How Santa refuels his sleigh

Z.I.R.P. and mortgage rates

Below is an excerpt from a recent article by Barry Habib of MBS Highway

Quite possibly you have heard of the Federal Reserves ZIRP or Zero Interest Rate Policy…below is a good explanation of how it works and the tangential effect on mortgage rates.

Imagine that you are a Money Manager, managing a $100 Million Dollar portfolio. You can borrow at very low rates that are close to the Fed Funds Rate. Call it a 0 .5% cost to borrow. You can buy mortgage bonds that pay 3% . It looks like a nice profit spread of 2 .5% . But the real magic happens when you use leverage. You can buy those bonds with only 10% cash . So you can take your $100 Million and buy $1 Billion worth of bonds, by borrowing the other $900 Million at a cost of only 0 .5% . The 2 .5% profit on the $1Billion is equal to a whopping 25% on your $100 Million dollar portfolio...making you a great money manager, and a heck of a lot of fees. This is called "The Carry Trade". But one sure way to lose money on this trade is to have your borrowing cost rise. So, as the data begins to approach the Fed's targets, managers will be less willing to buy mortgage bonds and begin to unwind their holdings. This selling of mortgage bonds will cause mortgage rates to rise, and perhaps at a surprising pace. We will need to be on guard about this in the months ahead.

The above is important to buyers and sellers alike…for buyers, it is quite obvious how interest rates have an effect on the purchase of a home. an increase in rates from 4% to 5% has the following effect on a $250,000 loan.

Principal and interest payment of $250,000 at 4% is $1,194/mon

Principal and interest payment on $250,000 at 5% is $1,342/mon…that is a 12% increase in payment and can have a significant effect on the size of the loan you can qualify for.

If the rates go to 6% you would be at almost $1,500/mon

So, if you are a buyer, you have try to predict the future of interest rates and home prices (we’re here to help you with that!). Should you buy now at the lowest rates in history, or gamble that home prices will fall if interest rates rise? Can you chart out the ‘rates vs. price’ so you are aware of the optimum rate/price relationship?

And, as a seller, are you up for the gamble? Are you on the side of the “we’ve hit bottom” and it’s all up from here crowd or, after reading the above, do you think that now may be an opportune time to “get while the getting is good”?

 

We are not your typical real estate agents. We’ll help you decipher all of the ‘noise’ relating to the housing market and what decision is in YOUR best interests. You won’t get ‘objection handling techniques’, you won’t get ‘memorized dialogs’…in short, you won’t get a salesman that tries to influence and steer you in one direction or another. You’ll get honest advice tailored to your specific needs, goals and situation.

Call me directly at 561.602.1258 if you’d like to discuss anything real estate related.

And, as always, thanks for reading

Is housing going to get pushed over the cliff too?

There’s been non-stop chatter about the “fiscal cliff” lately. So I thought that I should discuss the housing component of the ‘fall from the cliff’.

The two major issues that will have an effect on housing: capping the amount of mortgage interest some can deduct from their taxable income, and eliminating the tax exemption on debt forgiven when a bank agrees to forgive the debt on the loss they take on a home being sold for less than the mortgage amount, either through a short sale or foreclosure sale.

Also, a tax deduction on mortgage insurance is set to expire at the end of this year. Mortgage insurance is generally required of borrowers who make down payments of less than 20%, so eliminating the insurance deduction could raise costs for millions.

One more issue, not directly related to “the cliff” but on the same timeline, is the Federal Reserves “Operation Twist”, whereby the Fed (kind of) ‘trades’ short term securities for long term ones in an effort to keep long term rates, such as mortgage rates, extremely low.  If this comes to an end, especially in concert with the other fiscal cliff possibilities, it could be a disastrous combo for the tenuous housing recovery.

The National Association of Realtor (NAR) has made a clear call for help to sustain the housing market's progress in their Call for Action: Do No Harm to Housing. As stated on their website, "NAR's position is that the mortgage interest deduction is vital to the stability of the American housing market and economy and we will remain vigilant in opposing any future plan that modifies or excludes the deductibility of mortgage interest". A few days ago Speaker of the House John A. Boehner offered a potential path to compromise in year-end budget negotiation, as NAR spoke out that struggling homeowners need mortgage debt relief.

If the mortgage interest deduction is not eliminated, but scaled back to coincide with the current conforming loan limits for high-cost areas, (so rather than a million-dollar maximum limit, it might be scaled back to $625,000, for example, and interest on a mortgage higher than that figure would no longer be deductible), it may not have a major impact on the majority of housing markets.

But, the failure to renew the Mortgage Forgiveness Debt Relief Act could have a disastrous impact on short sales, and subsequently an increase in foreclosed homes, which always leads to reduced home values. Michelle J. Adams, an attorney in Rockville, Md., with a large practice assisting distressed borrowers, said that "for some homeowners the amount forgiven is a couple of hundred thousand dollars." If Congress lets the provision lapse, "the amount (owed in taxes) will be so prohibitive that many owners will walk away" - or file for bankruptcy, she said. Under the tax code, most forms of forgiven debt are treated as ordinary income – (with the temporary exception granted by Mortgage Forgiveness Debt Relief Act on principal residences) - unless the borrower is insolvent.

Concerned for the potential impact on economic recovery, Zillow pointed to the fiscal cliff in late November, saying, “The housing market has found real momentum of its own, but is not immune from shocks to the broader economy,” said Zillow Chief Economist Dr. Stan Humphries. ”If negotiations centered on resolving the fiscal cliff don’t inspire confidence in investors and consumers alike, recent home value gains – and, as a result, falling negative equity rates – could stall.”

Like I have been advising my seller clients for months…I believe that the current strong housing indicators are temporary…and if you are on the market or thinking about selling, I suggest you get it done soon!

If you’d like to discuss your situation with me, call me directly at 561.602.1258

Thanks for reading…Steve Jackson

 

Happy Thanksgiving to all !

Recent email I received:

"This guy at work says that Bank of America is paying homeowners to do a short sale through some new program called an HIN Incentive. I Googled HIN Incentive and couldn't really find any information on this program. Do you know what it is?

Answer: There are so many short sale programs similar to the HIN Incentive but none quite like it. It's a program initiated by Bank of America for certain preapproved short sales and works best if you don't have more than 1 loan on your home. Second lien holders often object to the cash payments.

The HIN Incentive is an enhanced cash payment incentive, paid directly to the seller at the time of closing if certain conditions are met.

How Does the HIN Incentive Work?

Let's say you have a first mortgage with Bank of America at $300,000, and your property today has fallen in value to $180,000. The HIN incentive is based on the sales price of the property, says Bank of America. The bank does not share its calculation formula.

One such seller qualified to receive almost $6,700. The enhanced relocation assistance or the HIN incentive was almost $4,200. The seller received her check at closing. It is subject to a 1099 for the existing tax year, which means the following year she will pay taxes on that payment because it is considered income for tax purposes. Still, free is free.

How Do you Apply for the HIN Incentive?

You can call Bank of America to see if you qualify for the HIN Incentive. However, you will receive a customer service representative. I hate to say this but the odds are about 50 / 50 that a person who answers the phone will have answers to your questions.

You can also ask us to open a file in Equator for you. That is the easiest and most pain-free way to begin the process. You will need to sign a third-party authorization. Once the file is opened in Equator, we will receive email confirmation. That email will be followed by another regarding borrower outreach.

BofA borrower Outreach means it is time for you to call the customer service number and discuss your foreclosure alternative options with Bank of America. One of those options is the non-government sponsored enterprise type of HAFA short sale program. Another is a GSE HAFA such as a Fannie Mae HAFA or a Freddie Mac HAFA. The qualifications for these programs vary.

Unlike the HAFA short sale, there is generally not much paperwork required for the Cooperative Short Sale program, apart from standard bank documents. By extension, there is little paperwork associated with the HIN incentive.

What Else Do You Need to Know About the HIN Incentive?

It's a fairly straight-forward process. After Bank of America qualifies the homeowner based on select investor guidelines, the bank will order a BPO (poor-mans appraisal) to establish fair market value. After market value has been established and the suggested selling/listing price has been given to us by the bank, we then list your home as a preapproved short sale. This means both you and the property qualifies for a short sale. Here are some other interesting bits of information about the HIN Incentive:

• Payments vary between $5,000 and $30,000.
• Homeowners can use the money to pay liens or outstanding bills or fund a trip to Las Vegas.
• You cannot submit an offer/contract until you are preapproved for the HIN Incentive.
• The home does not need to be owner-occupied; it can be vacant
• The short sale must close by September 26, 2013.
• VA loans and FHA loans are not eligible for the HIN Incentive.
• If you do not qualify for the HIN Incentive, you might still qualify for the Cooperative Short Sale program or one of the HAFA programs.

If you think that you may be in a position to benefit from a short sale..give me a call today. All calls are strictly confidential.

My direct line is 561.602.1258…Steve Jackson

Palm Beach County housing showing ‘green shoots’?

It’s all over the news…The housing crisis is over! In todays Palm Beach Post is this headline: Florida home prices bottomed earlier than previously thought, according to one study…and the article goes on to state that they just realized that the bottom was in 2009!

The bottom has been reached and it’s all up from here…Green shoots are everywhere!

Not so fast…There’s a good chance those green shoots will get swamped by the coming wave of distressed home sales!

I have been following (and charting…see below) the number of Lis Pendens filed with the Palm Beach County Clerk since 2010.

Here’s another tidbit from a recent Sun Sentinel article: It takes an average of 861 days for a lender to repossess a property in Florida, says RealtyTrac Inc., a California foreclosure listing firm.

Lenders are whole heartedly resuming foreclosures following the “robosigning” scandal in which bank employees admitted using faulty paperwork and fake signatures to take back homes.

Prices have rebounded in South Florida and across the state in recent months. But those gains could easily reverse when the coming wave of foreclosures hits the market.

As we all know by now, bank-owned homes and short sales typically sell for less than a similar home would sell for if not a distressed sale, thereby hurting the values of nearby properties…and specifically creating potential for nightmare scenarios with the  appraisals of non-distress-sale homes.

All the recent news stories are reporting that prices are on the upswing and have benefited from a change in the mix of homes sold with distressed properties – bank-owned homes and short sales -- accounting for only 22% of total sales, down from 31% last August.

Below is a graph of the median home price index charting back to January 2008. You’ll see, even with all of the excitement in the media the past few months, that we’re still below summer of 2009 prices. And all the the bumps in prices…they are ALL the summer buying season.

In Quarter one of 2013, when they are charting median sales prices for Oct-Nov-Dec 2012, what do you think the graph will look like?

So, to wrap up this cheery post…my take on all of the recent reports by the experts. They are wrong, period.

If  there have been over 10,000 foreclosure actions started so far in 2012, and a total of over 22,000 in the past 20 months and it takes, on average, over 800 days from start to finish, it looks like we are clearly in for a very large number of distressed sales…either as short sales or bank-owned sales.

As of today, there are 11,910 properties listed for sale in Palm Beach County in our MLS system…single family/townhomes and condos. Almost exactly TWICE AS MANY properties have had a foreclosure action initiated since 1/11 than are currently for sale!

Just for fun, lets say that 50% of those in foreclosure somehow resolve the foreclosure. That still leaves over 11,000 short sales or bank-owned homes going to hit the market in the not-to-distant future…and that is just the stats if they stop filing foreclosures today! (which is not going to happen)

The short sales may hit the market sooner, unless the owners are trying to stay as long as possible. But there is no doubt that there will be new downward pressure coming.

For about 6 months now I have been counseling my customers and clients that we are in a ‘mini-bubble’ that may last a few months longer. If you have equity…now may be your best chance for a while to sell.

As always, thank for reading…Steve Jackson…561.602.1258

If you have any comments on this post, or would like to suggest a post topic…send me a text or an email.

If we don’t sell it…we’ll buy it!

Once again, I have started to see this being promoted recently by mail, in the Neighborhood News and on the radio.

"If we don't sell your house in___days...WE'LL BUY IT!"

Sounds great...especially in this market. Worth checking out? That's what the agent is hoping you'll think. Get the agents phone to ring...but they'll never discuss the details over the phone..."much to complicated and need to see your home to see if it qualifies"...get the foot in the door. But there is NEVER a free lunch; there is always a cost associated.

But, particularly in this type of market, it would be "good business" if the agent NEVER bought any homes, or if they did, that they were purchased at such a drastic discount that the could quickly ‘flip’ the home and make some money. 

I have gone to several seminars where they promoted this (tactic/gimmick) and the dialog you will hear starts out something like this: " Mr./Mrs. homeowner, a big dilemma when making your move is deciding whether to buy 1st or sell 1st. Either way is risky as you could end up with 2 homes (or no home). Our unique/innovative/etc Guaranteed Sale Program solves this dilemma...you get our personal guarantee that if we don't sell your home in BLANK (30/60/90/120) days, we will buy it at a price acceptable to you. Now, WE take all the risk from you and you can immediately place a confident offer on another home". The Devil? it’s in the details:The hidden details usually follow some or all of these general guidelines:

• Must purchase one of the agents listings...or at least buy a 'full commission' home with them
• Seller must still pay a full commission on the 'guaranteed' sale
• Quite often an 'upfront' fee or guaranteed sale program fee of anywhere from $295 to fees in the thousands
• "Agreed upon" price well below appraisal/market value...could be as low as the 80% range, then subtract commissions, fees, closing costs etc.
• Original list price 5% below  sale prices of comparable homes
• May be a an additional fee involved
• Seller may be required to continually lower the asking price during the guarantee period...for example: 100%  for 1st 30 days, 95% day 30-60, 90% day 60-90, and so on until the “buy-out price is reached.
• Sign the listing agreement first...then the guaranteed purchase details come later
• There may be a maximum allowable program price
• Restrictions on home condition
• Use the language "I'll buy it for 'list' price", but fail to say that the 'list' price is the 80% ENDING list price

Now if they'll come right in and buy it for the price that they agree to list it for...

then that's putting their money where their dog and pony show is!

Think about these few points:

• With as difficult as it is to get a mortgage now, COULD your agent actually perform on their guarantee? And what will happen if they CAN’T perform? Ask to speak with their mortgage lender...do your due diligence as with any other buyer.
• If they don't need a mortgage and have a few million sitting around to buy homes that don't sell in 90 days, why are they a real estate agent?
• Are they "flipping" the purchase option to an investor? Are they going to list the home for the investor once they buy it?
• Can they assign the guaranteed sale price (as in a wholesaler)?

Good, solid, cutting-edge marketing, a detailed understanding of the local and national economic factors affecting home values, subdivision level market knowledge, ability to analyze trends...trust and mutual respect...THIS is what is needed today. Not MORE GIMMICKS!

Thanks for reading…Steve Jackson

561.602.1258

 

9/11/01

 

Palm Beach County Property Tax notices are out…was your home valued too high?

A few weeks ago the Palm Beach County Property Appraiser sent out the estimated property tax notices to every property owner which contained assessed and market values of the property.

This notice is not a tax bill. The Tax Collector’s Office will mail tax bills on Nov. 1. The Notice of Proposed Taxes is intended to give you an idea of what to expect when the taxing authorities work up their budgets for the 2013 fiscal year (Oct. 1, 2012-Sept. 30, 2013).

The value information shows your property’s market value for 2011 and 2012. Market value is based on the most probable sale price a willing buyer would pay in a competitive market. The 2012 tax roll is based on sales transactions that occurred in 2011.

If you believe the market value (and resulting property taxes) of your property is too high you have the right to appeal...BUT YOUR TIME IS RUNNING OUT! September 17th is the appeal deadline.

The procedure for a valuation appeal is as follows:

1. You can all the PB County Property Appraisers office and speak with a deputy appraiser. The main contact # is 561-355-3230, the # listed under Residential Appraisals is 561-355-2883. If still dissatisfied, you can then appeal to the Value Adjustment Board, an independent body consisting of two County Commissioners, one School Board member and two members at large, appointed by the County Commission and School Board.
2. The Value Adjust Board appeal: The VAB is set up to settle disputes between taxpayers and the Property Appraisers office. You can file your petition online HERE…but you only have until SEPTEMBER 17th…so don’t delay! Filing a petition will cost you a non-refundable $15 fee. HERE is what the actual petition form looks like.You can also file in person at the Clerk Governmental Center 1st floor office or any branch location. You can call the VAB at (561) 355-6289.

In hearings before the VAB you may represent yourself, seek assistance from a family member or a friend, or have an attorney or agent represent you.

It is recommended that you have evidence to support your petition. You can review the Florida Department of Revenue Web site for examples of evidence listed in Florida Statute 193. I am of the opinion that recent arms length transaction sales of similar properties can be the best evidence of value a homeowner can have. The county appraiser might compare your property with similar, recently sold properties to determine its market value, then multiply that by a set fraction, known as the assessment ratio. So if a property's market value is determined to be $100,000 and the assessment ratio is 80%, the assessed value for property tax purposes should be $80,000.

The next step is to check for errors in your assessment. Your local assessor's office can provide your property's record card which has information used to assess your property, such as dimensions and number of rooms; you can check that out HERE. Check that the square footage listed is correct for both the house and the land. If you find an outright error -- for example, the card says your home is 2500 sq. feet but in reality it is only 2000 sq. feet -- you may be able to show the assessor your blueprints or floor plan to get a reduction and skip the formal appeal.

Next, investigate the assessed value of similar properties in your neighborhood to see how yours compares. Look at property cards for homes of similar age and square footage with the same number of bedrooms and bathrooms. If you find that your assessed value is considerably higher than that of at least five homes (the more you can document, the better), you may have a solid case for appeal. Try to find comparable properties that are as close as possible to your own -- nearly the same square footage, in the same neighborhood, and with similar grades of construction materials.

Another option is hiring a professional real estate appraiser who will take a thorough look at your property provides the strongest evidence of its worth, but check whether your community allows outside appraisals in an appeal before you get one. If you go this route, find someone with national certification, such as through the Appraisal Institute or the National Association of Independent Fee Appraisers. Several factors contribute to the cost of an appraisal, but expect to pay about $250 to $500.

Also, if you’re friendly with a ‘competent’ real estate agent who is an expert in your area, they can provide you with a great deal of valuable information regarding the value of your home.

Lastly, there may be attorneys or other private companies that assist homeowners in challenging their tax assessment…I , however, have no experience with either and can provide no recommendations. I googled for tax assessment challenge companies and came across this one (no endorsement) And I found this book published by The National Taxpayers Union that may be of some help…(I’ve not read it and it costs $9.95)

There are specific evidence submission requirements plus you must bring all of your evidence to the hearing and be prepared to present it. When sending your evidence to the Property Appraiser, please provide two (2) copies. Do not submit evidence to the VAB clerk.

Here is a link where you can download the 2 page VAB guideline brochure.

Evidence sent before the hearing as part of the pre-hearing evidence exchange with the property appraiser should be sent to:

Property Appraiser
Governmental Center
301 North Olive Avenue
5th Floor
West Palm Beach, FL 33401

Good luck in your appeal!

Thanks for reading…Steve Jackson

561.602.1258