Lenders are hurting our housing market

Last article was about how short sales are more commonplace.  What you are not seeing is how some of the lenders involved with these properties are dragging down the overall housing market.

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In a normal process, a seller and their agent will often respond to an offer the same day or within a day.  This keeps the motivation of both sides connected together.  However, with most of the short sales I’m seeing today, the lenders are taking 45-60 days to respond back to a willing buyer who has presented a credible offer!

Why so long, you ask?

1)    The lender needs an entire financial package from the homeowner that proves he/she cannot afford the loan (most listing agents will have that done before or as the home is listed so that won’t be a cause for delay.)
2)    The lender needs to order and receive 2 appraisals to see if the current offer is close to market value (This should only take a few days)
3)    The lender needs to review the original loan files and application to see why this has gone bad (makes sense to me, but we are still getting loan approval for new buyers within a week even in today’s tighter credit market.)
4)    The lender needs time to research the original loan/sale participants in case there is fraud being committed – the borrower, their loan agent and officers, the appraiser, the Realtors.  Ok, maybe a week more.

I cannot see where we get 6 weeks from those activities.  By the time lender approval is granted (after 6-8 weeks) the original buyer has most likely lost patience and have start looking or even already bought another property. 

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What kind of buyer waits 60 days to hear if their offer is accepted?!  Ah, one who is willing to put up with the “pain” and uncertainty.  But pain has a price.  Buyers are now discounting almost any short sales by 10% because of the “pain” factor of having to wait 60 days to hear if they have a deal.  Of course, the lender is never going to get the best price if they take 2 months to grant approval – what are they thinking?

Even more unfortunate is the suffering that non short sale sellers are experiencing.   Now that we know the short sale inventory needs to be priced below market to get buyers attention and attract a patient buyer who is willing to go through the long and painful process, the normal and regular homes priced at fair market value will sit on the market longer.  Or worse yet, they will need to drop their price to compete with the short sale sellers and get buyers attention.  Either way, this is not a healthy result because no one wins.

What I don’t understand is how lenders are laying off people because real estate transactions are down and they are not placing as many loans – so why not put those people to work on short sales who get offers so we can all move quickly and everyone is happy.  If lenders can’t speed up the process, we all need a dose of patience.

-mark

Countrywide

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We are starting to see some even bigger news in the financial and lending business.  Bank of America is deciding to follow it’s $2 Billion investment in Countrywide with another $4 Billion to take over the entire company. 

First off, I’m not sure the announcement is a “done deal” because there will be a governmental review of what the new Bank of America has and controls.  But, assuming that it passes, one very large bank and lending institution will be created.

Countrywide has rebuilt itself from it’s lowest point in the mid 90s to become the largest lender in the US.  However, if you look at how they got there – by making the riskiest adjustable rate mortgage loans a majority of the types of loans they made and resold into the market.  They are now paying the price for that risky growth path with the highest rate of defaults they have ever seen.

So what does it mean to me?  Even though I believe this is a huge event for the industry, it probably does not mean much to the average consumer – but we should all be happy this happened.  If Countrywide went into bankruptcy it would be an ugly event for the housing industry and for the country.  This acquisition will not solve any industry problems immediately, but it will help add some stability.  I believe we are only seeing the beginning of such actions in the financial markets.  Meaning, players like E-Trade and Schwab who jumped into the lending market when it was hot are now holding some bad loans.  As more of these problems come to the surface, I think we will see many more mergers and acquisitions with Chase, Citibank, Schwab, etc over the course of 2008.

Those are my thoughts, what do you think?

-mark

Do you REALLY want to buy a foreclosure?

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We hear this almost everyday these days.  Yes, there are quite a few foreclosures coming into the market, and if you believe the media, there may be more on the way.  However, not all of them are good deals.  Let’s take a look at what we mean. Essentially, there are 3 phases of the foreclosure process and each one contains a different buying opportunity.  We’ll describe them here as we know them under the current CA real estate practices.

First, there is the pre-foreclosure time, which may also be called the “short sale” time.  This is when a homeowner begins to get behind on their payments and the bank has agreed to look at offers that fall short on what is currently owed.  The owner and the Listing Agent need to negotiate with the bank(s) to make sure they accept the highest offer that comes in from a potential buyer.

Second, there is a window of time when a buyer can make an offer to buy a home “at auction” as the foreclosure court hearing occurs.  This is a public hearing where the trustee (middle-man between the lender and the borrower) completes the legal repossession of the property and transfers title back to the lender.  It is possible to buy the home at that time provided you are the highest bidder.

Finally, there is the time after the home has been taken over by the bank and is listed for sale with a Realtor.  This is what we call an REO property (Real Estate Owned by the bank).

Buying in the second window, at the time of foreclosure, is the riskiest and least recommended path.  You need to buy in all cash, or at least be able to close the transaction by the end of the business day – and with the Bay Area average sale price at $800,000, this means you need to have access to a lot of cash.  Also, you do not have the benefit of title insurance and since you acquire everything with the property you run the risk of buying a home with a mechanics lien for $10,000 by the roofer who was never paid (just an example).  Lastly, you don’t have any time for inspections – you have to take the property AS IS.

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Buying an REO is better because you have most of the benefits of a normal sale – title insurance so you know the property is free and clear; a contingency period where you can get inspectors to tell you what to expect for the condition of the property; and your own Realtor to negotiate for your interests.  The only thing you won’t have is a homeowner to disclose the history of what improvements and repairs have been made.  Provided you have good representation from a Realtor and team of inspectors, this can be a good buying opportunity.  In many cases, the bank will price the property under market value because they want to sell the home quickly so multiple offers could happen (we just experienced one lately where 6 offers came in within 4 days of being on the market).  There are dangers however, since most homeowners begin to care less and less about the home as they are foreclosed upon, the condition often deteriorates.  (we just saw one recently where the owners took the oven, kitchen cabinet doors, and the faucets with them when they moved out!)

By far the best time to buy a home is in the “short sale” stage.  The owner is available to ask about the property condition and history; a Realtor is representing the seller and negotiating with the bank to get the home sold; title insurance is in place to make sure the home is free and clear; time can be negotiated for inspections and reports; and the bank has not invested a lot of money in the legal or court costs of the foreclosure process.  But buyers need to be patient because not all banks are efficient when it comes to dealing with short sales.  Some banks are stubborn – they know they made a bad loan to a homeowner who is costing them money, so they are unwilling to negotiate (see Patio Drive).  However, the vast majority of lenders are trying to move through this market swiftly and stabilize their portfolios which means they are taking all reasonable offers.  Right now in Santa Clara County we have 1 out of 7 homes for sale are listed as short sales.  Of course differences vary by location but you might find a great deal in some areas if you know how to search!

So do you still want to buy a foreclosure now — or you are just looking for a great deal?

-mark

2007 Food Network Party – Part 2

Wow, what a great party and special thanks to everyone who joined us for the last Saturday of 2007 to make it a very memorable night.  I don’t think anyone has ever tried to organize something like this before, which made it very exciting.

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Picture this: You have to bring a dish to a potluck party.  Ah, but this is not just any pot-luck party, this party’s theme requires you to select a dish from a menu of previewed items of the online receipts.  What a concept – someone call HGTV!

Our only drawback from this approach is that as each person or couple arrived, they may need access to the kitchen to make final preparations.  It was a frantic picture, but we managed.  As each dish was completed and plated, of course it had to be photographed next to its own label naming the dish and chefs.

You can review the list of everything we tried.  There were great salads and appealing appetizers, gourmet main dishes of lamb and scallops, and decadent desserts that included a custom-mould gingerbread house made by famous cake decorating expert, Laurel.  There was even a blended eggnog cocktail that was VERY popular.  We totaled 27 entries in all and each one was unique and incredible!

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All this was all accompanied by 9 different bottles of wine that we enjoyed from 6pm until our last guests left at 1:15am!  We can’t think of a better way to wrap up 2007 and welcome an exciting new year than a unique party of friends willing to go outside the box to prepare and share good food!

Happy New Year!

Ps1. For Sabrina’s version of story, please click HERE.
Ps2. For more pictures, please click HERE.

– 2007 Food Network Party Potluck Final Menu –

DRINKS

Santa’s Sleigh Cocktail   – Delia & Julio
Holiday Mulled Wine Cider – Mark E. (see receipt in the bottom )

SALAD

Holiday Salad   – Amy & Doug
Pear, Stilton, and Chicory Salad with Crispy Chestnuts  – Jonathan, Dianna, and Matt 
Five-Spice Chicken Salad in Wonton Shells  – Min & Bill   
Orange Juice-Braised Sweet Potatoes
    – Julia & Jason
Eggplant and Mozzarella Roll-Ups   – Shira & Jory
Crab Salad with Ginger and Dried Orange Peel    – Pamela & Luke
Parmesan Cheese drizzled with a honey infused truffle oil  –
Delia & Julio
Tomato, basil,and mozzarella kabobs
   – Delia & Julio

LAMB

Lamb Meatballs with Mint  Mark E.
Leg of Lamb with Caper Sauce   Jonathan, Dianna, and Matt 

BEEF

Beef Stew with Belgian-Style Pale Ale   Linda & Greg
Beef Yakitori with Eggplant   Sabrina

PORK

Spicy Pork Kabobs with Moorish Flavors   Heather & Eddie

CHICKEN

Herb-and-Cheese-Filled Chicken Thighs   Annie & Chi 
Honey, sesame and ginger chicken   Sabrina

SCALLOP

Seared Scallops with Tropical Salsa   Anita, Michael and Frank
Scallops in a Saffron and Rioja Wine Sauce   Julie & Harry

SHRIMP

Shrimp Marinated in Lemon and Olive Oil    Tao & Anders   

DESSERT

Apple Coffee Cake    Catherine & Bruce
Orange Cardamom Cookies   Tao & Anders
Tapioca Pudding   Linda & Greg
Berries with Balsamic Vinegar   Anita, Michael and Frank
Ginger Bread House   Laurel & Howard
Wine  Michael Wen
Wine Bob Brooks

Cranberry Mulled Wine

1 750ml Bottle Wine – Yellow Tail Shiraz works nicely
750ml Martinelli Apple Cider
2 Cups Cranberries
2 Lemons
2 Limes
2 Oranges
1 Cup Sugar

Start
by heating the wine on medium, add the cranberries.  Cut each of the
fruit in half.  As you put each piece into the heating wine, squeeze
each one into the wine but try to make sure that the seeds do not get
into the mixture.  (if they do, you can pick them out or strain later).

Allow
the wine and fruit to heat slowly (about ½ hour) but not boil if you
can; here you now need to wait until about half the cranberries pop to
release their juice (you will hear them as they pop).  Now add the
sugar and apple cider.  Return to low heat for about ½ hour.

Serve warm.