Thank you Casey Serin for this photo.

As our market changes we now have new additions to our real estate vocabulary. Just a year ago the term, “short sale” was not even a word on our terminology radar. So, it is not surprising that many of my clients are now asking, “What are short sales?” Maybe, more importantly can short sales be a buying opportunity?

A short sale is when a property is sold for less then the debt owed on it. It is usually done as an owner’s last resort for liquidating a property before a debt holder begins the foreclosure process. Short sales require the seller to come up with money at close of escrow to cover the difference between the debt owed on the property and the sales price.

So can a short sale be a deal for a buyer? The answer is most short sales are more complex and harder to negotiate than a typical real estate transaction between a buyer and a seller. Often when a sale is short, the seller does not have sufficient funds to come up with the difference. This brings the bank in to the picture. Banks do not like to lose money, and in our current robust market most banks are stiff negotiators. Banks are usually tougher to deal with in a negotiation than an individual seller. This is because they have capital and corporate structure to rely on when negotiating. They have more power than an individual to wait for good offers and withstand low-ball offers. Often if a bank has completed the foreclosure process they will want more money for the home than the owner. This is due to the high cost of the foreclosure process.

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If your folks aren’t prepared, this might spur them into action.  If they’ve done their homework, then you might want to thank them for their foresight.

Get It All on Paper
Without Vital Documents, Aging and Incapacity Put Families in a Terrible Bind
By Dale Russakoff
Washington Post Staff Writer
Sunday, March 25, 2007; F01

For years, Sandy Myers prodded her parents without result to plan for “when they got really, really old.” With her mother losing ground to Alzheimer’s and her father to Parkinson’s, she pressed harder: Let’s see a lawyer. Let’s go over your assets with an accountant. Still they didn’t budge.

“They’d kind of humor me: ‘Oh, that’s nice,’ ” Myers recalled.

In the end, it wasn’t nice at all. In 1999, her father, Carl Larson, injured his head in a fall and had to move into an assisted living facility, forcing Myers to put her mother in a nursing home. The family needed to sell the couple’s three-bedroom, 1950s ranch home in Springfield to pay the bills, but couldn’t: Joan Larson’s Alzheimer’s left her legally incompetent to sign the deed, and she hadn’t authorized anyone to sign for her.

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This just in from Yahoo Finance. 

We’re rooting for you Susan!

Opes Advisors Owner Named Finalist in the Women of Distinction Awards
Wednesday March 28, 12:26 pm ET

“It’s the biggest no-brainer in the history of the world” and “hey, we’re nice people too!”  Yeah, right.  My favorite line in this article is “the type of hype employed by carnival barkers to lure the gullible”.  The only protection people have against these schemes is to be educated and to never sign anything they don’t understand.  The problem with regulation is that they often overshoot and hit the wrong people.  In this case, people who could repay a loan may end up getting left without loan possibilities.

California lawmaker would lean on

mortgage lenders

By Jim Christie

SAN FRANCISCO (Reuters) - California state Sen. Mike Machado says his bill to tighten regulation of mortgage lenders amid the subprime mortgage market’s turmoil stemmed from home loan offers hawked over the radio.

Machado grew so annoyed with the ubiquitous offers he would call their toll-free numbers to probe if the deals were above board. What the Democratic lawmaker said he found was the type of hype employed by carnival barkers to lure the gullible. (more…)

The Alternative Minimum Tax is hitting more and more income earners in the US.  I recommend that you work closely with your CPA to see if you can avoid this tax or lessen its impact on you.  The author says that “taxing the rich” plays well in Washington but his solution is to…tax the rich.  To live a pretty typical Bay Area lifestyle, households need to earn $200,000 or more which begins to put them in AMT territory. 

The Basics

By Jeff Schnepper

A big, ugly tax surprise is

looming

If you haven’t been hit by the alternative minimum tax, this is no time to relax. It’s getting closer and closer to you. And you might get hit by the tax sooner than you think — unless Congress fixes it.   

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In the Bay Area the word gentrification is often seen as a blessing by some and a curse by others. West Oakland has long been a neighborhood in which redevelopment has been proposed. Yet, even in our recent hot real estate market, West Oakland has still not seen a broad transition. There are many developments that have scraped the boundaries of West Oakland, but none have truly breached its borders to create a sweeping change.

The San Francisco Chronicle has recently written an article on a newly proposed rezoning that would turn many of the industrial neighborhoods underutilized parcels into towering 30-story luxury apartments and condominiums. This seems like a broad change that could have a profound effect on West Oakland’s industrial past.

Many people feel that blurring the zoning laws will create problems for the city and could possibly lessen the number of jobs in Oakland due to pushing light industrial companies out of the area. Opponents to the change include Nancy Nadle the current city council member for the West Oakland district. Residents seem to welcome the proposed development, citing that Emeryville has made similar zoning changes and that this city has seen tremendous community and business development that West Oakland needs.

I think that if the development is done thoughtfully and appropriately then West Oakland and its residents will benefit from the urban renewal. Creating new modern spaces for living and doing business in West Oakland will create new jobs opportunities and increase property values in the area. The trick is getting it right. What do you think about such proposed projects?

In planning your retirement, you need to understand and guard against longevity risk.  This might be boring stuff today but it will get very exciting when you are old and gray and running out of money.  Plan now and guard against longevity risk.  Oh, have I mentioned the dangers of lump sum illusion?  I’ll leave that for a later post.

Here’s To A Long Life

If you are considering 529 plans for your child’s college costs, read this.

Better 529 Plans Help Parents Pay for College

There is a new real estate development project gearing up in the city of Berkeley California. A less then 1 acre parcel of land has the potential to be a $40,000,000 project. The project will include 100 condominium units that will be developed atop 12,000 square feet of retail space.

The proposed project is located at the corner of Ashby and San Pablo Avenue. Escrow recently closed on the lot, which is now owned by Rawson, Blum & Leon a San Francisco based development firm. A partner in the project is Memar Properties of Oakland. The project will be designed by KAVA Massih Architects located in Berkeley. This will be an exiting new development to watch, with a proposed ground breaking in the Fall of 2008.

News of the story was noted in the East Bay Business Times, globest.com, and free-press-release-center.info.

Yesterday, LoanCity closed with no advanced notice.  Home buyers who had loans approved with them for funding on the next day found that the loan promise will not be honored.  This puts their initial deposit at risk because they may become in default of their purchase contract if they cannot secure funding quickly enough.  For so long, home buyers have not had to pay attention to the solidity of their mortgage lender but that is all changing.  Listing agents will be carefully reviewing pre-approval letters with an eye towards eliminating 100% loans and declining those offers that have a questionable mortgage broker representing the buyer. 

The following is from the LoanCity web site. 

Dear LoanCity Broker:  As many of you may know, LoanCity ceases funding loans at the end of day, Mar 20, 2007. All loans that are not funded by Mar 20 will have to be taken elsewhere to close. Because we appreciated your business, we are pleased to offer you an option to have your loan funded elsewhere – our friends at CMG Mortgage will handle all active loans in the LoanCity pipeline, which are currently scheduled to fund later than Mar 20, as these loans can be underwritten, relocked and funded by CMG Mortgage in an expedited manner. In an effort to expedite the transition of your LoanCity pipeline, below is a contact list of regional CMG Mortgage Managers that you can contact to facilitate the transfer and funding of your current deals in LoanCity’s pipeline.    

Fed Holds Rate Steady Again, As Expected

A hard fall for Irvine mortgage

lender

When the sub-prime lending business came

 crashing down, few fell harder than New

 Century.

By E. Scott Reckard and Kim Christensen
Times Staff Writers

March 18, 2007

As mortgage lender New Century Financial Corp. collapsed last week, some of the Irvine company’s top salespeople relaxed at scenic Dromoland Castle in Ireland, which boasts that it pampers guests like they were “landed gentry.”

The trip to Dromoland and other Irish haunts was booked in better days for winners of the firm’s President’s Club awards. New Century’s money troubles led it to rescind sponsorship, but some workers apparently decided that if their employer was dying, an Irish wake was in order.

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This means that the prime rate is expected to stay at 8.25% which is neither good nor bad news for equity line rates.  The Federal Open Market Committee sets the Federal funds rate which is currently at 5.25%.  The prime rate is 3 percentage points higher than the fed funds rate.  Equity lines, automobile financing rates and many other forms of debt are tied to the Prime Rate.

Fed Funds Rate Article - Wall Street Journal

This is from our internal Secondary Market Manager.

Fairly busy week expected for Real Estate data. Housing starts (Tuesday), Existing home sales report (Friday), and the FOMC meeting that begins tomorrow.  The FOMC meeting begins Tuesday and is expected keep key short-term interest rates unchanged. What will likely cause volatility in the markets is the post-meeting statement. Traders are hoping to pick up an indication of future Fed moves, particularly if the Fed expects to cut rates anytime soon. The meeting is the second of four meetings this year that last two days and will adjourn at 2:15 PM ET Wednesday. Therefore, look for afternoon changes in rates Wednesday. 

February’s Housing Starts will be released early Tuesday, but it will likely not have much of an impact on mortgage rates. It gives us a measurement of housing sector strength and future mortgage credit demand, but is usually considered to be of low importance to the financial markets. It is expected to show an increase in starts from January to February. Overall, look for Wednesday to be the most important day of the week due to the FOMC meeting. The rest of the week will likely be driven by outside factors such as stock movements. If the stock markets stage a significant rally or sell-off, we should see bonds move in the opposite direction.

The fact is the real estate market will go up… Then it will go down… Then it will go up again… Then it will go down again… Thus I try to stick to the facts when speaking about the real estate markets.

I recently read an article about how hot our market will be in the spring. It came from the San Jose Mercury News Square Foot Blog in an article entitled, California Housing Downturn May Be Mild. I agree that our market will most likely have a robust year, but it is interesting to see that the media just picked up on this. We have been seeing multiple offers on many properties for the last 2 months. For more information about why the media is behind the real estate curve check out, Evidence of the Media Being Behind the Real Estate Curve.

The long story short is that the Bay Area real estate market goes up and down. Go figure? That over the long term real estate in the Bay Area is driven by the lack of supply for the copious amounts of people that want to live and work in California. We also have higher paying jobs then the national average. So, go figure that our prices are also higher then the national average. Here is an interesting fact, that if California’s economy were ranked as a nation then it would be ranked between the 6th and 10th largest nation in the world. So, when the negative news has got you down or the positive news has gotten you jazzed realize that California is truly unique and its real estate climate is unique as well.

Open this link and then read below  Lender 1 solicitation

As a person who provides morgage loans to a lot of clients, I take great interest in the offerings other mortgage companies send in the mail.  I get 5 to 7 solicitations per week in my own mailbox and I review these closely to find the hidden traps.  Here’s just one example from a lender.  I blacked out their name because it isn’t relevant to the point I am making.  Let’s look closely at what is going on here.

On first glance, the very low rate of 4.625% for 30 years jumps right off of the page.  So are they offering a 30 year fixed rate at 4.625%?  Nope.  The fine print tells you this rate is for 6 months.  After 6 months, your rate will increase but this doesn’t tell us how much.  They can increase the payment 1% every 6 months so in 1 year, you could be paying at 6.625%.  Still, we don’t know the real interest rate.  We don’t know how many points they are charging either for this loan.

What about that promise to make no payment until May 1.  You might think that you get a month of free interest, right? Wrong.    Since interest is paid in arrears, your May 1 payment pays your April interest and you will be charged in escrow for every day in March you have the new loan.

There are other catches in this mailing, call me if you are getting these and you want to know what is really going on.  The bottom line is that they are trolling for the uneducated or for people who are too busy to do the necessary research to uncover the facts.  Buyer beware.

This isn’t a real estate or finance post but I just know you’ll find this article to be very interesting. Apple is such an unusual and innovative company that it is good to watch what they are doing. Their store innovations will change how retailers approach their customers in the future. Enjoy!

Apple: America’s Best Retailer - CNNMoney.com

This advice is not for people who are striving to be in the top 10% of income earners and plan to retire at an income in the ballpark of what they have been accustomed to.  My guess is that this author is trying to sell books and articles and I would place a large bet that he isn’t planning to live on just Social Security or a pension.  His claim is that financial services firms are advocating accumulating large retirement assets because they make  money on it.  Hey, just because a dentist gets paid to tell you to floss regularly, that doesn’t make him wrong.

The ‘Incredible’ Retirement Formula

Parents who plan to pay for their children’s college need to read this article.  Click on the link to learn more.

The Best and Worst 529 College Savings Plans - Wall Street Journal

Those borrowers who are “credit-challenged” typically end up getting a loan in the sub-prime market.  The lending standards for these borrowers was very loose over the past few years and that created problems that are coming due now.  Lenders would lend on stated income to 100% loan to value.  With these loans, there is no equity to tap into so in a declining value market, the homeowner would need to pay additional money into escrow to sell their home.  It is coming to light now that many of these loans were “over-stated income” loans meaning that the lender and/or the borrower were not truthful on their statement of income.  (more…)