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What Real Estate Professionals Say

Through my weekly radio show, podcast and website at www.WeTalkRealEstate.com, we’re hearing the same questions from both professionals in the industry and current and potential homeowners. Here are some of the most common ones:

1. How do you bail out people when 53% of loan modifications are already back in foreclosure within 6 months?

2. If the majority of bad loans come from folks who are pre-qualifying with no income, or no qualifying loans what do you do once they don’t qualify?

3. I’ve got a good FICO score. Why is it taking so long for me to qualify?

FDIC head Sheila Bair has made the argument that modifying loans works, but only if the modifications are meaningful in the first place. Who is making this determination? What are the guidelines? It sure seems like it’s still every lender for them self—expect for the fact that we’re giving them money and saying, “Do as you see fit!”

No Long-term Advantage to Current Loan Modifications

Where is the consistency? Where is there any meaningful interaction between the banks, the mortgage insurers, the lender, the credit scoring organizations, and (how’s this for a novel idea?) the real estate professionals like myself? Between the time I spend working in my own business and the time spent with callers to my various shows and those on my social networking site at www.WeTalk247.com, I can honestly say I’ve got my finger on the pulse of the real estate economy.

I’ve got clients with mega-high FICO scores who are waiting for months to get qualified! Yet, others are pre-qualifying with no income, don’t end up getting the loan in the end, and we’ve just wasted time. So who wants that empty house now? The banks sure don’t want them!

Why Loan Modifications End in Default

When modifications don’t truly reduce payment- chances are good they will end in default! Since there are no standards of mandates for lenders in modifying loans, here is what we are ending up with.

Most home loan modifications:

- Result in higher payments

- Offer unaffordable terms that desperate homeowners accept

- Increase loan balances due to added fees and unpaid interest, or

- Leave homeowners owing more than the price of their home

Frankly, there is plenty of blame here for everyone: CEOs, banks, businesses and homeowners. The truth regarding homeowners who “didn’t know what they were getting into” is usually that they just heard what they wanted to hear. They wanted loan approval and a home. They didn’t look at possible interest rate adjustments and future ability to pay.

As a real estate professional, I go out of my way to educate my clients, and so do most of my peers. But you can’t make folks hear what they don’t want to hear. It’s given my profession a bad rap.

Here’s the bottom line. Until these huge issues are addresses, the loan modifications won’t have the long terms results desired. About half will continue to end in default.

Those of us in the industry every day have a perspective that no seems to be listening to. In order to solve these problems loan modifications need to be deep, realistic and long term. Want to know what else needs to be done? Dare to listen to the callers on my show. We’ve got some practical solutions for homeowners, real estate professionals and everyone currently affected.

Are you listening?

Office of the Comptroller of the Currency show that nearly 55% of loan modifications end up in default within 6 months.

Deo’s Web Blog

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The average 30-year fixed mortgage rate fell to 5.34% from 5.70% for the week ended Feb. 11, according to Bankrate.com.

The average 15-year fixed rate mortgage sank to 5.03% from 5.31%, and the average jumbo 30-year fixed rate slipped to 6.98% from 7.12%.

Adjustable rate mortgages also dropped over the past week, with the average 1-year ARM falling to 5.67% from 5.73% and the 5/1 ARM sinking to 5.37% from 5.5%.

Mortgage rates edged off the six-week high set the week of Feb. 4, helped by investor skepticism of Treasury Secretary Tim Geithner’s plan to attack the financial meltdown. Jittery investors sold stocks and bought Treasurys, lowering the yields and pulling down mortgage rates, according to Greg McBride, senior financial analyst at Bankrate.com.

“We’re going to continue to see volatility in mortgage rates between 5% and 6%. There’s a tug of war between the Fed and the Treasury trying to push rates lower, and the volume of government debt issuances that pushes rates higher,” McBride said.

Bankrate.com’s national weekly mortgage survey is conducted each Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets.

If it comes to pass, the program would blaze a new trail in the federal government’s foreclosure prevention initiatives. Until now, the efforts have focused on helping those already behind in their payments through interest-rate reductions and other loan modifications. The Bush administration had not committed any money to helping borrowers.

Obama, however, has pledged to spend at least $50 billion to help borrowers in trouble. Treasury Secretary Tim Geithner said Tuesday that the administration would release its plan within a few weeks. He and Housing Secretary Shaun Donovan have been meeting with banks, housing advocates and trade organizations this week to listen to their foreclosure prevention proposals.

Details remain scarce, but at this point the subsidy plan entails having struggling homeowners take an affordability test and undergo a re-appraisal to see if they are eligible. The subsidy would allow servicers to adjust the loan terms without having the mortgage’s investors take a loss, which should make them more open to the loan modification.

Assisting borrowers before they default would help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.

“This will help put a floor on home values,” said one person familiar with the negotiations.

Obama’s plan is also likely to include ramping up the streamlining of modifications for borrowers already in default. Already, several banks and Fannie Mae and Freddie Mac are working with homeowners to make their monthly payments more affordable by reducing interest rates, lengthening loan terms and deferring principal to the end of the loan.

Stocks on Wall Street reversed early losses after reports of the plan began to surface.

Meanwhile, lawmakers and regulators are asking financial institutions to halt foreclosures until Geithner unveils his plan. Rep. Barney Frank, D-Mass., said that 95% of banks should put a temporary moratorium in place.

Foreclosure filings – default notices, auction sale notices and bank repossessions – continued to climb in January, though at a slower pace than the month before, according to RealtyTrac. That was still 18% higher than in January 2008.

Lenders repossessed 66,777 homes in January. A total of 1,081,395 homes have been lost to foreclosure since the housing crisis hit back in August 2007 – cnn.com

• FOCUS: How do you get to where you want to be unless you know where you are going? I always teach my clients a visualization technique in which they imagine where they want to be professionally in one year from today. How much money do you want to be earning? How many hours a week do you want to work? What kind of clients do you want to work with?

• STRATEGIES: Once you’re clear about where you want to be, you need to create strategies to get there. I tell people, “If you already knew what strategies to use, you’d probably already be there.” Strategies help you to chunk big visions into tangible, bite size action steps.

• ACCOUNTABILITY: How accountable are you to yourself? Most people I meet in business for themselves find it far too easy to slide in keeping their agreements with themselves. The magical thing about coaching is that when you have a witness to your accountability, you are much more likely to do what you said you’d do. Just knowing that someone cares and will ask you every week, “How did that action step go?” is huge incentive to staying on track.

• DISCOVERY: As a former psychologist, one of my passions is helping people discover how they block them themselves and get in their own way of success. What I find is that everyone needs to reprogram some self-limiting beliefs, like “I don’t have what it takes to succeed” or “I don’t deserve to have a lot of money”. Another block is that most people suffer from subconscious sabotaging strategies, like procrastination. These need to be reversed. Finally, everyone I’ve ever met has a monstrous, overly developed inner critic, which I call the Gremlin. In discovery you learn to identify the voice of you Gremlin and learn to tame it way down.

• PERSPECTIVE: We all spin our wheels and get caught up in our narrow perspective. The best investment we can make in getting more clients is to have people around us that give us the option of another perspective.

• SUPPORT: If you are in business for yourself , you need all the support you can get. As you put yourself out there to get more clients, you are assuming the responsibility of helping these clients. Who helps you? Who do you lean on? It is invaluable to have a support team or a committed ally in your corner.

• CELEBRATION: How often do you celebrate yourself? As a coach who teaches people how to get more clients I find that learning to celebrate not only your successes but also your efforts is the way to a long a healthy career. By learning to stop, pause and validate yourself for what you’ve done keeps this process light, fun and exciting. Also, think of how impossible it is for your gremlin to beat you up, if you are busy celebrating yourself! It is one of of the joys of my work that I get to help people truly celebrate themselves.

Vacation and retirement are the primary markets the Strohms serve

“We are a 2nd home tourist destination. 95% of our purchasing clients are from “out-of-state,” Rick, Sr., told me as we began talking. “Geographically, our clients are from all over the United States, which makes our website, www.rickstrohm.com, the key ingredient in our business.”

Now, we all know how the 2nd home market has been hit in many places due to the overall economic uncertainty we have all experienced in the last two years, but Rick told me of a truly unusual situation that affects his business: the local market of the shopper is experiencing decreases in valuation of 30% or more, so the shopper is reluctant to purchase that second home for fear of it devaluing, even though values might even be increasing in a particular market.

I asked him if his status as an Internet Realtor was a major factor in his success and ability to continue to prosper in these times. He responded: “It has everything to do with that. Our market values here in the mountains have not declined at ALL – in some instances they have increased. We do not have the foreclosure debacle as is experienced in many other parts of the country.

“Our market has ‘slowed’ considerably due to what is transpiring in our prospective local buyers neighborhoods,” he continued. “Prospects’ hesitation has been the fear of ‘decreasing market value’ subsequent to purchasing here in the mountains as they have seen in their neighborhoods all over the country.”

Walk-in traffic has evaporated

“Our web presence has been our only contact with prospective buyers, as the ‘walk-in traffic’ has almost diminished to zero. Our web contact has enabled us to educate those buyers on our local market conditions and put them at ease,” Rick continued.

Building relationships with instant communication
He then proceeded to relate a true story about one of his website leads and the economy’s shock last October turning out other than he thought it would: “One of our recent transactions was to a dentist and his wife from the Chapel Hill [N.C.] area. They had visited the home after selecting it online through our site and they were totally enthralled.

“A buying decision was imminent. Then the stock market crashed (this was around October 2008). The clients had left here and returned home to arrange their financing with their mortgage broker when we got the call that they had lost in excess of $500k in one day in the stock market and were now backing up on the sale. During the next 3 weeks, we stayed in contact with both the seller and buyer(s) in an attempt to put the deal back together, understanding that our client had experienced a significant loss. Our conversation was more in ‘consoling’ than ‘selling.’”

“We look at our clients as future neighbors and friends here in the mountains, so it is simply wise to have their best interests at heart, due to the fact that we are going to see them on a regular basis. (We don’t try to talk a ‘friend’ into purchasing a $300,000 second home when he has just lost $500,000 in cash in the stock market.)”

The client chose the better investment
“The clients appreciated our compassion and understanding, but there would be ‘no sale.’ To our surprise, we received a telephone call at 9 p.m. at home about two weeks later. The buyer stated that they greatly appreciated all of the assistance that we provided them during that period of time (which included substantiating market and economic data specific to our real estate environment). They were calling to let us know that they had made the observation that a real estate purchase in our marketplace was a ‘far better alternative’ to any investment in the stock market at this time.

“They purchased their dream log home in the mountains and we now see them every time they come back to the mountains. We believe that this website buyer was calmed by our accessibility and by our immediate communications as undertaken online and by telephone. You see, we receive all ‘hits/sign-ins’ to our website immediately through our Compass lead capture system on our Blackberry and by email. We contact them and respond by telephone within 10/20 minutes.”

Nice story, but what about the rest of the business?

“We firmly believe that if your real estate practice is not website-based, you won’t be in business long. Your website will be your ‘life blood’, as it is ours. We are in a particular environment, here in the mountains, where there is NO industry other than tourism. We rely 100% on our website to pull in out-of-state buyers, and-in truth-100% of our leads come from our website and in just the last few months, 8 of those leads have turned into closings. We share our website at every listing presentation.

“As a matter of fact, it is the primary marketing tool we share – the website is far more cost effective than print advertising. When we first started with Compass, it took three months until we sold our first property from our site. Now we sell almost all of them from our site. We’ve learned to follow the advice we receive from our Compass CSR monthly, and we value that when we call to ask a question, we speak to a real human being who is knowledgeable and eager to help us sell more homes instead of trying to sell us something! In all honesty, we were very fortunate to have contacted Compass and subsequently subscribe to their services. It is absolutely a blessing! There are many folks out there that promote the same services that Compass offers, but none that delivers! We never sold a home online until we hired CompassSearch. We now understand that not all SEO companies are alike, just as all Realtors aren’t. We truly understand other Brokers frustrations because there are very few of us out here that have the ability, through research, to determine the validity of the proposed services. They deliver for us and we are very grateful.”

The lesson here is clear: regardless of what you sell or where you sell it you will sell a lot more of it with the proper online marketing strategy. The Strohms are professionals, and by embracing fundamental technology, they continue to prosper when so many others are leaving the business. Their market may not be like yours, but their success can be yours.

About the Author: Mike Parker specializes in online marketing services for Realtors® and real estate professionals. Obtain a free copy of his booklet “SEO Secrets for Realtors” by writing to seosecrets@compassinternetsystems.com. It will be sent to you free and no one will call you. To request a free review of your website to determine if it can be found by internet buyers and if it is search engine friendly, click here and it will be evaluated free.

1. Mortgage rates will drop, then rise, and finally stabilize

* Rates will be at a historical low in the first part of the year.

* Rates will go up in early spring.

* Rates will level off after the first half of the year.

2. Investors will come back into the market in 2009

* The Federal Reserve plans to pump up the housing sector by buying up to $100 billion dollars worth of bonds issued by Fannie Mae and Freddie Mac.

* The Fed will also buy ½ trillion dollars of mortgage-backed securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae.

3. Buyers will jump off the fence and come back into the market

* With fixed rates in the mid-fives — combined with pricing at 2003 and 2004 levels — it is an excellent time to buy. Buyers will finally jump off the fence and back into the market.

4. Sellers will become creative with alternative ways to add value to their home sale with incentives such as:

* Interest rate buy-downs

* Seller financing

* Other incentives

5. Listing Inventory will go down as the market absorbs inventory

* Nationally, listing inventory will begin to go down as inventory is consumed by many markets where new home inventory is on the decline. Builders in 2008 focused on selling existing inventory and did not focus on building new projects so as the year goes on inventory numbers will decrease. Coupled with lower interest rates and higher investor confidence, this consumption of inventory will continue.

6. Market time will decline and remain on the lower end of the spectrum

* Days-on-market numbers will go .down in 2009 due to a lack of new home inventory coming on the market.

* With investors and buyers coming back into the market, the days-on-market numbers will level off and then start to decline in early spring.

7. Real Estate agents will leave the industry in record numbers

* Real estate agents that were not prepared for the 2008 market will continue to leave the real estate industry. Agents that hang in there and focus on great client follow up will be rewarded in 2009.

* Agents who remain will go back to basics to exist – then thrive — in the current market.

8. Builders will use auctions to sell off inventory; many will leave the business entirely

* Builders will turn to auctions to liquidate remaining properties.

* Builders will leave the industry due to financial pressures from the lack of 2008 sales.

* New construction will virtually grind to a halt as builders are unable to develop new product as a result of excess inventory / poor sales in 2008.

9. New home inventories will reach record low numbers in the fall of 2009

* Many builders stopped buying land in 2008, and will therefore be unable to build in 2009.

* Builders stopped building in 2008 and concentrated on selling standing inventory. As a result, they were not building new inventory. This will lead to an inventory shortage in 2009.

* Existing new home inventory will be absorbed by the fall of 2009.

10. Consumer confidence will improve in the spring of 2009

* Consumer confidence will improve in the spring of 2009, and buyers jump back into the market…carefully.

* Consumers will look to real estate agents for guidance in buying and selling.

11. Appreciation will be small to nonexistent in most markets as the industry stabilizes

* Most markets across the country will see little or no appreciation while the market stabilizes and inventory gets absorbed by the market.

* Some markets will continue to see their markets decline into the second half of 2009 as inventory levels stabilize.

12. The rental market will BOOM IN 2009

* It’s estimated that almost 2 million homes will be foreclosed on in 2009. This will transform many former homeowners into tenants.

* Banks will rent their real estate owned properties rather than sell at a substantial loss.

* Tighter credit criteria will force potential buyers to renew their current leases after they are turned down for a mortgage.

* Consumer fear and an uncertain employment picture will keep would-be, credit- worthy buyers on the sidelines, leading to reduced turnover in rental housing.

* Americans who have realized a loss by recent homeownership will decide that ownership is not worth the risk and trouble. They will sign a rental lease and happily return to rental living.

13. “In demand” homes will become the “safe necessity” of 2009

* Smaller, green-built, and energy efficient homes will be in big demand.

* Home with a good location in relation to work and school will be in demand.

* Homes in the mid-range of price for their market will be in demand as more homebuyers become more frugal.

14. Real estate companies will merge in 2009

* Smaller real estate companies will merge with larger companies to make it through the market downturn.

* Competition in the industry will shrink as the number of companies and the numbers of agents is reduced.

15. Second home markets will see far less activity; many will suffer in 2009

* Second home markets in many markets will suffer due to the financial losses owners of second homes experienced as their stock portfolios, pensions, or other investments devalued and deteriorated.

* Second home markets will suffer due to consumers’ need to relocate assets and financial priorities.

While we will see adjustments in 2009, it’s sure to be a much better year than 2008.

He advises renters to take action immediately and start saving part of their paycheck every month to help accumulate a down payment. He also encourages renters to borrow 10-20 percent less than what the bank is willing to lend; that way they’re only buying as much home as they can afford.

The longer you rent, the longer it may take you to eventually get into homeownership. If the market conditions have scared you, perhaps you’re not looking at the other side of the coin. Owning a home becomes part of your investment portfolio, provides tax benefits, allows you to build equity (it still exists), and, if you buy now, you may get an excellent deal.

According to a MarketWatch news article, buying a home now can provide some real negotiating power to request improvements, price reductions, help with closing costs, and more. “People can get a lot of what they need and almost all of what they want today,” said Jay Papasan, one of the authors of “Your First Home”.

While poor market conditions have created a troubling situation for some homeowners, the downturn has made the buying market ripe for others. The affordability of homes is better than ever. The National Association of Realtors’ housing affordability index concluded that homes in December of 2008 were more affordable than at any other point since 1970 (the start of the index). And with numerous foreclosures on the market and prices dropping in many areas, now is a good time to buy. But in order to make your purchase profitable, here are some things you should consider.

How long will you be in the home? Some experts advise that if you are planning to move within a year, buying may not be the best option because of the expenses associated with moving. However, if you’re searching for a place to live for, at least, several years, buying now could be a good choice for you.

How much you can afford. Don’t let tighter lending regulations scare you off from making a purchase. Instead, understand what you truly can afford. Don’t get caught up in buying too much home. In fact, these days, the trend is moving toward smaller homes — simpler living.

Mortgage rates drop to historical low. How much home you can afford is affected by mortgage interest rates that, right now, are highly appealing. Good credit, documenting your income, and a substantial down payment will make you a better candidate for the better mortgage rates.

Freedom to choose. Now, unlike several years ago, the market has a large inventory in many areas. The market time to sell a home has increased which creates a large inventory of homes, everything including new, existing, and foreclosures. Buyers can peruse the market and have the freedom to select the home they really want. If you’re interest is in a new home, know that many developers are getting more competitive with their pricing because they also have taken a hit by the ailing economy.

Quality of life. Buying a home can create a higher quality of life, giving you pride of homeownership, and something to enjoy improving and developing over the years.

Tax credit benefit. Last summer, the federal government started providing up to a $7,500 tax credit to buyers who have not owned a home in at least three years; the tax credit must be repaid within 15 years. But that figure may increase. The National Home Builders Association and National Association of Realtors are pushing for more significant help for all home buyers — not just those who are buying for the first time. The Senate, as part of a stimulus package, this month approved a temporary new tax credit to be applied to homebuyers’ tax bills. The credit would give buyers 10 percent of the purchase price of any home, up to $15,000. Alan Zibel of the Associated Press writes, “Anyone who buys a home within a year of the bill’s signature would qualify. To deter speculators, buyers must occupy the house as their main residence for at least two years.” At the time of this writing, the stimulus package had not yet gone to the White House.

In the mortgage business, the interest of the lender is always stressed. Mortgage should aim at the security to the lender. The lender has the right to foreclose on the property if the borrower fails to repay the loan as per the terms and conditions. But the borrower can be excepted as the equity of redemption is there to protect the borrower’s interest. The borrower has the right to have an absolute right to insist on redemption.

Mortgage loan is a loan secured by real property through the use of mortgage. An individual purchases a loan from any financial institution. Any individual can obtain it against the property the borrower can purchase it from the bank in a direct way or an indirect way. While purchasing a loan the important factors are the size of the loans, period of maturity, procedure to pay off the loan etc.

There are some common characteristics of mortgage markets. The procedure of mortgage lending is regulated by the Governments. Government regulates it directly or indirectly. Generally direct lending is regulated by the Government or state owned banks etc.

The mortgage loans are commonly long term loans in feature. The borrower can pay the principal part of the loan in a slow process.

Mortgage loans are of different kinds. Mortgage markets are generally regulated by local regulations and legal requirements. The mortgage interest is fixed for the life of the loan. It can vary under certain circumstances. The interest rate may change. It can higher or lower.

An amortizing loan is generally paid when the maximum tenure of the mortgage loans is over. An amortizing loan is of two different kinds. FRM (Fixed Rate Mortgage) and ARM (Adjustable Rate Mortgage). Generally FRM is looked upon as mortgage in the right sense of the term. The latter one is known as floating rate or variable rate mortgage. This is a very common feature in the mortgage market.

Again a commercial mortgage refers to the loan which is made using real estate. It also aims at repayment. In this mortgage the real estate is the commercial property or business. It does not include the residential property. Unless the repayment is made, the lender can seize the real estate but cannot proceed further. Laws are implemented so that the borrowers can be excepted in case of repayment.

The role of the mortgage brokers is indispensable in mortgage lending business. Actually they act as a conduit between the lenders and borrowers. The borrowers like them because they represent varieties lenders and loan programs. Lenders also like them because the lenders can continue their business without doing any marketing.