Justin Brennan's Blog

 Hate to play Devils Advocate: Don't Kill The Messenger

Does anyone really think that homeowners can afford to pay 60% of their income for housing? Apparently, the architects of the latest loan modification program called HAMP do. Government officials are touting that they are saving the housing industry by modifying more than 1 million loans to date, and converting 170,000 of those to "permanent" status, with many more to come. www.TheLaJollaLife.com for short sale info FAQ and more...

Those so-called "permanent modifications" cost the Borrower 31% of their income today, but the Borrower still has 60% of their income going to total debt obligations (credit card, HELOC, car payment, etc.). These statistics, known as the Back-end Debt to Income ratio, can be found on page 4 located here . Although not disclosed, we believe most of these loans exceed 100% LTV today as well. This is nothing more than a fully documented version of the same garbage that took down the banking system two years ago, and this time the Federal government rather than Countrywide and New Century are underwriting it. Almost all of these Borrowers will eventually re-default. Compare a Deed in Lieu vs Short Sale?

It is very obvious that the architects of HAMP are short-term focused, and are tricking us into thinking they are solving the problem by calling these permanent modifications. Until these loans are renamed, let's call them "Liar Loans 2," except this time the liar is the Bank of the United States rather than the Borrower because this modification is anything but "permanent". We do believe that stabilizing home prices and the banking system are critical to the recovery of the U.S. economy, but let's at least tell the truth about what is being done.

What this means for you is that the housing recovery that is being touted by elected officials is far from assured. There will be fewer homeowners thrown out on the street this month than would have occurred otherwise, but they will be tossed out later. The modification programs have helped stabilize home prices around the country, mostly because they have created so much confusion that people can live in their home for free for one year or more, and are buying time for thousands of banks to continue improving their balance sheets with earnings from good loans, while deferring the write-off of bad loans. The biggest beneficiaries of this program are the banks with the largest Home Equity Loan portfolios, which are also the banks needed to provide capital to businesses to start hiring again. Avoid Foreclosure. Get Tips and FAQ

How does this change things? We will be adding 170K additional future foreclosures to our forecast, with many more to come, and guiding our clients through these turbulent times by analyzing every indicator we can get our hands on. Despite the negative tone of this email, there are and will continue to be plenty of opportunities to make money, particularly taking advantage of the distressed selling that will go on for years, but having a long term investment horizon. Also, the national housing market is becoming more local than ever, which means those with local market knowledge, or the ability to roll up all of the local factors into a national view, will make the most money. In other words, those who do their homework will get straight A's. www.TheLaJollaLife.com for Short Sale info.

Source: John Burns Real Estate Consulting

Real Estate Highlights:
 


March Sales at 2006 Levels:  March 2010 sales were significantly higher than March 2009 sales and in fact reached near March 2006 levels.   Trends seem to indicate a very strong selling season.
 
Inventory Declining: In January and February of this year inventory was rising probably due to seasonal factors.  During the month of March inventory took a sharp decline, confirming a very strong Seller’s market. To get more info about La Jolla visit www.TheLaJollaLife.com
 
Prices Rising: According to the Case – Shiller Index, San Diego County aggregate prices continue to rise.  Prices are rising the fastest in the bottom third of the market (below $306,000) while the top third of the market (above $460,000) is essentially flat.   Note that year-over-year price levels are actually above last years prices in all price ranges.
 


Monthly Mortgage Resets: An updated version is shown (March 2010) of the Credit Suisse mortgage reset chart that usually appears in this presentation.   The original chart was generated in 2007.   For comparisons sake I tried to match the time frames between the two charts to see what has changed.   If the 2010 chart is correct it shows resets and recasts will continue well into 2012 with a peaks in the second half of 2010 and late 2011/2012.  Note that this chart projects the mortgage resets not really ending until late 2012.    A major change between the two charts appears to be the earlier chart showing these adjustments ending in early 2012.   The new chart also shows a reduced but still significant amount of resets and recasts in 2013, the previous chart showed 2013 being much lower.
 
Foreclosures Rise:  Notices of Default rose sharply last month from the previous month but remained within the past range of about 2,000 to 3,000 per month.   Interesting that the Notices of Default continue at a steady pace while inventory is shrinking.
 
Building Permits Level Off :  Across the U.S. and in San Diego County building permits appear to be slightly rising from a very low level.  This is the first uptick nationally since early 2006 and the first uptick in San Diego County since the middle of 2004.  It is too early to determine if building permits are bouncing along the bottom or are actually getting ready for sustained growth. To learn more about Justin and his La Jolla Development with family check out TheLaJollaLife.com development page.
 

Economic Highlights:
 
 Consumers continue to shed debt as this chart shows.  Note the year-over-year decline in the Financial Obligations Ratio is the largest since at least 1980.
 
Unemployment Steady:  The Unemployment Rate held steady at 9.7% and the Average Weekly Hours Worked rose from last month to 33.3 hours. Check out more market info and Short Sale FAQ at TheLaJollalife.com
 
Consumer Credit Continues to Decline:  Year-over-year consumer credit continued to decline at almost a 5% rate while year-over-year revolving credit declined at a rate of about 10%.

Breaking News: 4-13-10
Read Below. Justin Brennan - San Diego Agent : News Alert.

More Short Sale FAQ and Short Sale Process

Distressed homeowners no longer have to pay California state income tax on debt forgiven in a short sale, foreclosure, or loan modification.  Enacted into law yesterday, Senate Bill 401 generally aligns California's tax treatment of mortgage debt relief income with federal law.  For debt forgiven on a loan secured by a "qualified principal residence," borrowers will now be exempt from both federal and state income tax consequences.  The existing federal exemption is for indebtedness up to $2 million, whereas the new California exemption is for indebtedness up to $800,000 and forgiven debt up to $500,000. Visit www.TheLaJollaLife.com for more info on San Diego Short Sales, FAQ, and Process with Justin Brennan

"Qualified principal residence" indebtedness is defined as debt incurred in acquiring, constructing, or substantially improving a principal residence.  It includes both first and second trust deeds.  It also includes a refinance loan to the extent the funds were used to payoff a previous loan that would have qualified.

More Short Sale FAQ and Short Sale Process

The tax breaks apply to debts discharged from 2009 through 2012.  Californians who have already filed their 2009 tax returns may claim the exemption by filing a Form 540X amendment.
 
Taxpayers who do not qualify for the above exemptions (e.g., second home or rental property) may nevertheless be exempt under other provisions.  Most notably, taxpayers who are bankrupt are exempt from debt relief income tax.  Also, taxpayers who are insolvent are exempt from debt relief income tax to the extent their current liabilities exceed current assets.

For more information about mortgage forgiveness tax consequences, go to California Franchise Tax Board's Mortgage Forgiveness Debt Relief Extended webpage and the Internal Revenue Service's Mortgage Forgiveness Debt Relief Act and Debt Cancellation webpage.  The full text of Senate Bill 401 is available at www.leginfo.ca.gov. 

C.A.R. provides REALTORS® with many legal articles covering a wide range of topics of interest.  Some of the new or newly revised legal articles available at http://qa.car.org/ are as follows:

• Homebuyer Tax Credit Chart 2010.
• Internal Data Exchange (IDX).

Learn to Speak Womanese! - Justin Brennan,

I thought this would be a fun BLOG and different my usual day to day professional blogs. Enjoy. I thought this was very funny and informational.  On a professional note, If you are looking for a great Realtor in San Diego and La Jolla, CA, contact Justin Brennan , San Diego's Rising Star

Over the past two years, home values have plummeted to pre-2003 levels. Now, certain markets within the country are starting to stabilize. www.TheLaJollaLife.com

According to the latest results from the Standard & Poor’s Case-Shiller Home Price Index, released last week, 19 of the 20 U.S. metropolitan areas surveyed show an improvement in their annual rates of return; 17 of the metropolitan areas saw price increases from July to August.

And in September, sales of existing homes increased to 5.57 million units, up 9.4% from the previous month, according to the National Association of Realtors.

"We’ve already seen immediate signs of a housing recovery," says Ross DeVol, the director of regional economics at the Milken Institute, an independent economic think tank that tracks the housing market. "But things were so depressed that coming off a low bottom could take a long time."

 

1. The unemployment rate

It's quite simple: Without a job, you can't buy a home.

And as the unemployment rate rises, fewer individuals are capable of purchasing a home. That decreases the demand for homes, which drives prices down. (Currently, to get approved for a mortgage, you'll need to show proof of income, says DeVol.)

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To find a city's unemployment rate, and see whether it's rising or falling, visit the Bureau of Labor Statistics' Web site. The most recent report, from Oct. 28, breaks down the unemployment rates in each state's major metropolitan areas and compares those numbers to the previous year's.

Also, see if local businesses are hiring and if large corporations are moving into the area. More jobs leads to more employees buying homes in the area.

House hunters who want to dig a little deeper can look at the average or median change in income among households in a neighborhood.

At a minimum, confirm that incomes are being adjusted for inflation (or, ideally, rising.) Homeowners who have stagnant or declining salaries may not have much cash left over after they pay their mortgage; as a result, they might not maintain their homes or stay on top of repairs, which could lower a home's value and even the value of neighboring homes, says Zandi.

The Bureau of Economic Analysis (BEA) offers some insight on personal income. Click here and choose tabs labeled "per capita personal income" and "all metropolitan areas" to see how an area's personal income compares to others and to previous years.

A big drawback is that the data released this year ends with 2007 figures. (The BEA will release 2008 data in April 2010.) For state data, click here; the numbers are more current (they run through the second quarter of 2009) and show changes in personal income on a quarterly basis.

Another source is your state’s online employment department (most states have them). State employment sites usually include average salaries for specific occupations in each county.

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3. Fewer foreclosure filings and sales

On average, foreclosed houses sell for 30% less than similar homes in the same area, although the figure varies by market, says Rick Sharga, a senior vice president at RealtyTrac.com, which tracks foreclosures. In areas hit hardest, especially cities in Sunbelt states, foreclosed homes often sell at half the price.

As foreclosures increase, they drag down the average price of homes in a neighborhood.

Research foreclosed properties in a city or town at RealtyTrac.com, which tracks properties in various stages of foreclosure, including foreclosure filings, auctions and bank repossessions. Once your on the Web site, click on "trends" to compare foreclosure activity with nearby areas. Some of the research is free, but detailed information, including property addresses and loan histories, costs $49.95 month after a seven-day free trial period ends.

The faster foreclosed homes are sold, the sooner home prices can stabilize. The Hope for Homeowner’s Act of 2008 earmarked $4 billion for communities to buy and fix foreclosed and abandoned properties. Localities that receive a portion of this money will boost their home values, since they’ll be taking excess inventory off the market, says Sharga. Call your local government to find out if it has applied for this money.

4. Inventories are declining

In most areas where "for sale" signs are common, home prices are far from recovery.

In general, when more than 2% of homes in a neighborhood are selling at the same time, inventory is high, says Dean Baker, a co-director at the Center for Economic Policy and Research. As the number of homes for sale decrease, sellers have more leverage and a better shot at getting an offer close to their asking price.

Look at the month's supply of inventory, or how many months it will take at the current sales pace for inventory to be depleted. Five to six months is the normal range, but the current average is just under 10 months, says DeVol. (This varies by metropolitan area.) Also, areas without new housing construction will likely see a recovery first since they have less inventory to sell, says Zandi.

On Trulia.com, search a town or city to find how many homes are on the market. Then, click on the "stats & trends" tab and scroll down to the chart titled "number of listings," which will show whether listings are on the rise or declining. (One caveat: The comparison only goes back one month.) For more extensive comparisons, contact your local association of real estate professionals.

5. The list-to-sales price ratio is shrinking

On a national level, homes are selling at around 5% to 10% below their asking price, says Baker.

Look at list-to-sales price ratios, which is the difference between the listing price of a home and the price at which it sold. If the price difference is shrinking for an area that suggests the real estate market is improving, says Michael Evans, the president of the American Society of Appraisers and owner of Evans Appraisal Service, which appraises residential properties.

On some real estate Web sites like Prudential’s, you can pull up listings that show the asking price for a home and the median home price for that neighborhood. Appraisers also can provide average list-to-sales price ratios and historical comparisons.

6. Home prices are falling

On the other hand, decreasing sales prices could mean that the housing market has hit its bottom, says Baker. They also guarantee that the buyer is getting into a market at a fraction of the price that buyers paid during the bubble.

DataQuick, which tracks real property and land data, lists median sales prices and their year-over-year change in the major metropolitan areas throughout the country.

This article was reported by AnnaMaria Andriotis for SmartMoney.

Wayne Bryant and his wife have just stopped paying the mortgage on their home in northern California, even though they can afford to pay. The reason? Because, Bryant says, the value of the house is less than what they owe.

CNBC.com

"We are 45-50 percent under water," claims the 61-year-old Bryant, who works in airport management. "At this point we are 20 years away from being even. We're walking away because it's a good business decision."

Bryant bought his home three bedroom townhouse in 2006 for $582,000 and says it's worth about $315,000 now. He says he has never missed a payment on any of the homes or cars he's bought over the years. But that's changed.

"I thought about the moral hazard," Bryant admits. "But look at what's going on. Big banks are not helping anyone out. Big investors are walking away from debts. I'm angry how the system works. There's no way I'm going to feel guilty about this."

Analysts say Bryant is joining an increasing number of homeowners across the county who are "walking away" or making a 'strategic default' on their mortgage payments.

"About 25 percent of mortgage defaults across the country are the strategic kind," says Greg McBride, senior financial analyst for Bankrate.com. "That not a small number."

And it appears to be a growing option for homeowners.

"It's somewhat substantial," says Bob Walters, chief economist at Quicken Loans. "We are talking about it more in the industry and it's becoming more accepted among homeowners."

Lenders and Backlog of Mortgage Problems

What's helping make walk aways more acceptable is a lack of fear. If homeowners like Bryant don't dread the banks coming after them, there's a reason, says Jon Maddux CEO of the web site YouWalkAway.com that, for a fee, advises homeowners on strategic defaults.

"Banks are backlogged with paperwork on foreclosures and short sales," Maddux says. "And a lot of lenders are not really eager to take the property back because there's no housing market right now. There's no rush to go after delinquent payments."

While Bryant says frustration and anger with the system are driving him to skip his payments, not everyone is walking away because of outrage.

"I stopped getting child support payments and that meant the end of paying my mortgage," says Jayme Protich, a divorced mother of two college age children from Tallmadge, Ohio. "I tried working with the lender but they never got back to me. Not once."

Protich, who used Maddux's service, stopped making her $1,300 monthly payments in early 2009 on the three bedroom, two car garage home she and her ex-husband built 16 years ago. She tried selling the house after her divorce but got no offers. Even when the house was listed at the price of the mortgage, $215,000.

After living in the home for months and not making payments, Protich eventually had to move into an apartment. But any break in not paying the mortgage went to covering college fees for her children.

"The bank finally took over the house after a sheriff's sale," says Protich, who works at a local food service distribution company and has a second job in the summer at a local golf course. "I didn't want to do this, not pay my mortgage. But with my two kids, I didn't have much choice."

Consequences of Defaults

Choice or not, walking away from a mortgage payment can have serious consequences. There's the loss of the house and a bad credit rating. And depending on the state, lenders can target delinquent homeowners by going after back payments if the law allows.

Homeowners could also owe back taxes on a forgiven debt. And if homeowners have a second mortgage, they might be liable for all of those payments if they've stopped.

But those threats aren't enough to keep some people paying. "I'll get a clean credit rating eventually," says Bryant who admits he has 'fairly large' retirement portfolio. "I'm planning to build another home and by that time I should be fine."

As the numbers of walk aways climb, so do the forces creating them. It's estimated that 4.5 million homeowners owed more on their loans than the house was worth by the end of 2009. That number is expected to climb to 5 million in 2010 along with the number of foreclosures—which some estimates put at 4 million by the end of this year.

Dire predictions aside, the housing market is stumbling along and their are some signs of improvement. Home prices in Southern California, one of the hardest areas hit in the housing bust, rose 8.6 percent in January of this year, compared to the same time in 2009. And some parts of the country are actually seeing a decline in foreclosures, at least for now.

Housing Conditions Creating Walk Aways?

For those skipping out on their mortgage payments, Bankrate's McBride says they should honor the contract they signed. "Sure home values go down, but homeowners made a deal," says McBride. "You don't see new cars left abandoned on the road side after they leave the dealer and their value is less."

But unless the economy improves, and specifically more people find work, it's going to be hard to see housing get even close to where it once was—and more strategic defaults might be on the way.

"I think it's going to take a long time for housing to see some daylight," says Johnny Martinelli, a broker and owner of Levy Mart Real Estate in Norman, Oklahoma. "I see interest rates going up soon and with a bad job picture, I think it will be years before home prices come back."

For those who can't wait years for a housing recovery, not paying the mortgage seems like the only option. But having to vacate a house that was once a home leaves a range of emotions.

"I felt hurt and anger and had lots of sleepless nights," says Protich who had never missed a payment before. "I kept thinking about my neighbors and how nice they were. I feel relieved I don't have to pay the mortgage but I'm so disappointed that I got no help. I really didn't want to do this."

Since the real estate bubble burst back in 2007 many Realtors have been avoiding short sales altogether, either due to lack of training, or simply to avoid the hassle involved.

For information on Short Sale FAQ and if you are considering a short sale in San Diego, visit www.TheLaJollaLife.com Justin Brennan

"Why are they taking six months to make a decision? By then the original buyer is gone. A lot of people can’t afford to wait because they have to move," Grobman said.

Well, the federal government has finally answered back, adding another acronym to its list of government-sponsored programs. This one is called HAFA (it stands for Home Affordable Foreclosure Alternatives) and is part of the Home Affordable Modification Program (HAMP).

HAFA: The Government Response

Hoping to positively influence the nation’s housing market by shortening and simplifying the short-sale process, the Treasury Department released new guidelines for servicers late last year.

Under those directives, HAFA offers servicers and borrowers incentives for utilizing a short sale or a deed-in-lieu to avoid foreclosure on any loan that is eligible under the HAMP program thereby reducing the need for a potentially lengthy and expensive foreclosure process.

Key features of the program include:

• Sellers/borrowers can receive up to $1,500 for relocation expenses
• Lenders will receive $1,000 for each completed short sale
• Up to $1,000 for investors who allow up to $3,000 in short sale proceeds to be distributed to subordinate lien holders. Borrowers can receive pre-approved short sale terms prior to the property listing
• Borrowers are fully released from future liability for the debt

For information on Short Sale FAQ and if you are considering a short sale visit www.TheLaJollaLife.com Justin Brennan