worries surrounding the general stability of the lending market, more and more people I meet are asking probing questions about possible alternatives to foreclosure. One such alternative is the “Short Sale.”
Short sales were last used extensively during the market down-turn of the 1990s. A short sale occurs when property values have declined to the point that homeowners owe more on their properties than the properties themselves are worth. When that happens and a homeowner can no longer make the required payments, the two most common results are foreclosure or selling the home for less than what is owed on it with the permission of the lender. The latter is called a short sale.
If you are keeping your eye on the market in San Diego, you have probably noticed that a significant percentage of the homes currently for sale in the county are distress sales. Many are foreclosures, but a large number are short sales. This may be due to the fact that a short sale can do far less damage to your credit rating than simply going through a foreclosure.
According to an article published on the CBS News website in June of 2007,
“While in both cases, short sale and foreclosure, the delinquent mortgage will negatively affect (the seller’s) credit rating, at least short sellers avoid having a “debt discharged due to foreclosure” on their credit reports. Mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will reduce your credit score by over 250 points. You could also have to wait up to three years to qualify for a mortgage at a reasonable rate.
The article goes on to state that a short sale will generally be report as, “a pre-foreclosure in redemption… and can result in a credit score reduction of 100 points or less.” According to CBS News, “People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 18 months.”
Given the current market and the large number of distressed sellers in San Diego County, many real estate offices, including my own, have focused on helping sellers in financial distress complete short sales. This is simply because a short sale is often a far better alternative than a foreclosure. So, if you or someone you know is in financial distress and facing foreclosure, a short sale may be a better way to go. A qualified, experienced real estate professional should be able to help.
With all the talk of increasing foreclosures, and fears of banking failures such as that which occurred with Indymac Bank and the worries surrounding the general stability of the lending market, more and more people I meet are asking probing questions about possible alternatives to foreclosure. One such alternative is the “Short Sale.”
Short sales were last used extensively during the market down-turn of the 1990s. A short sale occurs when property values have declined to the point that homeowners owe more on their properties than the properties themselves are worth. When that happens and a homeowner can no longer make the required payments, the two most common results are foreclosure or selling the home for less than what is owed on it with the permission of the lender. The latter is called a short sale.
If you are keeping your eye on the market in San Diego, you have probably noticed that a significant percentage of the homes currently for sale in the county are distress sales. Many are foreclosures, but a large number are short sales. This may be due to the fact that a short sale can do far less damage to your credit rating than simply going through a foreclosure.
According to an article published on the CBS News website in June of 2007,
“While in both cases, short sale and foreclosure, the delinquent mortgage will negatively affect (the seller’s) credit rating, at least short sellers avoid having a “debt discharged due to foreclosure” on their credit reports. Mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will reduce your credit score by over 250 points. You could also have to wait up to three years to qualify for a mortgage at a reasonable rate.
The article goes on to state that a short sale will generally be report as, “a pre-foreclosure in redemption… and can result in a credit score reduction of 100 points or less.” According to CBS News, “People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 18 months.”
Given the current market and the large number of distressed sellers in San Diego County, many real estate offices, including my own, have focused on helping sellers in financial distress complete short sales. This is simply because a short sale is often a far better alternative than a foreclosure. So, if you or someone you know is in financial distress and facing foreclosure, a short sale may be a better way to go. A qualified, experienced real estate professional should be able to help.
Can Congress Fix The Problems With The Housing Market?
By Joel Persinger
Everywhere I go these days people ask me what I think will happen if Congress passes all the “Fixes” and “Reforms” it is promising in order to “help struggling homeowners” in the current housing crunch. Since so many folks have asked, I thought it might be nice for me to give the question some consideration.
So far, Congress has proposed relief for struggling home owners, a tightening of regulations for mortgage lenders, punishing the lending industry in one form or another, making it more difficult for high risk borrowers to get loans in the first place, saving Freddie & Fannie as was done a week or so ago and so on, and so on. Among the most recent proposals is a plan to bail out those homeowners who can’t pay their mortgages. Of course, nobody seems eager to mention that the money to bail these folks out must come from somewhere. So, who do you think is going to pay for it? It’s not a trick question. The answer is, you. The tax payer is going to pony up the coin for any such deal that becomes law.
I’ve been sitting back quietly watching those in government wrestle with the problems of the housing and lending market for a while now and since I have been asked so often lately about my thoughts on the issue, I have come to three inescapable conclusions:
Everywhere I go these days people ask me what I think will happen if Congress passes all the “Fixes” and “Reforms” it is promising in order to “help struggling homeowners” in the current housing crunch. Since so many folks have asked, I thought it might be nice for me to give the question some consideration.
So far, Congress has proposed relief for struggling home owners, a tightening of regulations for mortgage lenders, punishing the lending industry in one form or another, making it more difficult for high risk borrowers to get loans in the first place, saving Freddie & Fannie as was done a week or so ago and so on, and so on. Among the most recent proposals is a plan to bail out those homeowners who can’t pay their mortgages. Of course, nobody seems eager to mention that the money to bail these folks out must come from somewhere. So, who do you think is going to pay for it? It’s not a trick question. The answer is, you. The tax payer is going to pony up the coin for any such deal that becomes law.
I’ve been sitting back quietly watching those in government wrestle with the problems of the housing and lending market for a while now and since I have been asked so often lately about my thoughts on the issue, I have come to three inescapable conclusions:
- While it could be debated whether the government had any part in getting the housing market into its current troubles, it appears to be an absolute certainty that no-one in the government has the vaguest idea how to fix them.
- The old political axiom, “When in doubt, grand stand” has never gone out of style. Only in politics can so many supposedly grown men and women madly scurry around in a frantic attempt to look good while actually knowing and accomplishing nothing and still manage to get paid for it.
- The use of smoke and mirrors is not exclusive to flashy Las Vegas magicians. Government types know that if they keep the public off balance by proposing useless “Fixes” long enough, the market will eventually correct itself. The sad truth is that nobody in government is actually trying to fix anything. They’re just trying to rack up the highest number of “Fixes” so they can take credit for fixing it when it finally gets around to fixing itself. Never in my 50 years of life have I ever seen government actually attempt to fix anything without making things much worse in the process.
So, what are we left with? First, government is not going to fix this. It will fix itself if we just let it. Second, if government actually tries to fix it, it will get worse. Third, the market is supposed to do what it is doing. It spiked upward and needed to correct downward. So, it went down and it will continue to do so until it is done correcting for the spike. Like the old saying goes, “What goes up must come down.” And lastly, there is no painless way out of this. Uncle Sam is not really our long, lost, rich Uncle and he can’t bail us out every time we blow it. Some times we just have to fend for ourselves.
Do you own your house or does it own you?
By Joel Persinger
When I was a kid my mother used to caution me not to put more food on my plate than I could eat. If I didn’t listen and ended up sitting at the table, stuffed to the gills and unable to finish my supper, she would look at me with a disapproving scowl and remark, “Your eyes are too big for your stomach, young man.” These were words I heard many times growing up and they taught me more than the obvious lesson they were meant to teach. Among other things, I learned that gluttony and bad consequences go hand-in-hand.
In today’s American society, many of us have failed to learn that our eyes are often bigger than our stomachs, or in many cases, our bank accounts. Even if we did learn it as kids, every aspect of our culture rails against that lesson and entices us to have more and bigger regardless of the consequences. As Brian Buffini (a popular business coach) is fond of putting it, we are driven to “…spend money we don’t have buying things we don’t need to impress people we don’t even know.”
Just yesterday I had the opportunity to talk to an old friend at church. He was brimming with excitement as he announced to me that he and his wife had finally purchased a home. I have seldom seen him so excited. He told me all about the house itself, how excited he and his family were and then finally, about the deal. To his credit, he had really done his homework. He had established a family budget, investigated the current real estate market, determined exactly what his family could afford, and then and only then gone shopping for a home. As a result, he made a fabulous purchase. His new home is just what they need as a family, exactly what they can afford and best of all, they own it. It doesn’t own them. Many other folks cannot say the same.
As I write this column, Realtors, attorneys and credit experts all around the country are working to help thousands and thousands of families who are upside-down on their homes. How did so many people end up in such a mess? I submit that it is a result of never having learned the simple lesson my mother used to preach, “Only take what you can eat, Son. Remember, your eyes are often bigger than your stomach.”
When I was a kid my mother used to caution me not to put more food on my plate than I could eat. If I didn’t listen and ended up sitting at the table, stuffed to the gills and unable to finish my supper, she would look at me with a disapproving scowl and remark, “Your eyes are too big for your stomach, young man.” These were words I heard many times growing up and they taught me more than the obvious lesson they were meant to teach. Among other things, I learned that gluttony and bad consequences go hand-in-hand.
In today’s American society, many of us have failed to learn that our eyes are often bigger than our stomachs, or in many cases, our bank accounts. Even if we did learn it as kids, every aspect of our culture rails against that lesson and entices us to have more and bigger regardless of the consequences. As Brian Buffini (a popular business coach) is fond of putting it, we are driven to “…spend money we don’t have buying things we don’t need to impress people we don’t even know.”
Just yesterday I had the opportunity to talk to an old friend at church. He was brimming with excitement as he announced to me that he and his wife had finally purchased a home. I have seldom seen him so excited. He told me all about the house itself, how excited he and his family were and then finally, about the deal. To his credit, he had really done his homework. He had established a family budget, investigated the current real estate market, determined exactly what his family could afford, and then and only then gone shopping for a home. As a result, he made a fabulous purchase. His new home is just what they need as a family, exactly what they can afford and best of all, they own it. It doesn’t own them. Many other folks cannot say the same.
As I write this column, Realtors, attorneys and credit experts all around the country are working to help thousands and thousands of families who are upside-down on their homes. How did so many people end up in such a mess? I submit that it is a result of never having learned the simple lesson my mother used to preach, “Only take what you can eat, Son. Remember, your eyes are often bigger than your stomach.”
Monday, June 23, 2008
Is the market picking up?
By Joel Persinger
It seems that the burning question on everyone’s lips this past week has been, “Is the market picking up?” I don’t know if you have been asking that question, but it certainly has been asked of me at least once per day for the last week or so. As a consequence, I started asking other people and here is what I heard.
An agent I spoke to who works at another office told me that he was thrilled that his clients had the opportunity to buy homes at lower prices. But, he was finding that the prices were being “bid up” because every property that his clients expressed an interest in had received multiple offers. Consequently, by the time the properties sold, the discounts were gone.
Even non-agents reported similar opinions regarding the current market’s trend. When I stopped by the office and spoke to our Transaction Coordinator, she seemed genuinely excited to report that things were picking up and the number of escrows being closed seemed to be increasing. One fellow at church began telling me that his offers on short sales were not moving foreword as rapidly as he would have liked. So, he and his wife began looking at bank owned properties only to find that a bidding war was underway at any they seemed to find interesting.
Obviously, my poll was not conducted in any scientific way and certainly the sample of people polled was tiny by any measure. Just the same, I found it fascinating that everyone I asked expressed an optimism regarding the real estate market that I have not heard for quite some time. Buyers seemed to feel that the time to buy had arrived and agents expressed a guarded optimism associated with the fact that they actually had clients to work with and properties for their buyers to buy.
All that having been said, available statistics do not appear to agree with the optimism expressed by my sampling. I wouldn’t let that dampen the prospects though. The available statistics are forever and always several months old. Therefore, what is really happening in the marketplace happens before anyone can conclusively prove that it is actually happening. That’s why we have talking heads on the news and guys like me who write columns like this one.
The bottom line is this. No one knows definitively if the market is picking up. But, it sure seems like it and we can all hope that what appears to be happening really is.
It seems that the burning question on everyone’s lips this past week has been, “Is the market picking up?” I don’t know if you have been asking that question, but it certainly has been asked of me at least once per day for the last week or so. As a consequence, I started asking other people and here is what I heard.
An agent I spoke to who works at another office told me that he was thrilled that his clients had the opportunity to buy homes at lower prices. But, he was finding that the prices were being “bid up” because every property that his clients expressed an interest in had received multiple offers. Consequently, by the time the properties sold, the discounts were gone.
Even non-agents reported similar opinions regarding the current market’s trend. When I stopped by the office and spoke to our Transaction Coordinator, she seemed genuinely excited to report that things were picking up and the number of escrows being closed seemed to be increasing. One fellow at church began telling me that his offers on short sales were not moving foreword as rapidly as he would have liked. So, he and his wife began looking at bank owned properties only to find that a bidding war was underway at any they seemed to find interesting.
Obviously, my poll was not conducted in any scientific way and certainly the sample of people polled was tiny by any measure. Just the same, I found it fascinating that everyone I asked expressed an optimism regarding the real estate market that I have not heard for quite some time. Buyers seemed to feel that the time to buy had arrived and agents expressed a guarded optimism associated with the fact that they actually had clients to work with and properties for their buyers to buy.
All that having been said, available statistics do not appear to agree with the optimism expressed by my sampling. I wouldn’t let that dampen the prospects though. The available statistics are forever and always several months old. Therefore, what is really happening in the marketplace happens before anyone can conclusively prove that it is actually happening. That’s why we have talking heads on the news and guys like me who write columns like this one.
The bottom line is this. No one knows definitively if the market is picking up. But, it sure seems like it and we can all hope that what appears to be happening really is.
Checking Credentials Can Keep You Out of Trouble.
By Joel Persinger
Having eaten in parts of the world where the origin of the food and the cleanliness with which it was prepared were questionable at best, I have gotten into the habit of looking for the big blue and white health department placard whenever I stop at a restaurant to eat. If that placard has anything but an “A” on it, I’m out of there! Something tells me that if you looked up and saw a “C”, you’d be gone too.
Checking credentials, whether you’re looking for that “A” at your favorite eatery or checking the licensing history of a prospective Realtor, is one step you can take to avoid giving yourself and your wallet a bellyache.
Just last week one of my agents asked me to attend a meeting with an agent from another office who had expressed a desire to work with us in our efforts to help people who are financially upside down on their mortgage payments. It was the first time any of us had ever met the agent in question or visited his office and the meeting did not go quite as planned. The agent was pleasant enough, but there was just something about the gentleman that didn’t seem right.
As we walked through the parking lot after the meeting my agents and I went over our concerns. None of us could quite put a finger on what was wrong, but one said, “I just don’t trust that guy.” Later that afternoon I received an email from one of my agents who had attended the meeting. She had followed up on the concerns and checked the fellow’s licensing history. As it turns out, his license had previously been revoked! In the strongest words possible, she suggested that we decline to work with that agent and that brokerage. The emails that followed made me very proud of my agents. It was unanimous. We would not work with that agent or that office.
But, what if we had? What if my agent hadn’t checked the licensing? What if we hadn’t followed up on our concerns when the little voices in our heads were telling us that something wasn’t right? We could have started to work with a potentially unethical or even criminal real estate agent. Worse yet, what if one of our clients was hurt as a result?
This may sound like fear-mongering to you, but let’s be honest, there are bad people out there. Fortunately, for every dishonest real estate person there are thousands of good, honest agents who care about their clients. The trick is making sure you end up with one of them and not with the bad guy. One step you should include in your vetting of Realtors is to check their licensing by visiting www.dre.cahwnet.gov. It’s not a foolproof way of weeding out the stinkers, but it sure helps.
Having eaten in parts of the world where the origin of the food and the cleanliness with which it was prepared were questionable at best, I have gotten into the habit of looking for the big blue and white health department placard whenever I stop at a restaurant to eat. If that placard has anything but an “A” on it, I’m out of there! Something tells me that if you looked up and saw a “C”, you’d be gone too.
Checking credentials, whether you’re looking for that “A” at your favorite eatery or checking the licensing history of a prospective Realtor, is one step you can take to avoid giving yourself and your wallet a bellyache.
Just last week one of my agents asked me to attend a meeting with an agent from another office who had expressed a desire to work with us in our efforts to help people who are financially upside down on their mortgage payments. It was the first time any of us had ever met the agent in question or visited his office and the meeting did not go quite as planned. The agent was pleasant enough, but there was just something about the gentleman that didn’t seem right.
As we walked through the parking lot after the meeting my agents and I went over our concerns. None of us could quite put a finger on what was wrong, but one said, “I just don’t trust that guy.” Later that afternoon I received an email from one of my agents who had attended the meeting. She had followed up on the concerns and checked the fellow’s licensing history. As it turns out, his license had previously been revoked! In the strongest words possible, she suggested that we decline to work with that agent and that brokerage. The emails that followed made me very proud of my agents. It was unanimous. We would not work with that agent or that office.
But, what if we had? What if my agent hadn’t checked the licensing? What if we hadn’t followed up on our concerns when the little voices in our heads were telling us that something wasn’t right? We could have started to work with a potentially unethical or even criminal real estate agent. Worse yet, what if one of our clients was hurt as a result?
This may sound like fear-mongering to you, but let’s be honest, there are bad people out there. Fortunately, for every dishonest real estate person there are thousands of good, honest agents who care about their clients. The trick is making sure you end up with one of them and not with the bad guy. One step you should include in your vetting of Realtors is to check their licensing by visiting www.dre.cahwnet.gov. It’s not a foolproof way of weeding out the stinkers, but it sure helps.
The Real Estate Game is a Team Sport
By Joel Persinger
There is something about human nature which drives many of us to be independent. As a result, the spirit of the “do it yourselfer” is strong in each of us. I ought to know. I spent half of this past weekend working on our house and the other half working on our car. But, while this spirit of independence can be a good thing, it can also hold us back when we apply it to a process that is as complex as buying, selling or investing in real estate. Over the years I have seen many example of this, but one fellow whom I met recently brings the whole idea of independence gone wrong into sharp focus.
This fellow had decided to get into the real estate market when things were booming. So, he went to a seminar, learned enough to be dangerous and proceeded to purchase all or part of thirty homes over the following year. He rented out all thirty of the properties and both he and his wife thought they were on the road to riches. Along the way they told many of their friends about their new found success and enticed several of them to follow in their footsteps. They, in turn told others and so it went until some dozen or so families had joined in the game without any idea of how to play it. By the time I met this gentleman he had lost all thirty properties as well as his family home and the other dozen or so families who had followed his example had lost everything as well.
The list of mistakes he made was lengthy to be sure. Here is a short list: None of the properties had a positive cash flow, the tax dodge he tried to use didn’t work, the “trust” in which he placed the properties did not accomplish its intended goal, the properties were purchased at full market value, he used all of the equity from his personal residence to fund his enterprise, the loan structures he used were extremely risky, etc, etc. In short, his entire approach was a ticking time bomb waiting to go off. At no time did he consult an attorney, CPA, real estate broker or anyone else.
Real estate is no place for the “do it yourselfer.” My grandfather was one of the most successful people I have ever known and his favorite saying was, “You don’t have to be smart, just hang around smart people.” He surrounded himself with those whom he knew would look after his best interest and had the knowledge and expertise with which to do so. So, if you are going to play in real estate you will need a good lawyer, CPA and real estate broker at a minimum. You will also need a deep understanding and acceptance of the fact that the real estate game is a team sport.
There is something about human nature which drives many of us to be independent. As a result, the spirit of the “do it yourselfer” is strong in each of us. I ought to know. I spent half of this past weekend working on our house and the other half working on our car. But, while this spirit of independence can be a good thing, it can also hold us back when we apply it to a process that is as complex as buying, selling or investing in real estate. Over the years I have seen many example of this, but one fellow whom I met recently brings the whole idea of independence gone wrong into sharp focus.
This fellow had decided to get into the real estate market when things were booming. So, he went to a seminar, learned enough to be dangerous and proceeded to purchase all or part of thirty homes over the following year. He rented out all thirty of the properties and both he and his wife thought they were on the road to riches. Along the way they told many of their friends about their new found success and enticed several of them to follow in their footsteps. They, in turn told others and so it went until some dozen or so families had joined in the game without any idea of how to play it. By the time I met this gentleman he had lost all thirty properties as well as his family home and the other dozen or so families who had followed his example had lost everything as well.
The list of mistakes he made was lengthy to be sure. Here is a short list: None of the properties had a positive cash flow, the tax dodge he tried to use didn’t work, the “trust” in which he placed the properties did not accomplish its intended goal, the properties were purchased at full market value, he used all of the equity from his personal residence to fund his enterprise, the loan structures he used were extremely risky, etc, etc. In short, his entire approach was a ticking time bomb waiting to go off. At no time did he consult an attorney, CPA, real estate broker or anyone else.
Real estate is no place for the “do it yourselfer.” My grandfather was one of the most successful people I have ever known and his favorite saying was, “You don’t have to be smart, just hang around smart people.” He surrounded himself with those whom he knew would look after his best interest and had the knowledge and expertise with which to do so. So, if you are going to play in real estate you will need a good lawyer, CPA and real estate broker at a minimum. You will also need a deep understanding and acceptance of the fact that the real estate game is a team sport.
Patience is Your Best Tool in a Real Estate Transaction
By Joel Persinger
The one trait which causes more trouble in a real estate transaction than any other human trait is that of impatience. Over the years I have seen many clients, both buyers and sellers, shoot themselves in the feet simply because they could not be patient. Some unforeseen little thing causes escrow to be late in closing and the next thing you know the buyer or the seller gets his knickers in a knot and the entire transaction, on which everyone has worked tirelessly for weeks or even months, starts to fall apart.
Pitching a fit over little things is a common practice among real estate buyers and sellers. In fact, this type of childish behavior is one of the greatest contributors to the failure of real estate professionals to communicate properly with their clients. Most of us don’t like being yelled at. If we know that a client is prone to throwing fits, we naturally tend to avoid sharing bad or even potentially bad news with that client. Of course, this only postpones the inevitable. The news eventually must be shared and the resulting explosion of attitude on the part of the client often has the effect of killing an otherwise healthy transaction.
To make matters worse, some real estate agents are just as guilty of losing their patience. In the almost twenty years since I began my practice of real estate I have seen more real estate “professionals” throw the equivalent of kicking and screaming fits then my wife has seen among children in her almost twenty years as an elementary school teacher. Some agents have actually adopted, “I’m going to scream and yell and throw an obnoxious fit” as their main style of negotiating. This approach is both unprofessional and unproductive.
In today’s market, which is flooded with foreclosure and pre-foreclosure properties, impatience can be even more deadly to a real estate deal than ever before. Because a great many of the properties currently being sold require the approval of the lender involved, buyers are being forced to deal with large institutional bureaucracies rather than with individual sellers. Negotiating with the loss mitigation department of a national or international banking firm can be somewhat like trying to get a quick, favorable and accurate response from your least favorite branch of the government. Such negotiations require herculean efforts, flexibility, a multitude or repeated attempts and yes, plenty of patience.
When a client understands the ups and downs of the process and can exercise patience the transaction goes much more smoothly and the chances of successfully closing escrow are greatly increased. This is in no small part due to the fact that the Realtor is then able to focus on getting the job done rather than acting as arbiter, counselor, psychologist and whipping post while trying at the same time to negotiate a favorable outcome. So remember, patience is not only a virtue it is also the best tool you can employ to increase your chances of success in a real estate transaction. When challenges arise, as they most certainly will, take a deep breath, count to ten, think about what I’ve written here and be patient.
The one trait which causes more trouble in a real estate transaction than any other human trait is that of impatience. Over the years I have seen many clients, both buyers and sellers, shoot themselves in the feet simply because they could not be patient. Some unforeseen little thing causes escrow to be late in closing and the next thing you know the buyer or the seller gets his knickers in a knot and the entire transaction, on which everyone has worked tirelessly for weeks or even months, starts to fall apart.
Pitching a fit over little things is a common practice among real estate buyers and sellers. In fact, this type of childish behavior is one of the greatest contributors to the failure of real estate professionals to communicate properly with their clients. Most of us don’t like being yelled at. If we know that a client is prone to throwing fits, we naturally tend to avoid sharing bad or even potentially bad news with that client. Of course, this only postpones the inevitable. The news eventually must be shared and the resulting explosion of attitude on the part of the client often has the effect of killing an otherwise healthy transaction.
To make matters worse, some real estate agents are just as guilty of losing their patience. In the almost twenty years since I began my practice of real estate I have seen more real estate “professionals” throw the equivalent of kicking and screaming fits then my wife has seen among children in her almost twenty years as an elementary school teacher. Some agents have actually adopted, “I’m going to scream and yell and throw an obnoxious fit” as their main style of negotiating. This approach is both unprofessional and unproductive.
In today’s market, which is flooded with foreclosure and pre-foreclosure properties, impatience can be even more deadly to a real estate deal than ever before. Because a great many of the properties currently being sold require the approval of the lender involved, buyers are being forced to deal with large institutional bureaucracies rather than with individual sellers. Negotiating with the loss mitigation department of a national or international banking firm can be somewhat like trying to get a quick, favorable and accurate response from your least favorite branch of the government. Such negotiations require herculean efforts, flexibility, a multitude or repeated attempts and yes, plenty of patience.
When a client understands the ups and downs of the process and can exercise patience the transaction goes much more smoothly and the chances of successfully closing escrow are greatly increased. This is in no small part due to the fact that the Realtor is then able to focus on getting the job done rather than acting as arbiter, counselor, psychologist and whipping post while trying at the same time to negotiate a favorable outcome. So remember, patience is not only a virtue it is also the best tool you can employ to increase your chances of success in a real estate transaction. When challenges arise, as they most certainly will, take a deep breath, count to ten, think about what I’ve written here and be patient.
Monday, May 26, 2008
The Reality of Buying Bank Owned Properties
By Joel Persinger
When I started in the real estate business, I worked with a guy who was often quoted as saying, “People are funny” before continuing on to describe what particular act of “people” had prompted him to express dismay at their actions once again. Almost twenty years later, I have come to realize that he was right all along. About some things, “people are funny.”
Take buying foreclosed upon properties for example. With the market having changed significantly, foreclosures have now become REOs (Real Estate Owned). For reasons which I do not have space to explain here, banks sell REOs directly through real estate agents rather than through the more traditional real estate auction. Most people call them, “Bank owned properties.”
What causes me to lament that, “People are funny” is the unbelievable fact that buyers expect these properties to be both cheep and in top notch shape. Such expectations are unreasonable and, frankly, unrealistic. When homeowners can no longer make their payments and find themselves facing foreclosure, it is quite common for them to stay in the home as long as possible without making a payment. Along the way, they often strip the house of anything valuable. Even if they are generous enough not to trash the place, they certainly do not maintain it. Thus, at a minimum the home has been lived in for six months to a year without any maintenance or care before the lender manages to foreclose. By the time the bank actually gets the property, it is generally in serious need of attention.
We all seem to understand that homeowners don’t want to throw good money after bad by taking care of a house that the bank is going to foreclose upon, but we forget that the banks have lost money on these homes as well and are not particularly keen to dump more money into them. Consequently, banks often put these properties on the market just as they are. Some are just dirty. Others will require considerable work to get them into a livable condition. Either way, the vast majority will NOT look like model homes when you see them.
So, what’s a buyer to do when he wants a deal? As my son would say, “Get real.” Remember that you get what you pay for. If you buy a house cheep, you will probably have to put some work and money into the property. Therefore, it is of vital importance that you have someone knowledgeable about home repair and rehabilitation to help you. You also must have the money set aside with which to get the job done. If you are fortunate enough to find a bank owned property in great shape, don’t expect to get a deal. Everyone else is going to want that one too. You will probably have to pay more if you want to have a prayer of buying it.
When I started in the real estate business, I worked with a guy who was often quoted as saying, “People are funny” before continuing on to describe what particular act of “people” had prompted him to express dismay at their actions once again. Almost twenty years later, I have come to realize that he was right all along. About some things, “people are funny.”
Take buying foreclosed upon properties for example. With the market having changed significantly, foreclosures have now become REOs (Real Estate Owned). For reasons which I do not have space to explain here, banks sell REOs directly through real estate agents rather than through the more traditional real estate auction. Most people call them, “Bank owned properties.”
What causes me to lament that, “People are funny” is the unbelievable fact that buyers expect these properties to be both cheep and in top notch shape. Such expectations are unreasonable and, frankly, unrealistic. When homeowners can no longer make their payments and find themselves facing foreclosure, it is quite common for them to stay in the home as long as possible without making a payment. Along the way, they often strip the house of anything valuable. Even if they are generous enough not to trash the place, they certainly do not maintain it. Thus, at a minimum the home has been lived in for six months to a year without any maintenance or care before the lender manages to foreclose. By the time the bank actually gets the property, it is generally in serious need of attention.
We all seem to understand that homeowners don’t want to throw good money after bad by taking care of a house that the bank is going to foreclose upon, but we forget that the banks have lost money on these homes as well and are not particularly keen to dump more money into them. Consequently, banks often put these properties on the market just as they are. Some are just dirty. Others will require considerable work to get them into a livable condition. Either way, the vast majority will NOT look like model homes when you see them.
So, what’s a buyer to do when he wants a deal? As my son would say, “Get real.” Remember that you get what you pay for. If you buy a house cheep, you will probably have to put some work and money into the property. Therefore, it is of vital importance that you have someone knowledgeable about home repair and rehabilitation to help you. You also must have the money set aside with which to get the job done. If you are fortunate enough to find a bank owned property in great shape, don’t expect to get a deal. Everyone else is going to want that one too. You will probably have to pay more if you want to have a prayer of buying it.
Monday, May 12, 2008
Choosing the Right Advisers
By Joel Persinger
There is an old proverb that says, “Plans fail for lack of counsel, but with many advisers they succeed.” This little bit of wisdom, penned by King Solomon, is quite invaluable. However, problems can arise when we choose the wrong advisers or forget that Solomon wrote “many”, and instead seek advice about everything from only one person.
Not long ago I attended a meeting with some clients who were being served by one of the Realtors in my office. These folks were having some financial difficulties and needed to sell their home for less than what they owed on it. The process is called a, “Short Sale.” We are working on a great many short sales and have developed an expertise in that area. This is precisely why the clients in question had been referred to us.
During our meeting, it became apparent that these folks had done little homework regarding their situation. While we are experts in the field of real estate, we are not experts in the law or regarding taxes. So, my agent and I strongly urged these nice people to speak to an attorney regarding other possible options and an accountant to determine to what degree there would be any tax liability associated with their short sale. They agreed and promptly made appointments with both an attorney and a CPA.
Following their meeting with their attorney they called my agent to tell him of their decision to move forward with the sale. He asked if they had consulted with a tax professional. They replied that they had not, but that they had an appointment with one coming up in a day or so. A few days later my agent followed up. The clients informed him that they would indeed have some tax consequences, but that they were prepared for them. The real problem, they said, was that the CPA had told them that short sales don’t work and that the lender probably won’t accept a short sale anyway. Not surprisingly, we later learned that the CPA had never been involved in a short sale.
So, let’s look at the concept of “many advisers.” It goes back thousands of years to a time when an ancient King ruled a powerful kingdom. Just as with our President today this King, named Solomon, surrounded himself with advisers. Some advised him regarding domestic issues and others on matters of war and relationships with other nations. I’m sure you will agree that he probably didn’t ask his generals how to address the problem of traffic congestion within his cities or defer to his domestic advisers on matters of war. Neither should we ask a CPA for advice regarding the practice of real estate nor a real estate broker to counsel us regarding our taxes.
Each professional has the potential to provide valuable insight upon which you can base well informed decisions, provided they each understand their limitations and confine their advice to what they really know. When they step outside of those boundaries, you may wish to reevaluate your choice of advisers.
There is an old proverb that says, “Plans fail for lack of counsel, but with many advisers they succeed.” This little bit of wisdom, penned by King Solomon, is quite invaluable. However, problems can arise when we choose the wrong advisers or forget that Solomon wrote “many”, and instead seek advice about everything from only one person.
Not long ago I attended a meeting with some clients who were being served by one of the Realtors in my office. These folks were having some financial difficulties and needed to sell their home for less than what they owed on it. The process is called a, “Short Sale.” We are working on a great many short sales and have developed an expertise in that area. This is precisely why the clients in question had been referred to us.
During our meeting, it became apparent that these folks had done little homework regarding their situation. While we are experts in the field of real estate, we are not experts in the law or regarding taxes. So, my agent and I strongly urged these nice people to speak to an attorney regarding other possible options and an accountant to determine to what degree there would be any tax liability associated with their short sale. They agreed and promptly made appointments with both an attorney and a CPA.
Following their meeting with their attorney they called my agent to tell him of their decision to move forward with the sale. He asked if they had consulted with a tax professional. They replied that they had not, but that they had an appointment with one coming up in a day or so. A few days later my agent followed up. The clients informed him that they would indeed have some tax consequences, but that they were prepared for them. The real problem, they said, was that the CPA had told them that short sales don’t work and that the lender probably won’t accept a short sale anyway. Not surprisingly, we later learned that the CPA had never been involved in a short sale.
So, let’s look at the concept of “many advisers.” It goes back thousands of years to a time when an ancient King ruled a powerful kingdom. Just as with our President today this King, named Solomon, surrounded himself with advisers. Some advised him regarding domestic issues and others on matters of war and relationships with other nations. I’m sure you will agree that he probably didn’t ask his generals how to address the problem of traffic congestion within his cities or defer to his domestic advisers on matters of war. Neither should we ask a CPA for advice regarding the practice of real estate nor a real estate broker to counsel us regarding our taxes.
Each professional has the potential to provide valuable insight upon which you can base well informed decisions, provided they each understand their limitations and confine their advice to what they really know. When they step outside of those boundaries, you may wish to reevaluate your choice of advisers.
Buying a Bank Owned Property
By Joel Persinger
Now that home prices have been down for a while, many are the folks who call my office asking about the possibility of purchasing foreclosures. It seems that some seminar gurus have been making the rounds again and people are starting to get excited about investing in real estate.
That’s all fine and good except that buying foreclosures in today’s market is a bit different from what it might have been a decade ago. Today, many, if not most foreclosed upon properties are NOT sold at auction. This is because many of the properties have more owed against them than they’re worth. As a result, the bids at auctions are often far too low to even come close to covering what is owed on the properties. Lenders safeguard themselves against such eventualities by establishing the bidding high from the start. Thus, nobody will bid above what the lenders will bid and so, the lenders often take the properties back and simply list them for sale with a real estate broker. Such a property is called a REO (Real Estate Owned) and they are listed by the hundreds with brokerages that specialize in selling REOs. They are sold in, “As is” condition, just as they would have been if sold at auction and, they are often sold at a discount.
Since these properties are available through real estate brokers, you don’t need to have a specialized approach in order to buy them. You simply call your agent and have him show you the properties just as you normally would. Then you make an offer, begin negotiations and away you go.
Still, there are some differences you should be aware of. Unlike, a homeowner who is selling his home, banks are exempt from certain disclosure requirements. In fact, some banks simply will not make some disclosures even though they are required to do so. This is why you will need to do a little investigating of your own. For example: you should always have the property inspected by a professional, qualified home inspector and you should spend some time talking with neighbors about the neighborhood and the history of the house.
Negotiating with banks and many REO brokers can be difficult. You will almost never get to speak to the bank directly. You must deal with the REO broker. Unfortunately, they’re not much better. Quite often, they won’t return phone calls, almost never answer the phone, hide behind three levels of assistants and often adopt a, “My way or the highway” style of negotiating. In most cases, you’re not going to buy a REO property for fifty cents on the dollar, but you can get a very good deal if you simply take your time and do your homework. And don’t forget, a good real estate agent can help you a ton.
Now that home prices have been down for a while, many are the folks who call my office asking about the possibility of purchasing foreclosures. It seems that some seminar gurus have been making the rounds again and people are starting to get excited about investing in real estate.
That’s all fine and good except that buying foreclosures in today’s market is a bit different from what it might have been a decade ago. Today, many, if not most foreclosed upon properties are NOT sold at auction. This is because many of the properties have more owed against them than they’re worth. As a result, the bids at auctions are often far too low to even come close to covering what is owed on the properties. Lenders safeguard themselves against such eventualities by establishing the bidding high from the start. Thus, nobody will bid above what the lenders will bid and so, the lenders often take the properties back and simply list them for sale with a real estate broker. Such a property is called a REO (Real Estate Owned) and they are listed by the hundreds with brokerages that specialize in selling REOs. They are sold in, “As is” condition, just as they would have been if sold at auction and, they are often sold at a discount.
Since these properties are available through real estate brokers, you don’t need to have a specialized approach in order to buy them. You simply call your agent and have him show you the properties just as you normally would. Then you make an offer, begin negotiations and away you go.
Still, there are some differences you should be aware of. Unlike, a homeowner who is selling his home, banks are exempt from certain disclosure requirements. In fact, some banks simply will not make some disclosures even though they are required to do so. This is why you will need to do a little investigating of your own. For example: you should always have the property inspected by a professional, qualified home inspector and you should spend some time talking with neighbors about the neighborhood and the history of the house.
Negotiating with banks and many REO brokers can be difficult. You will almost never get to speak to the bank directly. You must deal with the REO broker. Unfortunately, they’re not much better. Quite often, they won’t return phone calls, almost never answer the phone, hide behind three levels of assistants and often adopt a, “My way or the highway” style of negotiating. In most cases, you’re not going to buy a REO property for fifty cents on the dollar, but you can get a very good deal if you simply take your time and do your homework. And don’t forget, a good real estate agent can help you a ton.
Tuesday, April 22, 2008
Truth or Consequences
By Joel Persinger
When I was a kid, one of the game shows my parents most liked to watch was called, “Truth or Consequences.” As far as I know, that show has been gone for decades. But, what is still with us is the idea that lies can bring about terrible consequences.
On a daily basis, my staff and I work with homeowners who are in terrible fixes. In most cases they either purchased their homes using risky loans or were not entirely truthful when filling out their loan applications, or both. While it might be considered foolish, there is nothing illegal or immoral about taking out a risky loan. However, telling bald faced lies on a loan application is a crime. It’s called, “Fraud.” Some lies are as simple as indicating that the buyer is going to live in the home, when he is actually going to rent it. Others are more serious, such as the buyer telling the lender he makes more money than he actually does. Regardless of the severity of the lie, it is still a lie and can carry serious consequences when (and I say when, not if) the lender becomes aware of it.
The other notable area in which folks often get themselves into hot water is during the sales of their properties. I was reminded of this yesterday as I talked with a friend from church who had expressed a desire to purchase my car. As he marveled at the car’s excellent condition, I felt it prudent to also point out its faults. People can get excited about cars, particularly a convertible when summer is just around the bend. As evidence of this I could mention the fact that he gleefully put the top up and down several times. But, the moment I mentioned that the air conditioning needed to be charged and that the sound system was on the blink he began to take a much more serious look at the vehicle.
This is precisely the kind of behavioral shift that home sellers want to avoid. They know that home buying is an emotional process and they don’t want to chase a hot buyer away by telling him things about the house that might be bad. I’ve actually had sellers tell me, “It’s not a lie if I just don’t tell them.” Actually, it is a lie. It’s called, “a lie of omission.”
So, to illustrate how important the truth really is, it is an indisputable fact that the real estate and lending markets would not be in the pickle they are in if people had simply told the truth. Here are the facts, like them or not. Some lender’s lied when they neglected to tell their clients about the dangers of risky loans. Some buyers lied when they told lenders that their incomes were greater than they really were. Some sellers lied when they failed to mention that their homes were in worse shape than advertised. And yes, I hate to admit it, but some real estate people lied too. Even the politicians have gotten into the act by telling lies about what happened and who is responsible. Perhaps we all should have watched that old game show a little more often. As you may remember, it was called, “Truth or Consequences.”
When I was a kid, one of the game shows my parents most liked to watch was called, “Truth or Consequences.” As far as I know, that show has been gone for decades. But, what is still with us is the idea that lies can bring about terrible consequences.
On a daily basis, my staff and I work with homeowners who are in terrible fixes. In most cases they either purchased their homes using risky loans or were not entirely truthful when filling out their loan applications, or both. While it might be considered foolish, there is nothing illegal or immoral about taking out a risky loan. However, telling bald faced lies on a loan application is a crime. It’s called, “Fraud.” Some lies are as simple as indicating that the buyer is going to live in the home, when he is actually going to rent it. Others are more serious, such as the buyer telling the lender he makes more money than he actually does. Regardless of the severity of the lie, it is still a lie and can carry serious consequences when (and I say when, not if) the lender becomes aware of it.
The other notable area in which folks often get themselves into hot water is during the sales of their properties. I was reminded of this yesterday as I talked with a friend from church who had expressed a desire to purchase my car. As he marveled at the car’s excellent condition, I felt it prudent to also point out its faults. People can get excited about cars, particularly a convertible when summer is just around the bend. As evidence of this I could mention the fact that he gleefully put the top up and down several times. But, the moment I mentioned that the air conditioning needed to be charged and that the sound system was on the blink he began to take a much more serious look at the vehicle.
This is precisely the kind of behavioral shift that home sellers want to avoid. They know that home buying is an emotional process and they don’t want to chase a hot buyer away by telling him things about the house that might be bad. I’ve actually had sellers tell me, “It’s not a lie if I just don’t tell them.” Actually, it is a lie. It’s called, “a lie of omission.”
So, to illustrate how important the truth really is, it is an indisputable fact that the real estate and lending markets would not be in the pickle they are in if people had simply told the truth. Here are the facts, like them or not. Some lender’s lied when they neglected to tell their clients about the dangers of risky loans. Some buyers lied when they told lenders that their incomes were greater than they really were. Some sellers lied when they failed to mention that their homes were in worse shape than advertised. And yes, I hate to admit it, but some real estate people lied too. Even the politicians have gotten into the act by telling lies about what happened and who is responsible. Perhaps we all should have watched that old game show a little more often. As you may remember, it was called, “Truth or Consequences.”
Monday, April 14, 2008
A Solid Strategy And Great Tactics Are Vital to Your Success.
By Joel Persinger
I am often asked the “Should I…” questions that are on most people’s lips the moment they run into a real estate professional. Lately the questions have come in the form of, “Should I buy now or wait until later.” In case you have been looking for a real estate agent to ask just that question, I thought I might answer it for you here.
It’s probably a safe bet to say that everyone knows the real estate market is experiencing a serious downturn. The press has been shouting the news of the sad and frightening aspects of the bursting “real estate bubble” for quite a while now. But, they haven’t talked about the good part. This is the part that honest to goodness investors capitalize on. Now, I’m not talking about the folks who call themselves investors because they jumped on the bandwagon when things were so good that it was almost impossible to fall off. I’m talking about real investors, folks who have taken the time to learn the ropes, develop winning strategies for success and tactics with which to implement those strategies along the way.
Real investors, like my grandfather when he was still around and like some of the clients we serve in my office, see great opportunity when everyone else is wringing their hands lamenting disaster. When the press is shouting, “Foreclosures are up, the end is near” investors are thinking, “Foreclosures are up, what a great opportunity!” The difference between the two is nothing more than understanding how things work and having a solid strategy and good, nuts and bolts tactics with which to succeed.
At this point, you’re probably thinking, “That’s all fine for you, Joel. But, how does that help me? I’m not an investor. I just want to buy a home.” The answer comes when you think about association. When I was a kid my mother, looking at the boys I knew from school, would say, “Don’t hang around those boys… they’ll get you into trouble.” By the time I was five years old I had learned that bad character corrupts good morals. Then my grandfather started to teach me one of the most valuable lessons I have ever learned in life. Over and over as I grew up he would tell me, “You don’t have to be smart, just hang around smart people.” And so, I learned that foolish people who do stupid things would bring me to harm and wise people who do smart things could help me succeed.
Following these simple lessons can help you succeed as well. In order to be successful as a buyer or seller in this market, you have to work with people who know what they’re doing. The way you find them, is to look for agents who work with REAL investors. Those agents know the ropes, because real investors won’t work with them if they don’t. Once you find one; be respectful of his time, don’t be afraid to pay him well and put on your thinking cap… you’re on your way to success.
I am often asked the “Should I…” questions that are on most people’s lips the moment they run into a real estate professional. Lately the questions have come in the form of, “Should I buy now or wait until later.” In case you have been looking for a real estate agent to ask just that question, I thought I might answer it for you here.
It’s probably a safe bet to say that everyone knows the real estate market is experiencing a serious downturn. The press has been shouting the news of the sad and frightening aspects of the bursting “real estate bubble” for quite a while now. But, they haven’t talked about the good part. This is the part that honest to goodness investors capitalize on. Now, I’m not talking about the folks who call themselves investors because they jumped on the bandwagon when things were so good that it was almost impossible to fall off. I’m talking about real investors, folks who have taken the time to learn the ropes, develop winning strategies for success and tactics with which to implement those strategies along the way.
Real investors, like my grandfather when he was still around and like some of the clients we serve in my office, see great opportunity when everyone else is wringing their hands lamenting disaster. When the press is shouting, “Foreclosures are up, the end is near” investors are thinking, “Foreclosures are up, what a great opportunity!” The difference between the two is nothing more than understanding how things work and having a solid strategy and good, nuts and bolts tactics with which to succeed.
At this point, you’re probably thinking, “That’s all fine for you, Joel. But, how does that help me? I’m not an investor. I just want to buy a home.” The answer comes when you think about association. When I was a kid my mother, looking at the boys I knew from school, would say, “Don’t hang around those boys… they’ll get you into trouble.” By the time I was five years old I had learned that bad character corrupts good morals. Then my grandfather started to teach me one of the most valuable lessons I have ever learned in life. Over and over as I grew up he would tell me, “You don’t have to be smart, just hang around smart people.” And so, I learned that foolish people who do stupid things would bring me to harm and wise people who do smart things could help me succeed.
Following these simple lessons can help you succeed as well. In order to be successful as a buyer or seller in this market, you have to work with people who know what they’re doing. The way you find them, is to look for agents who work with REAL investors. Those agents know the ropes, because real investors won’t work with them if they don’t. Once you find one; be respectful of his time, don’t be afraid to pay him well and put on your thinking cap… you’re on your way to success.
Monday, April 7, 2008
Is a Deed in Lieu of Foreclosure The Best Solution?
By Joel Persinger
With so many folks owing more on their homes than the properties are worth, many have elected to sell their houses in short-sales (sales in which the lender accepts less than what is owed). However, some people are opting for what is called a, “deed in lieu of foreclosure” (signing the property over to the bank to prevent a foreclosure from occurring). But, is this the best solution?
At a recent “broker’s breakfast” hosted by the San Diego Association of Realtors, real estate brokers and managers gathered from around San Diego County. The subject was foreclosures and the attendees heard attorneys representing both the California Association of Realtors and the San Diego Association discuss the problems and issues presented as a result of the large number of foreclosures flooding the market. Among the subjects discussed, was the practice of lenders offering a “Deed in Lieu” as an alternative solution to foreclosure or short-sale.
As a general rule, when homeowners are facing foreclosure they fear three major consequences: damage to their credit rating, the lender chasing them for the difference between what they owe and what their home is worth (the deficiency) and the possibility of having to pay taxes on that difference. The overriding reason why many homeowners elect to sell their homes in short-sales rather than allowing them to be foreclosed upon is in order to minimize the damage in all three of those areas. The question at hand was, “Does a deed in lieu of foreclosure accomplish the same goals?” Unfortunately, the answer is not simple.
The problems with accepting a deed in lieu of foreclosure as your chosen solution can be summed up in a four word quote by one of the attorney’s who was presenting at the morning breakfast. He said, “Deed in lieu? Careful!” While it may be tempting to just give the property back to the lender and wash your hands of the whole mess, the truth is that many lenders won’t let you do that so easily. According to this attorney, some lenders have adopted the practice of offering a deed in lieu of foreclosure while reserving their right to come after you for any deficiency after the home is eventually sold.
This does not mean that a deed in lieu is not the best solution. It simply illustrates the need to check with qualified professionals who have your best interest at heart before agreeing to anything. A short list of those professionals should include an experienced real estate broker, a qualified attorney and a Certified Public Accountant or tax attorney. Most importantly, do not sign anything without fully understanding what it says.
With so many folks owing more on their homes than the properties are worth, many have elected to sell their houses in short-sales (sales in which the lender accepts less than what is owed). However, some people are opting for what is called a, “deed in lieu of foreclosure” (signing the property over to the bank to prevent a foreclosure from occurring). But, is this the best solution?
At a recent “broker’s breakfast” hosted by the San Diego Association of Realtors, real estate brokers and managers gathered from around San Diego County. The subject was foreclosures and the attendees heard attorneys representing both the California Association of Realtors and the San Diego Association discuss the problems and issues presented as a result of the large number of foreclosures flooding the market. Among the subjects discussed, was the practice of lenders offering a “Deed in Lieu” as an alternative solution to foreclosure or short-sale.
As a general rule, when homeowners are facing foreclosure they fear three major consequences: damage to their credit rating, the lender chasing them for the difference between what they owe and what their home is worth (the deficiency) and the possibility of having to pay taxes on that difference. The overriding reason why many homeowners elect to sell their homes in short-sales rather than allowing them to be foreclosed upon is in order to minimize the damage in all three of those areas. The question at hand was, “Does a deed in lieu of foreclosure accomplish the same goals?” Unfortunately, the answer is not simple.
The problems with accepting a deed in lieu of foreclosure as your chosen solution can be summed up in a four word quote by one of the attorney’s who was presenting at the morning breakfast. He said, “Deed in lieu? Careful!” While it may be tempting to just give the property back to the lender and wash your hands of the whole mess, the truth is that many lenders won’t let you do that so easily. According to this attorney, some lenders have adopted the practice of offering a deed in lieu of foreclosure while reserving their right to come after you for any deficiency after the home is eventually sold.
This does not mean that a deed in lieu is not the best solution. It simply illustrates the need to check with qualified professionals who have your best interest at heart before agreeing to anything. A short list of those professionals should include an experienced real estate broker, a qualified attorney and a Certified Public Accountant or tax attorney. Most importantly, do not sign anything without fully understanding what it says.
Monday, March 24, 2008
Are home loan programs changing?
By Joel Persinger
Although we have relatively constant weather in San Diego County, that is not the case in many other parts of the country where there is an old saying, “If you don’t like the weather, wait five minutes.” Where my younger sister lives in Florida, this is most certainly true. One minute it’s raining and five minutes later there isn’t a cloud in the sky.
While you might think it far-fetched to use a weather analogy to describe the current home lending market, given our current market dynamics, we could easily adopt a similar saying such as, “If you don’t like the current loan market, wait five minutes.”
Just last Wednesday, my entire staff was present at a meeting presented by an expert in government loans such as those offered by VA, FHA and CalHFA. It was quite an eye-opener for an old real estate dude like me. Government loans have been out of the picture in San Diego County for more than a decade simply because there were better options to choose from. The government loans were available during that time. They just weren’t as attractive as the many non-government programs that were around. However, with the recent tightening of the non-government lending market, “Govi” loans have begun to shine a little brighter.
As the meeting progressed you could have read the shock on everyone’s faces as we discovered that 100% financing was still available using government loans such as CalHFA. For all practical purposes, 100% loans had become a thing of the past among non-government lenders. As a result, we couldn’t get over the fact that they were still possible using government loans. Well… that was on Wednesday. By Saturday CalHFA had announced that the rules had changed. “If you don’t like the weather…”
While many people like to watch the stock market, it is the bond market which has the most immediate effect upon home loan interest rates. Every day my email is jammed with hundreds of messages about the lending market in general: at least six or seven of which are short messages about the bond market which read like this, “The bond market is up by ___ basis points”, followed later in the day by, “The bond market is currently down by ____ basis points”, and so on. Each one of these six or seven daily shifts in the market effects the mortgage rates for that day. What a roller coaster. “You say you don’t like the weather? Just wait.”
So, with loan programs and interest rates that are moving targets at best, how is a borrower supposed to count on anything? It isn’t easy. One thing’s for sure, borrowers who chose to work with knowledgeable, experienced loan officers who have their ears to the ground and their noses to the grindstone are far better off. Now is not the time to be working with amateurs.
Although we have relatively constant weather in San Diego County, that is not the case in many other parts of the country where there is an old saying, “If you don’t like the weather, wait five minutes.” Where my younger sister lives in Florida, this is most certainly true. One minute it’s raining and five minutes later there isn’t a cloud in the sky.
While you might think it far-fetched to use a weather analogy to describe the current home lending market, given our current market dynamics, we could easily adopt a similar saying such as, “If you don’t like the current loan market, wait five minutes.”
Just last Wednesday, my entire staff was present at a meeting presented by an expert in government loans such as those offered by VA, FHA and CalHFA. It was quite an eye-opener for an old real estate dude like me. Government loans have been out of the picture in San Diego County for more than a decade simply because there were better options to choose from. The government loans were available during that time. They just weren’t as attractive as the many non-government programs that were around. However, with the recent tightening of the non-government lending market, “Govi” loans have begun to shine a little brighter.
As the meeting progressed you could have read the shock on everyone’s faces as we discovered that 100% financing was still available using government loans such as CalHFA. For all practical purposes, 100% loans had become a thing of the past among non-government lenders. As a result, we couldn’t get over the fact that they were still possible using government loans. Well… that was on Wednesday. By Saturday CalHFA had announced that the rules had changed. “If you don’t like the weather…”
While many people like to watch the stock market, it is the bond market which has the most immediate effect upon home loan interest rates. Every day my email is jammed with hundreds of messages about the lending market in general: at least six or seven of which are short messages about the bond market which read like this, “The bond market is up by ___ basis points”, followed later in the day by, “The bond market is currently down by ____ basis points”, and so on. Each one of these six or seven daily shifts in the market effects the mortgage rates for that day. What a roller coaster. “You say you don’t like the weather? Just wait.”
So, with loan programs and interest rates that are moving targets at best, how is a borrower supposed to count on anything? It isn’t easy. One thing’s for sure, borrowers who chose to work with knowledgeable, experienced loan officers who have their ears to the ground and their noses to the grindstone are far better off. Now is not the time to be working with amateurs.
Whom does your real estate agent represent?
By Joel Persinger
With the rapid expansion of the foreclosure and pre-foreclosure markets, many real estate professionals have forgotten whom they represent, particularly when the agent represents a seller who is in the throws of a foreclosure. While that agent would most likely have been hired by the seller, he or she would also be required to deal with the lender. The lender would have a financial interest in the home and could stand to lose money if the home was sold for less than what was owed on it. It has been my experience that many agents in this situation cannot seem to figure out whether they represent the seller or the lender. Indeed, I have found that some brokerage firms have no more clue as to whom they represent in these cases.
Just recently, I wrote an offer for a client who wanted to purchase a property which was in pre-foreclosure. The seller had missed some payments. But, the lender had not yet begun the full process of foreclosing on the property. My client was a sophisticated buyer and understood the process of buying such properties. I called the seller’s agent and explained the situation, outlined my client’s intended approach and asked if the agent and the seller were willing to move forward. The agent got back to me later that same day and told me that he had explained the situation to his client and that the client wanted to move forward with the deal. The next day my client tendered an offer. As previously agreed, the offer was low, but only for the purpose of beginning the negotiation with the lender.
Four days went by without a call from the seller’s agent acknowledging that he had received the offer. So, I called him to follow up. He told me that he had not presented the offer and did not intent to. I asked why. He said he did not feel that he was doing what was right by the lender. I asked him whom he represented. With an incredulous tone he replied, “The seller.” I answered, “Then why are you worried about the lender? Shouldn’t you be more concerned with getting your client out from under that house?” He scoffed at me, and ended the conversation. My client did not buy the house. In fact, he has elected to wait until it goes into foreclosure and buy it directly from the lender. In the meantime, it’s still on the market, unsold. The lender has begun the foreclosure process and the seller is in more hot water than ever before. This seller’s agent did not understand whom he represented. Does yours? My advice is, make sure your agent is looking after you before you hire him. Otherwise, you could end up in the same boat as the gentleman in this story.
With the rapid expansion of the foreclosure and pre-foreclosure markets, many real estate professionals have forgotten whom they represent, particularly when the agent represents a seller who is in the throws of a foreclosure. While that agent would most likely have been hired by the seller, he or she would also be required to deal with the lender. The lender would have a financial interest in the home and could stand to lose money if the home was sold for less than what was owed on it. It has been my experience that many agents in this situation cannot seem to figure out whether they represent the seller or the lender. Indeed, I have found that some brokerage firms have no more clue as to whom they represent in these cases.
Just recently, I wrote an offer for a client who wanted to purchase a property which was in pre-foreclosure. The seller had missed some payments. But, the lender had not yet begun the full process of foreclosing on the property. My client was a sophisticated buyer and understood the process of buying such properties. I called the seller’s agent and explained the situation, outlined my client’s intended approach and asked if the agent and the seller were willing to move forward. The agent got back to me later that same day and told me that he had explained the situation to his client and that the client wanted to move forward with the deal. The next day my client tendered an offer. As previously agreed, the offer was low, but only for the purpose of beginning the negotiation with the lender.
Four days went by without a call from the seller’s agent acknowledging that he had received the offer. So, I called him to follow up. He told me that he had not presented the offer and did not intent to. I asked why. He said he did not feel that he was doing what was right by the lender. I asked him whom he represented. With an incredulous tone he replied, “The seller.” I answered, “Then why are you worried about the lender? Shouldn’t you be more concerned with getting your client out from under that house?” He scoffed at me, and ended the conversation. My client did not buy the house. In fact, he has elected to wait until it goes into foreclosure and buy it directly from the lender. In the meantime, it’s still on the market, unsold. The lender has begun the foreclosure process and the seller is in more hot water than ever before. This seller’s agent did not understand whom he represented. Does yours? My advice is, make sure your agent is looking after you before you hire him. Otherwise, you could end up in the same boat as the gentleman in this story.
Saturday, March 1, 2008
Is now a good time to buy?
By Joel Persinger
This past Friday I had lunch with an investor friend of mine who regularly buys distressed properties. We were having a meeting to discuss the work my agents are doing in finding such properties so that his investment group can buy them, thereby helping our clients get out of there financial binds. During our conversation some interesting subjects came up. I thought you might find one of them interesting.
The investor was telling me about some of the networking groups he had been part of over the years. He was helping me identify some potential business opportunities. Right in the middle of a sentence he paused, looked at me with a puzzled expression on his face and said, “I can’t believe how much some of these groups have shrunk in the last couple of years. All those people who were so excited about buying and selling a few years ago are gone.” I asked, “What about you?” He said, “I’m still in. I’m glad their gone. It makes things easier for me.”
When I was a boy my grandfather, a long time real estate investor and broker, asked me what I thought would happen if my grandmother’s favorite department store had a sale. I replied, “She’d be there all day.” Then he asked me what I thought would happen if that same store raised its prices by half. I said, “She’d never go.” With a giant smile upon his face, he exclaimed, “Exactly! And yet, people do precisely the opposite when it comes to real estate. Remember that, Joel. That little fact about human nature will serve you well some day.”
My investor friend was expressing amazement at witnessing the same phenomenon that my grandfather had taught me about forty years earlier. When prices go up, people scratch and fight for the chance to buy real estate. When prices go down, they all sit back, holding tightly to their wallets and wait for prices to start going up again so they will feel safe enough to buy. If you take a moment to apply that way of thinking to the supermarket or department store as my grandfather did, you will quickly recognize the insanity of that approach.
Whenever I point this out, many people say, “But, you can’t find any deals in this market!” You should know that I’ve been hearing that same statement for my entire career. Indeed, I heard it a number of times from those who were watching my grandfather make money in troubled times forty years ago, while at the same time denying that it was possible for him to do so. Even my investor friend said it at lunch the other day. But, unlike many others he didn’t forget the most important part of the statement. He said, “You can’t find any deals in this market, unless you know how.”
This brings me back to another lesson my grandfather drilled into my head from the time I was six years old. Over and over he would remind me, “Joel, you don’t have to be smart. Just hang around smart people.” So, if people are telling you that finding a deal in today’s real estate market can’t be done, you are hanging around the wrong people. I encourage you to take steps toward meeting people who know where the deals can be found and how to find them. Because, the fact is that now is the time to buy!
This past Friday I had lunch with an investor friend of mine who regularly buys distressed properties. We were having a meeting to discuss the work my agents are doing in finding such properties so that his investment group can buy them, thereby helping our clients get out of there financial binds. During our conversation some interesting subjects came up. I thought you might find one of them interesting.
The investor was telling me about some of the networking groups he had been part of over the years. He was helping me identify some potential business opportunities. Right in the middle of a sentence he paused, looked at me with a puzzled expression on his face and said, “I can’t believe how much some of these groups have shrunk in the last couple of years. All those people who were so excited about buying and selling a few years ago are gone.” I asked, “What about you?” He said, “I’m still in. I’m glad their gone. It makes things easier for me.”
When I was a boy my grandfather, a long time real estate investor and broker, asked me what I thought would happen if my grandmother’s favorite department store had a sale. I replied, “She’d be there all day.” Then he asked me what I thought would happen if that same store raised its prices by half. I said, “She’d never go.” With a giant smile upon his face, he exclaimed, “Exactly! And yet, people do precisely the opposite when it comes to real estate. Remember that, Joel. That little fact about human nature will serve you well some day.”
My investor friend was expressing amazement at witnessing the same phenomenon that my grandfather had taught me about forty years earlier. When prices go up, people scratch and fight for the chance to buy real estate. When prices go down, they all sit back, holding tightly to their wallets and wait for prices to start going up again so they will feel safe enough to buy. If you take a moment to apply that way of thinking to the supermarket or department store as my grandfather did, you will quickly recognize the insanity of that approach.
Whenever I point this out, many people say, “But, you can’t find any deals in this market!” You should know that I’ve been hearing that same statement for my entire career. Indeed, I heard it a number of times from those who were watching my grandfather make money in troubled times forty years ago, while at the same time denying that it was possible for him to do so. Even my investor friend said it at lunch the other day. But, unlike many others he didn’t forget the most important part of the statement. He said, “You can’t find any deals in this market, unless you know how.”
This brings me back to another lesson my grandfather drilled into my head from the time I was six years old. Over and over he would remind me, “Joel, you don’t have to be smart. Just hang around smart people.” So, if people are telling you that finding a deal in today’s real estate market can’t be done, you are hanging around the wrong people. I encourage you to take steps toward meeting people who know where the deals can be found and how to find them. Because, the fact is that now is the time to buy!
Thursday, February 28, 2008
When Will The Market Get Better?
By Joel Persinger
At least three or for times a week someone will take me aside and ask me, “When will the market get better?” Of course I always find myself asking, “What do you mean by better?” and the answer is almost always equivalent to, “Back the way it was when things were good.” “Good” is the buzz word for the time a few years ago when prices were sky rocking upward and houses were selling so fast that real estate professionals could hardly hang up the “For Sale” signs before the properties were sold. Unfortunately, these good times were not normal and, as anyone who reads the paper can tell you, the prognosticators predict that such a market is not likely to return any time soon.
This very fact has brought about a burning in the bellies of many homeowners which is stoked by worry over declining home values and when, or even if those values will ever climb back to their previous highs. Real estate values, having experienced an unbelievably rapid increase over a short period of years, have dipped dramatically as the market has adjusted to that unprecedented, unrealistic and meteoric rise. As news persists of ever declining prices with no end in sight, more and more homeowners are starting to sweat.
Like any other market, real estate ebbs and flows. The tide comes in and the tide goes out. History has proven that it never comes in without later going out and it never goes out with later coming back in. The tide came in and stayed in for quite a while. Many people enjoyed swimming in the warm water and some, overcome by the euphoria of the times, foolishly braved those good days without sunscreen. Somehow, the tide staying in as long as it did protected them from getting burned. But once the tide went out, those who could no longer stay in the water started getting pretty hot and many have gotten themselves a might bad burn. It will take quite a long time for the pain caused by the changing tide to pass. But, pass it will and the tide will come in again. However, in the meantime this tide has left thousands of foreclosures and soon to be foreclosures behind on the sand.
When a market is flooded with distressed properties such as foreclosures, the owners of those properties sell them at a discount in order to move them quickly and thereby cut their losses. The result is that the values of surrounding properties which are not distressed are driven down as well. It will take many months for all those properties to be foreclosed upon and resold. In that time, banks will price them very low and continue to reduce the asking prices in order to get them sold fast. That will cause home values to continue their decline as this bloated inventory of distressed properties are reintroduced to the market.
So, how long will it take? Truthfully, no one really knows for sure. Most predictions I have heard have estimated that our current market will stick around for another year or two and that it may take eight to ten years until prices reach their previous highs. The only thing I know for certain is what anyone who has ever watched the tide at the sea shore can tell you. When the tide stays in a long time, it tends to stay out a long time as well. But, give it time. It will be back!
At least three or for times a week someone will take me aside and ask me, “When will the market get better?” Of course I always find myself asking, “What do you mean by better?” and the answer is almost always equivalent to, “Back the way it was when things were good.” “Good” is the buzz word for the time a few years ago when prices were sky rocking upward and houses were selling so fast that real estate professionals could hardly hang up the “For Sale” signs before the properties were sold. Unfortunately, these good times were not normal and, as anyone who reads the paper can tell you, the prognosticators predict that such a market is not likely to return any time soon.
This very fact has brought about a burning in the bellies of many homeowners which is stoked by worry over declining home values and when, or even if those values will ever climb back to their previous highs. Real estate values, having experienced an unbelievably rapid increase over a short period of years, have dipped dramatically as the market has adjusted to that unprecedented, unrealistic and meteoric rise. As news persists of ever declining prices with no end in sight, more and more homeowners are starting to sweat.
Like any other market, real estate ebbs and flows. The tide comes in and the tide goes out. History has proven that it never comes in without later going out and it never goes out with later coming back in. The tide came in and stayed in for quite a while. Many people enjoyed swimming in the warm water and some, overcome by the euphoria of the times, foolishly braved those good days without sunscreen. Somehow, the tide staying in as long as it did protected them from getting burned. But once the tide went out, those who could no longer stay in the water started getting pretty hot and many have gotten themselves a might bad burn. It will take quite a long time for the pain caused by the changing tide to pass. But, pass it will and the tide will come in again. However, in the meantime this tide has left thousands of foreclosures and soon to be foreclosures behind on the sand.
When a market is flooded with distressed properties such as foreclosures, the owners of those properties sell them at a discount in order to move them quickly and thereby cut their losses. The result is that the values of surrounding properties which are not distressed are driven down as well. It will take many months for all those properties to be foreclosed upon and resold. In that time, banks will price them very low and continue to reduce the asking prices in order to get them sold fast. That will cause home values to continue their decline as this bloated inventory of distressed properties are reintroduced to the market.
So, how long will it take? Truthfully, no one really knows for sure. Most predictions I have heard have estimated that our current market will stick around for another year or two and that it may take eight to ten years until prices reach their previous highs. The only thing I know for certain is what anyone who has ever watched the tide at the sea shore can tell you. When the tide stays in a long time, it tends to stay out a long time as well. But, give it time. It will be back!
Tuesday, February 19, 2008
The Era of Assigned Responsibility
By Joel Persinger
Like most of us, I never thought I would end up sounding like my parents or grandparents when I grew up. Well… as the old saying goes, “Never say never.” My grandparents were born at the turn of the last century. When I was a young boy they would subject me to long lectures about how much different life was during their time and how much people in my time seemed to have lost their moral and ethical compasses. “Be careful not to grow up like that, Joel,” my grandmother would say.
Admittedly, that was a long time ago and things were quite different then. No one in my family ever locked their cars or even bothered to take the keys out of the ignition. My Aunt Peggy, who was born in 1888 in Indian Territory Oklahoma, didn’t even own a key to her house. Even if she did, it wouldn’t have made a difference since none of the locks worked. Like most of the men of that time, my Great Grandpa Jim, the local barber for decades, carried a revolver everywhere he went. Those old folks, God bless them every one, had this crazy notion that people were responsible for taking care of themselves as well as for their own choices and actions. When I made good choices, I got the benefit. But, when I made poor ones, I was taught to stand up like a man, admit that I had messed up and “take my lumps.” As a result, I grew up understanding all too well that this is a world which functions on the principle of natural consequences.
Human beings learn best by failure. It is the pain of falling off the bicycle which motivates us to learn how to stay on it. It is the shock of discovering gravity the hard way following our first baby steps which motivates us to keep putting those shaky little feet in front of us in an attempt to avoid hitting the floor again. This is why my grandfather and mentor always told me, “You win or you learn.”
When we refuse to take responsibility for our actions and failures, we deprive ourselves of the opportunity to learn. This is why so many people today seem to repeat the same mistakes. Instead of owning up to their failures and learning the lessons that they teach, it has become all too common for today’s “learners” to shift the blame to others and thereby assign their responsibility to someone else.
All this past week I have met with clients who have lamented the painful position in which they have found themselves after having made poor decisions in the financing of their homes. Most of them are about to lose their houses and are beyond the help that might have been available had they acted sooner. In each and every case, they told me how wronged they had been by the lender or real estate agent with whom they had worked to purchase or refinance their property. None of them took any responsibility upon themselves.
I am not here to excuse the predatory practices of unethical and unscrupulous loan officers and real estate agents. Thousands of folks have been badly hurt by such people. But, that does not release us as individuals from the responsibility we each bear for our own welfare. Each homeowner who has been hurt chose the loan program they used. It’s their signatures on the bottom lines. They are the ones who elected to buy more house than they knew they could afford at the time. Let us not forget our own involvement in selecting the unpleasant paths we are on.
It’s a hard thing to hear if you are in that position and I will probably get myself into trouble for saying it. But, if we refuse to take responsibility for our actions, then we cannot and will not learn from our mistakes. As someone once said, “those who refuse to learn from history are destined to repeat it.” So, here’s a little of the hard medicine my Grandpa Charlie gave me as a kid. “You win or you learn. There is no losing. You only lose when you refuse to learn from your mistakes.”
Like most of us, I never thought I would end up sounding like my parents or grandparents when I grew up. Well… as the old saying goes, “Never say never.” My grandparents were born at the turn of the last century. When I was a young boy they would subject me to long lectures about how much different life was during their time and how much people in my time seemed to have lost their moral and ethical compasses. “Be careful not to grow up like that, Joel,” my grandmother would say.
Admittedly, that was a long time ago and things were quite different then. No one in my family ever locked their cars or even bothered to take the keys out of the ignition. My Aunt Peggy, who was born in 1888 in Indian Territory Oklahoma, didn’t even own a key to her house. Even if she did, it wouldn’t have made a difference since none of the locks worked. Like most of the men of that time, my Great Grandpa Jim, the local barber for decades, carried a revolver everywhere he went. Those old folks, God bless them every one, had this crazy notion that people were responsible for taking care of themselves as well as for their own choices and actions. When I made good choices, I got the benefit. But, when I made poor ones, I was taught to stand up like a man, admit that I had messed up and “take my lumps.” As a result, I grew up understanding all too well that this is a world which functions on the principle of natural consequences.
Human beings learn best by failure. It is the pain of falling off the bicycle which motivates us to learn how to stay on it. It is the shock of discovering gravity the hard way following our first baby steps which motivates us to keep putting those shaky little feet in front of us in an attempt to avoid hitting the floor again. This is why my grandfather and mentor always told me, “You win or you learn.”
When we refuse to take responsibility for our actions and failures, we deprive ourselves of the opportunity to learn. This is why so many people today seem to repeat the same mistakes. Instead of owning up to their failures and learning the lessons that they teach, it has become all too common for today’s “learners” to shift the blame to others and thereby assign their responsibility to someone else.
All this past week I have met with clients who have lamented the painful position in which they have found themselves after having made poor decisions in the financing of their homes. Most of them are about to lose their houses and are beyond the help that might have been available had they acted sooner. In each and every case, they told me how wronged they had been by the lender or real estate agent with whom they had worked to purchase or refinance their property. None of them took any responsibility upon themselves.
I am not here to excuse the predatory practices of unethical and unscrupulous loan officers and real estate agents. Thousands of folks have been badly hurt by such people. But, that does not release us as individuals from the responsibility we each bear for our own welfare. Each homeowner who has been hurt chose the loan program they used. It’s their signatures on the bottom lines. They are the ones who elected to buy more house than they knew they could afford at the time. Let us not forget our own involvement in selecting the unpleasant paths we are on.
It’s a hard thing to hear if you are in that position and I will probably get myself into trouble for saying it. But, if we refuse to take responsibility for our actions, then we cannot and will not learn from our mistakes. As someone once said, “those who refuse to learn from history are destined to repeat it.” So, here’s a little of the hard medicine my Grandpa Charlie gave me as a kid. “You win or you learn. There is no losing. You only lose when you refuse to learn from your mistakes.”
Subscribe to:
Comments (Atom)
