Refinancing of upside down mortgages

November 16, 2009

Over my many years of writing about different real estate events to our subscriber base, I have never been as excited about something as what I am about to tell you today.

In normal “NoBullRE.com” fashion, we don’t want to overhype anything but I am about to share something that will rapidly create its own hype…

So, without further ado, here it is:

IF YOUR MORTGAGE IS SEVERELY UPSIDE DOWN, SOMEBODY IS READY TO BURN YOUR CURRENT MORTGAGE AND REWRITE IT AT 95% OF TODAY’S VALUE

…… And This Is True For Investment Properties As Well!!

So, for example, let’s say you face the following scenario:

• Total Of All Mortgages:             $300,000
• Current Value:                             $175,000
• Current Princ. + Interest:         $1,800/month

Now, suppose our investor BUYS (not renegotiates but BUYS) your mortgage from your lender and then provides you a BRAND NEW mortgage with the following terms:

• Mortgage Amount:                    $166,250
• Current Value:                             $175,000
• New Princ. + Interest:              $1,050

And they will do this (at least currently) for zero upfront cost to you (zip, nada, zilch) and then only $3,500 when they offer you the new loan.  I know, I know….. you didn’t fall off the turnip truck yesterday but we are dead serious…. there is absolutely no risk (or cash outlay) to you.

Because of our experience with working with real estate investors, NoBullRE.com has been in behind the scenes of this emerging program.  The players are huge with about $1 Billion already committed verbally to fund this….  and that is simply for a little pilot program.

Further, we will tell you that this has NOTHING TO DO WITH:

• TARP FUNDS;
• LOAN MODIFICATIONS; or
• DEBT CONSOLIDATION.

This is good old fashioned capitalism at it’s best and is essentially the free markets coming up with a winning solution for all.

Also, please be aware that this is very, very, very ground floor.  We have been exposed to the intentions of the major players and we know the difficulties that they face.  For a little while, in our opinion, this program will evolve rapidly as all pieces are put into place and challenges overcome.

IF IT’S TOO GOOD TO BE TRUE THEN…….

“it just might work”.

Well that is not how the saying actually goes but in this case, it is true.  As we begin to roll out this program, we will FULLY EDUCATE you about it but for now, just realize that there is three parties that have to be happy in this transaction:

• The Home (Or Investment) Owner:                    DUH.   About As No-Brainer As It Gets
• The Investor That Buys Your Mortgage:         Trust me…. they buy CHEAP and they are very excited.
• The Bank With Your Current Mortgage:           Yes, they loose money but this is their BEST Option.

In our opinion, the biggest problem with this program is going to be over demand and just handling the logistics of large volume….. other than that, this program will be HUGE.

What’s Next

I wanted to write this piece today to give some of you hope even though we are not quite yet ready to open the doors.  Many of you are hurting out there and we are doing everything in our power to get this to you.

We are still ironing out a few details and burning the midnight oil.  When we introduce this program, we will likely have 250 units carved out specifically for our clients.

We will host a webinar to introduce this program to our clients and their direct friends and family.  We expect an almost immediate blowout so please pay attention as we begin sending out emails for this event.  This webinar may be as soon as next Tuesday but only if we have all the details slicked out.

We will update you soon.  UPDATE:  CLICK HERE TO REGISTER FOR WEBINAR

Where Real Opportunities Are In This Market: Our Case Study

August 26, 2009

I know we have been silent for a while here at NoBullRE.com. Quite simply, we have been busy doing real estate for our own accounts. Depending upon your location, you may be sitting on a small gold mine and don’t even realize it. In this upcoming series of articles, we will be providing an overview of what we are finding in our own market: Tampa, Florida. From the discussions that we are having with others around the country, you may find your market to be similar (and profitable).

So, over the next few days, here is our list of topics:

1. How We Are Getting 2-3 QUALIFIED Buyer Showings PER DAY, PER HOME.
2. The Unspoken Market….Where To Find 100’s Of Buyers
3. The Investor Myth: Why You WON’T Get Real Homes At 50-60 Cents On Dollar
4. How You Can Safely Profit From Us (And Probably Others)

We are getting ready for a big house sale in Tampa so I will do the best I can in getting this material out on a timely basis. However, we believe that for many of you around the country, it is important to learn from what we are seeing on the streets daily. Hopefully you can learn from our experiences and then profit.

How We Are Getting 2-3 QUALIFIED Buyer Showings PER DAY, PER HOME

Ever single day, I get 2-3 calls from realtors wanting to show our homes to first time home buyers in Tampa. So what is our secret? Let’s explore the possible reasons:

1. We Are Selling Dirt Cheap To Home Buyers: No, list price is 92% of fair market (and appraised) value;

1. We Have Spent A Ton Of Money Upgrading This House: No, our total rehab cost were $9,2000 and consisted mostly of painting, flooring, small repairs,

1. We Are Paying Extremely High Commissions To Realtors: No, we offer 3-4% to selling agents, just like everybody else in town;

1. Our Internet Marketing Is Dominating The Area: No, although we are big on internet marketing, it plays very little role in the area with simply listing on MLS the dominate factor.

Give up yet? Boy, this would be the perfect place to pitch a brand new course and all you have to do is pay XXX to get our wonderful secrets….. but I will make it even easier for you:

THERE IS REAL MARKET DEMAND FOR THESE HOMES

Let me explain. As we started to do our homework around Tampa and meeting with realtors, we kept hearing the same story, over and over again:

• 80-90% of the for sale market is short sales & bank REOs;
• New first time buyers just want to buy a house, not wait 6-9 months on a short sale or have to pay cash for a bank REO (and then fix it up);
• Almost all other properties actually for sale by owners are priced too high because they are upside down

Simply put, if you have a decent house, in move-in condition, and not a short sale, it will get traffic (in the right areas). One thing that most people don’t realize is that there is a good volume of people out there that did not own property in this latest RE crash. These first time buyers are sitting pretty and just licking their chops to find a good home and be able to buy for less than they are paying in rent. Realtors in Tampa are telling us that this is the best market they have seen in 3 years. All the while, the newspapers are still full of gloom and doom.

So, here is a tip for you. If you are interested in an area or even an investment property that somebody is trying to sell, call three realtors and tell them you are considering acquiring a property and turning around for resell. Talk to them about the market, realistic prices, etc. You may find out that you have a great opportunity already waiting for you.

Best REO Cities: Where Should You Buy?

June 29, 2009

For many people around NoBullRE.com, they have an interesting dilema:

They have cash, good credit, are excited about this market, but don’t know where to buy an REO property.

Frequently, their emails are bombed several times  a week from groups in Atlanta, Detroit, Pheonix, Kansas City, etc, etc, etc with great properties and they just get totally confused.  A common question that we get is how do I choose one deal, relative to another.  Our advice….. first choose the location where you want the deal.

Without stealing our thunder for tomorrow night’s webinar (sign up here), I will at least share with you how we approached this same question.  You see, we had the choice to locate our REO activities anywhere in the country and have decided on one specific location…. and this includes picking a location to add properties to our own portfolio.  So why did we pick Tampa over all the other interesting places?

In theory, this question would be easy to answer….. simply ask the question “in which location will a home that you purchase produce the most net profit (combination of cashflow and resell profit)”.  If we just pull out our magic genie, should be no problem to answer….. yeah, right.

Given that NO ONE can predict the future, then the next best thing we can do is ask:

What major city has REO properties that are most likely to produce high returns?

To help ourselves determine that city, here is the questions we asked ourselves:

1. What cities can we get sub $100K properties that ARE NOT IN WAR ZONES; AND
2. What cities can we get good rental income relative to price; AND
3. What cities have banks that are NOT PANICKING; AND
4. What cities are showing signs of stabalizing; AND
5. What cities have professional real estate investors that are bullish (rather than scared).

We have highlighted AND in red because we see a common mistake where people get confused….. they maybe focus on where the get the BEST cashflow or where they get the BEST price.  While that may make sense short term, we don’t believe that is how you maximize your returns in this market.  In our opinion, you need to find the location and the property where you give yourself the best shot at all the criterion above.

In our webinar tomorrow night, we will be diving into this question and how we answered for ourselves.  You may, or may not agree with our conclussions but we believe you will find the approach very informative.

Sign Up For Our Webinar.

NoBullRE.com Alert: How To Increase Your Cash Flow By 82%

June 18, 2009

In this market, everybody wants to increase their cash flow.  I don’t care if you are a real estate investor, a realtor, a business owner, or most anything else, producing cash flow is top of everyone’s mind.  Especially if you could almost double cash flow with a minimal amount of effort.  That is exactly what a close friend of mine has done recently and I thought the NoBullRE.com community would find his story interesting to see how it applies to their situation.

Make Your Phone (or Email) Ring…. The Only Answer

Let’s play a little game of what do these people need to increase cash flow.  As the figure shows, regardless if you are a real estate investor or any other business owner, one of your biggest needs is for the phone to ring.

Now, from my friend Larry who owns a local hurricane shutter installation business.  His results:  Phone calls almost doubled (along with sales) over a 2-3 month period.  Guess what?  His cash flow picture approximately doubled as well.

How Did Larry Double His Business?

Very simply….  He SUBSTANTIALLY increased his exposure where people where looking for exactly what he does.  The funny thing is that he increased this exposure in places where very few competitors even begin to know how to play.  Where did he do it?

The Web…. here is what his visits have looked like.

But Larry had a web site for a long time with ALMOST ZERO VISITORS.  So what happened to explode his call volume?  Very simply, Larry took the steps to DOMINATE in Google and other search terms.   Take a look at this Google output and Larry now owns 4 POSITIONS in Google first page.

Think about it…… somebody does not sit down at their computer and randomly search for phrases like “Destin Hurricane Shutters”.   At that exact moment in time, they are very interested in finding someone that can help them with that topic…… Larry has just put himself in a position to be that person.

Now, also look at Larry’s rankings in other, related search terms.  For a real estate investor, maybe the search term would be sell my house fast Tampa.

Larry is my long time fishing budding and now have to apologize to him…… he has gotten so busy he is having a hard time finding time to fish.

Larry Didn’t Lift A Finger To Do This

Larry will be the first person to tell you he knows NOTHING about getting his website in Google.  As far as he is concerned, it is pure witchcraft (in reality, its is very predictable).

How Larry did this is to participate as a beta test partner for a new, local web positioning service that is in launch stage as I write this.  The cool thing about this service is that a group of techies have figured out how to slash the cost normally associated with getting a web site to dominate.  Normally, this service is cost prohibitive except for those with revenues to $1M+ per year….. unfortunately, that leaves a lot of people out in the cold.

Instead, for applicable businesses, this new service can place them for a SMALL FRACTION of that cost.  As Larry recently stated:

“I can pay for a whole year’s worth of service with a single sale….. becomes a no-brainer for me and I would pay them lot more.”

FULL DISCLOSURE:  I am a partner in this venture that has been in development for about 18 months.

A Unique Offer:  We Need A Few More Larry’s To Fine Tune Our Launch

I want to make a unique offer to a few more “Larry’s” and thought that we would do this with some NoBullRE.com readers.   Specifically, by helping us fine tune our systems prior to launch, we will:

• Give you a custom software tool that we use (no cost) and training to find unique niches that will work like Larry’s;
• Consulting (no cost) with one of the principals (or me) to make sure you have the right approach.
• Over $1,000 off the cost of the service.

It is vitally important to us to work closely with a few charter members to really iron out our systems prior to launch.  If you are interested in this opportunity, then simply put your first name and email in below…. From there, we will provide you our custom software tool and video training so you can decide if this is right for you.

First Name Email

See Future Website: www.eMirrorMarketing.com

Foreclosures Down — But Are They?

June 12, 2009

We are getting some more mixed news this morning on national foreclosures.  On one hand, foreclosures have dropped compared to last month.  On the other hand, the number of foreclosures is above 300K which is still a HUGE number historically.  Now that the foreclosure moratorium is beginning to lift, we will definitely see some of this type activity for a while.

In today’s Washington Post, they write:

Foreclosure filings fell in May compared with the previous month, but remain at elevated levels, according to data from RealtyTrac released today.

The firm counted 321,480 filings nationally, which can range from default notices to bank repossessions. That was down 6 percent from April, but an increase of nearly 18 percent from May 2008. RealtyTrac, a private firm, says its data include more than 90 percent of U.S. households.

Despite the dip, this was the third month in a row that foreclosure filings exceeded 300,000 and the third highest monthly total since the firm began collecting the data in 2005, according to RealtyTrac. The company estimates that in a normal market, filings would fall to under about 100,000 a month.

via Foreclosure Filings Fall in May - washingtonpost.com.

As we move forward through the coming months, we will continue to see a lot of mixed data such as this.

Housing Inventory Drops Again - The Market Continues To Improve

June 10, 2009

A number of news outlets are reporting today that housing inventory, which is the amount of homes that are for sale, dropped 3.9% this month.  In some areas of the country, housing inventory is actually returning to almost normal levels: of course in others, things are very much out of kilter.

This ties in very much with our data that we recently showed in the Tampa market where cash buyers where going turbo.  See: Tampa Cash Buyers Fuel Local Market.  As market begin to return to normal, we are going to see lots of mixed signals (some good, some bad).

While we are not predicting an INSTANT market rebound, we are seeing consistent pieces of information that this market is trying to turn.

See Wall Street Journal Article On Housing Inventory

GO Zone Extensions, Deadlines, & Tax Benefits Simplified

June 5, 2009

NOTE: Did You See Yesterday’s Email About A Model Home Opportunity?  (Click To Read)

With the taste of Summer now in the air and with Tax season still fresh on everyone’s mind, I have been receiving a lot of questions from real estate investors who are looking for clarifications on the GO Zone time lines.  “So when exactly do the benefits end?” is the most common question that I have been receiving and more so as we approach mid-year.

GO ZONE EXTENSION

As you may already know, the IRS put an extension in place that extended the benefits of the GO Zone out until 2010.  The catch?  Well first of all, the extension ONLY extended the tax benefits of the GO Zone in certain areas.  In certain locations in Mississippi and Louisiana, you can still claim bonus depreciation benefits through 2010.

In Mississippi, the eligible counties are:

• Harrison County;
• River County;
• Hancock County;
• Stone County; and
• Jackson County.

For Louisiana, the list of parishes include:

• Orleans;
• Cameron;
• Plaquemines;
• Calcasieu;
• St. Bernard; and
• St. Tammany.

Note that in Alabama, the GO Zone bonus depreciation and GO Zone benefits are no longer available and already ended back in 2008.

CONFUSION AND CALRIFICATION

Ok, so here is where all the fun starts.  This is the point where I usually get asked “So Michael, if the benefits are extended in (as an example) Gulfport Mississippi until 2010, I have plenty of time, right?”

In short…NO!  The reason for this answer lies in the depths and details of the IRS Code.  I’ll give you both the long and short versions. For those who can’t wait to read the long answer, I will give you the short version first.

THE SHORT VERSION

Basically (following the above example), as long as you put a new unit into rental service by the end of 2010 in Gulfport Mississippi then you will be able to claim GO Zone benefits.  HOWEVER, you will only be able to have the Bonus Depreciation on that portion of the structure that was completed ON OR BEFORE December 31st, 2009.  So if the new home construction was just started and only the foundation was completed by the end of 2009, you would only be able to use that portion of the structure (since you can not depreciate land) that was completed by the end of 2009 for your Bonus depreciation calculation.  In this example, you would only be able to count amount for the foundation in your bonus depreciation calculation.

So here’s an example.  Suppose that you are purchasing new home construction. Specifically, a brick exterior 3/2 1300 s.f. single family home in the Gulfport MS area for say $140,000.  In this example the land is estimated at $20,000.  The first thing that you want to do is calculate the max Bonus Depreciation which you do by first subtracting the value of the land and then take 50% of that.

Purchase Price:           $140,000
Land:                                 $20,000
Total Construction:   $120,000
Bonus Depreciation:    $60,000

If this home was purchased and completed before the end of 2009, then that is exactly what would be on the table; a $60,000 bonus depreciation.

If you did not know the “details of the IRS code” and purchased the same exact home in December (ASSUMING that you would be able to get the same price), then what you could get as a benefit depends on what is completed on the home.  Realistically, if you waited until early December to purchase, you would be lucky to have the foundation completed by the end of the year (given permitting, etc.).

Completed Construction:  $12,000
Bonus Depreciation:              $6,000

As you can see, a big difference in savings.

THE LONG VERSION

For those of you who still want proof that the GO Zone benefits are as described above, let’s look at the long version of the answer.  This requires that we dive into the source of the GO Zone benefits - the Internal Revenue Service.  The following link takes you to the IRS Notice 2007-36 entitled “GO Zone Bonus Depreciation Additional Guidance”

http://www.irs.gov/irb/2007-17_IRB/ar12.html

From the above source:

“.02 Determination of Adjusted Basis Qualifying for the GO Zone Additional First Year Depreciation Deduction.

(1) Property described in § 1400N(d)(6)(B)(ii)(I) and section 4.01(4)(a) of this notice.

(a) In general. In the case of GO Zone extension property described in § 1400N(d)(6)(B)(ii)(I) and section 4.01(4)(a) of this notice (GO Zone extension real property), § 1400N(d)(6)(D) provides that the GO Zone additional first year depreciation deduction is available only for the adjusted basis of such property attributable to manufacture, construction, or production before January 1, 2010.”

WHAT THE SMART INVESTORS ARE DOING

Working with lots of real estate investors, I can see what the seasoned investors are doing:

1. They are making sure that to maximize their GO Zone benefits and Bonus Depreciation that the homes will be completed before the end of 2009;
2. They are also planning ahead of the “end of the year” rush (will be more so this year give the above time lines) and purchasing early while the quality “deals” are still available;
3. Along the same lines, they realize what the builders know. That is that the end of the year will bring higher demands and this will facilitate higher prices to get the same tax benefits.  Thus, by purchasing early ahead of the crowds, they not only get a better selection of product to choose from, but also are purchasing at lower prices as well.

CONCLUSION

While the IRS has granted and extension of the GO Zone benefits, they have caused a bit of confusion as to the best way to maximize these benefits for real estate investors.  The bottom line is that if the construction portion of the home is completed by the end of 2009 you will be able to maximize your benefits.  For the smart investor who thinks ahead of the crowd, this means getting into contract early for new constriction to not only ensure completion on time, but also to ensure getting in at great pricing as well.

Professional Cash Buyers Are Buying - Are You?

June 2, 2009

As we continue our series of blog posts about the change in real estate markets, we will now show a little known “secret”.   What the average Joe is doing, and what the professionals are doing, are 180 degrees apart.  Again, we will use Tampa as our example but what we show is happening in many places across the USA.

So What Is Joe Doing?

Referring to the typical home buyer as the “average Joe”, let’s see what is happening.  What everybody “knows” in the market is that times are tough and RETAIL prices are dropping.  Referring to the figure below, we see that this is true in every submarket in Tampa.

Chart Shows 12 Months Of Data For Various Tampa Submarkets

NOTE:  This is RETAIL pricing.  Prices paid by investors is RISING.

So, with this happening, Joe still believes now is not a good time to buy.  Let’s also look at the number of mortgages being written but let’s go all the way back to 2005 as we started coming off the boom in Tampa.  Here is what those charts look like for conventional, FHA, and VA financing.

Clearly, Joe is still on the sidelines.

What Is Sue The Professional Doing?

As mentioned in a previous blog post, there is now BIDDING WARS between professionals when a house goes on the market priced right.  Let’s see if we can really QUANTIFY that.  One very good measure of professional activity is CASH purchases.  Typically pro’s move in with very low (or zero) financing so if we look at the number of cash purchases, it  give us some indication as to the direction of pro’s and knowledgeable individuals.  We can also verify by being in the market that this is EXACTLY what is really happening.

Referring to the figure below, we see that Sue was not buying in 2005 when Joe was buying everything in sight.  We also see that now Sue, the Cash Buyer, is now buying while Joe is bailing.  The typical example of the pro’s doing EXACTLY OPPOSITE what most people do.

Just for comparison purposes, let’s now put conventional financing and cash on the same chart.

NOTICE THAT THERE IS NOW MORE CASH BUYS THAN FINANCED!!!  If that does not tell you something interesting about the way the pro’s think vs Joe.

The Cash Buying Pro Is Now A Huge Percentage

A natural question to then ask is what percentage of sales is cash now, and in the past.  This is shown in the chart below:

From this chart, we can see that cash buyers are now nearly 40% of the Tampa Bay market.  If you ever wanted an inside look at what the “pros” are doing in a market, this shows you.

Predictions For The Future

While we don’t have a crystal ball either, let’s see what predictions that we might be able to draw from this information.

1. Cash buyers & pro’s are buying everything in sight right now;
2. Conventional buyers still see “gloom & doom”;
3. Inventory will be absorbed by the professionals given rents versus prices;
4. At some point (we predict 6-12 months), Joe will wake up and then realize they are about to miss a golden buying opportunity;
5. Once a significant number of Joe’s start to “get it”, then prices begin to rise again as they scramble to buy homes before prices “rise too much”.

The joys of a real estate cycle……. it is just too predictable.

The Market Is Changing- Part 1- Bidding Wars Have Begun

May 29, 2009

You have to be joking, right?  Are you telling me that bidding wars are starting to occur for homes for sale?  In case you fell asleep for about 5 years, this isn’t 2004.

In all seriousness, this market is changing and local pro’s can feel it and are acting according in many locations across America.  The interesting thing is that the “regular” house buyer market is still weak but the professionals are grabbing properties like the San Francisco gold rush.

There are several things that are driving this and point to a recovery in the regular housing market:

• Bidding wars now for severely discounted properties;
• Record rental returns;
• Unbelievable amounts of CASH BUYERS moving in; and
• A 3 month trend started in regular home sales.

In this blog series, we are going to look at each of these 4 parts and provide real evidence that as a real estate investor, if you are not paying attention to this shift, you can be missing a once in a lifetime? opportunity.

Bidding Wars

Bidding wars are literally occurring for severely discounted bank REOs and short sales.  Consider this quote from a recent Pheonix Market Trends:

“We have a short sale coming on the market soon at a normal market price.  Currently it’s being prepped and he tenant is moving out, though we have put a few ads out there to see the reaction and create an auction effect which will possibly give us several strong offers to present tot he lender and get this property sold.  The response is quite amazing.  We have a long list of people just waiting for it to come on the market.”

In addition in Tampa Florida, where we are starting to do a lot of business, real estate wholesalers are now complaining that their offers were typically the only offer on a bank owned house….. Now, there are an average of 5 offers per home, if priced appropriately.

All the while the latest headlines in the popular media are still gloom and doom.  For example, the latest Tampa Bay Business Journal on the topic announced:

Home prices take a tumble in Tampa Bay region

As we will discuss in this series of blog posts, this is a very unique time where professionals are going EXTREMELY BULLISH while the main stream market is still asleep…… We like times like this

New Appraisal Rules and Regulations

May 4, 2009

If you have not already heard, as of Friday May 1st 2009, as one industry expert put it, “the complete lending landscape just changed!”  To bring that back in from a more macroscopic statement, the way that appraisal are performed for certain types of real estate has changed.  Welcome to the new world “after: the introduction of the Home Valuation Code of Conduct (HVCC).  The HVCC pertains to mortgage loans (originated from May 1st onward) that are intended for sale to either Fannie Mae or Freddie Mac. 

SO REMIND ME AGAIN ABOUT THE HVCC?
Last week’s article went over the Good, Bad and the Ugly of the Home Valuation Code of Conduct, and before I continue I wanted to remind folks of a few things about the HVCC. 

According to the Federal Housing Finance Agency (FHFA), the HVCC builds on existing Fannie Mae and Freddie Mac seller-service guidelines to “increase the reliability of appraisals” for loans sold to the both these agencies.

To make a long story short, the changes being implemented through the HVCC are really intended to protect everyone and are for the greater good (yes - “the greater good”) by setting requirements so that the individuals and organizations requesting the appraisals have no influence on the outcome of the actual appraisal itself. Thus, the HVCC:

 * Prohibits lenders and 3rd parties from influencing appraisals;
 * Requires lenders to ensure that borrowers get a free copy of appraisal reports at least three business days before closing;
 * Allows lenders to have in-house appraisers, so long as they’re completely independent of the sales staff and their compensation does not depend on their estimates or on loan closings;
 * Requires lenders to test a randomly selected 10 percent (or other statistically significant percentage) of appraisals and report any problems to Fannie Mae or Freddie Mac, which may force lenders to buy loans back from them;
 * Requires lenders to report appraisal misconduct to applicable state agencies;
 * Etc. and so forth.

In a nut shell, the HVCC sets guidelines to prevent real estate appraisers from being intimidated, bribed or otherwise influenced in their developing their valuation on a particular property. As you can imagine, there has been a lot of resistance on the HVCC throughout the industry; Real Estate Brokers, Agents, Lenders, Appraisers, investors, and even the end consumer are all going to be affected in one way or another.

WHAT KINDS OF PROPERTIES DOES THIS APPLY TO?
Now, as far as the types of real estate properties that this pertains to, we would need to take a closer look at what both Freddie and Fannie to say. 

For Fannie, the HVCC only pertains to conventional, single-family loans and NOT to multifamily loans, or to loans insured or guaranteed by a federal agency.  For Freddie, the HVCC also only pertains to single-family mortgages as well (no big surprise there).

NOW THAT I KNOW THE INTENT, WHERE CAN I GET SPECIFICS?
To start out with, a copy of the HVCC can be found on the Fannie Mae web site. 

To download a copy, simply go to the following website and once you are there, then click on the link for “Home Valuation Code of Conduct”:

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/

Along with any new code or regulations comes the issues with interpretation of such.  Specifically, exactly what does the code mean and what can (and can not) be done.  To help along with that, the various agencies have put out Frequently Asked Questions on the HVCC.   At the above link for Fannie Mae, you have access to not only to the 6-page code itself, but also Fannie Mae has put together a nice list of Frequently Asked Questions and a replay of a recorded Webinar on the topic.

Some of the more interesting outputs from the FAQs include:

 * The Code does NOT specifically prohibit communication by a real estate agent with an appraiser;
 * The Code DOES prohibit an appraiser from collecting payment for the appraisal directly from the borrower;
 * The Code ONLY applies to Appraisals and does not apply to other valuation methods (i.e. automated valuation models (AVMs), broker price opinions (BPOs), tax assessments, etc.); and
 * The Code prohibits mortgage brokers from ordering appraisal services, but brokers may initiate the appraisal process on a lender’s behalf in accordance with arrangements made by the lender.

Interesting to see how this all plays out, what tweaks are made over the coming months, and how this will impact not only the end user, but also anyone in the business or industry as well.

Home Valuation Code Of Conduct: Investors Be Ready

May 1, 2009

Today marks a major change in the lending landscape and the way loans are sold to Fannie Mae & Freddie Mac….  Specifically, how they are appraised.

If you have not heard of Home Valuation Code Of Conduct (HVCC),just ask your favorite mortgage broker about it and more than likely their response will be something like:

&$#@%^&%$#^%$#@#$%^

(sorry, but can print what they really will blast you with)

In short, this change is designed to fix the evils of the past.

As always, there are good and bad sides to every change.  We will explore the good, bad and ugly of this new approach but first, let’s synopsize what it is about.

WHAT IS HVCC (Short Story)
So what does the code say? Basically, it’s that the people responsible for originating mortgages can have nothing to do with the appraisal process.

In addition, the code also:

* Prohibits lenders and third parties from influencing or attempting to influence appraisals.
* Requires lenders to ensure that borrowers get a free copy of appraisal reports at least three business days before closing.
* Allows lenders to have in-house appraisers, so long as they’re completely independent of sales staff and their compensation does not depend on their estimates or on loan closings.
* Requires lenders to test a randomly selected 10 percent (or other statistically significant percentage) of appraisals and report any problems to Fannie Mae or Freddie Mac, which may force lenders to buy loans back from them.
* Requires lenders to report appraisal misconduct to applicable state agencies.

You can download a copy of the HVCC at: https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvcc.pdf

WHY IS HVCC GOOD?
Let’s face it, the appraisal business has been a bit “rigged” over the last several years.

In short, only appraisers that could “get the deal done” were used on a repeated basis by mortgage brokers, realtors, and or builders.  It only makes sense that this is the way the system worked.  If you were a realtor, or even if you were a new home buyer, the last thing that you want is for your appraisal to come up short and the deal fall apart.

Since appraisals are somewhat subjective, the appraisers that always got called were those where the subjectivity worked out in favor of the deal.

However, many appraisers felt very pressured to make the deal work….. their future business counted on everybody walking away happy.  Of course we are now seeing some of the consequences of that type of approach with our current housing and mortgage crisis.

WHY IS HVCC BAD?
Because now your purchase or sale is a crap shoot.

Why?

Simply because appraisers will be pulled out of a “blind pool”.  From my personal experience, only about 20% of appraisers are good at their profession (you know, the ole 80/20 rule).

So you now have an 80% chance of a mediocre appraiser being assigned to your appraisal.  Are they really capable of determining the value?  I am skeptical.

In addition, most the incentives for the appraisers are now set up to appraise low…..  The safe play is to come in BELOW what you may be thinking is actual value.

CONSEQUENCES
HVCC will be implemented May 1, 2009.  Many people believe, myself included, that this is going to severely disrupt the home seller market, and investor market, for a period.

Everybody’s major hope is that soon, tweaks will be made into something that is workable for all in the industry.

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• Appraisers brace for industry change (appraisalnewsonline.typepad.com)

New Fannie Mae Investor Reserve Guidelines

April 22, 2009

I have been asked recently for some clarifications on the recent changes from Fannie Mae on Reserve Requirements when purchasing Investment Properties. As you may know, Fannie Mae has repeatedly changed its guidelines on this topic. Staying on top of this information is key as a real estate investor.

Per Fannie Mae’s February 6th Announcement:

When the borrower will own one to four financed properties (including the subject property) the reserve requirements are:
* two months of reserves on the subject property if it is a second home,
* six months of reserves on the subject property if it is an investment property, and
* two months of reserves on each other financed second home or investment property.

When the borrower will own five to ten financed properties (including the subject property) the reserve requirements are:
* two months of reserves on the subject property if it is a second home,
* six months of reserves on the subject property if it is an investment property, and
* six months of reserves on each other financed second home or investment property.

Note: The reserves calculation for a financed property is based on the monthly housing expense of the financed property. All reserve requirements are based on the new definition of reserves as defined in more detail in Fannie Mae Announcement 09-02.

So just as a numerical example, let’s say you want to finance an investment property costing $100,000 that will result in payments of $1,000 per month. Then your cash requirements will be:

1. 20% Down (typically): $20,000
2. 6 Months Reserve: $ 6,000
3. Closing costs: $ 2,500 (estimated).

In this example, then lender would be looking for $28,500 in your accounts to get approval.

You can click here for your copy of the announcement, or you can get it from:

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2009/0902.pdf

Hopefully this helps clear things up for those of you confused on the new Fannie Mae Reserve guidelines for investors.

Buying New Homes For 77 Cents On TODAY’S Retail Amount?

April 15, 2009

In today’s market, everybody is looking for the next “great deal” which is obviously smart investing. However, many investors are also falling into the “you can buy at 50 cents on the dollar” trap. The trap that investors are falling into is that, unfortunately, these numbers are frequently referenced to yesterday’s market value and have little to do with what things are worth today.

Now let’s look at one way to buy new homes at a true 77 cents on the dollar relative to today’s retail value. To accomplish this, we are going to use a combination of a reasonable builder discount coupled with current, special IRS tax legislation. Using absolutely no “smoke or mirrors”, we are going to show you a real-life calculation, using IRS GO Zone tax law, to see how people are really creating equity for themselves.

Let’s look at the following REAL world example for a recent investor:

· True Retail Value: $141,128

· Net Purchase Value: $109,124 (Note 1)

· Net Cash In: $ 8,046 (Note 2)

· Realistic Profit In 3 Years: $51,664 (Note 3)

If you look at the above numbers, they are quite impressive numbers for purchasing and owning a BRAND NEW home and collecting some positive cash flow along the way (note that the positive cash flow has NOT been factored into the above for simplicity reasons). The difficulty is that many don’t recognize these “Net Numbers” when they see them offered on a home sales flier. In this article, we want to take you from actual purchase numbers and then show you how the above “Net Numbers” result. There has been 100’s of Millions of dollars in real estate done using these special tax results. Yet, most investors, and even most tax professionals, “just don’t get it!”

Referring to the above numbers, let’s now address the “Notes”:

NOTE 1: Realize that NO BUILDER in their right mind will sell you a home with that big of a discount to TRUE MARKET, especially when they are truly moving homes at retail prices. In this example, the builder has discounted their retail currently in this slow retail market. In addition, they have provided a reasonable discount to the GO Zone buyer.

The actual, discounted, purchase price on the home is $129,578. But, when you factor in GO Zone tax benefits, there is over $20,000 in real tax savings for an investor in a 35% tax bracket. When you take the actual purchase price and then subtract the tax savings, the NET purchase price becomes $109,124.

NOTE 2: Realize in this lending environment, most investor loans are pretty straight forward with 20% down plus closing costs. Obviously that is less than ideal but yesterday’s excesses impact you today.

In the above example, the total dollars required at closing is $28,416 which includes both the down payment and closing costs. But, when you realize that you get the tax savings back within a year or less, then your NET Cash In becomes that total amount to close minus your tax refund: or in this case, $8,046.

NOTE 3: In the GO Zone, while retail homes have seen a slow down they have not seen a “crash” like in other locations. Home pricing is very reasonable relative to income and the strong demand is expected to return with a small shift in the economy, home buyer incentives, relaxed credit, etc.

I know it seems strange to be discussing potential price escalation but at these locations, most professionals tend to agree that we have to go up in the area. Using a past, reasonable safe escalator of only 5%/year, you get to a retail value of over $163,000 in 3 years. Obviously nobody has a crystal ball and you can apply your own witchcraft here. However, when you look at the economic strength of the region, most agree that the area should do just fine over time.

Robert Kiyosaki once wrote that the wealthy “see” finances very differently than the average person by factoring in all aspects of a transaction including net tax considerations. As this example has shown, this is especially true for tax advantaged properties, such as found in the Katrina GO Zone.

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Broker Price Opinions (BPOs) - How To Get A Good Short Sale Value

April 8, 2009

Oh, the games people play, especially in the real estate business.  This is especially true in the  short sale world with broker price opinions (BPOs).

For those of you not familiar with the lingo, a BPO is an estimate of value, like an appraisal, but is performed by real estate agents.  As it was put by one rather biased appraisor in an article recently,

“Unlike standard property valuations performed by licensed appraisers — which can run to hundreds of dollars — BPOs often cost $50 and are performed by real estate agents who may have minimal or no appraisal training and are subject to no regulatory oversight.”

Of course in this topsy turvey market, we have found that some very knowledgeable BPO agents have a much better handle on pricing than some appraisers but that is a different story.

As any experienced short sale investor will tell you, the BPO is the KEY TO MAKING A DEAL WORK.  Essentially, a loss mitigator for a bank has certain lattitude to get deals done that are within some % of the BPO.  As an example, if the BPO comes in at $150,000, then a loss mitigator may have full authority to accept offers of $130,000 or higher.

If the short sale offer is above that magic threshold, poof the deal gets done, the loss mitigator clears their desk, everybody is happy.  Below that number and you may as well try pushing a wet noodle up Mount Everest.  Each lending institutions have their own guidelines and these can definitely vary with time.

Many, many investors get stuck at this stage simply because they don’t understand how to play the games.  So how are the pros getting BPO valuations that work for them and the bank?

1. Always remember that the BPO agent is only making about $50-$75 so they want this done with little friction…. also remember that the bank is paying their bill so they want to make the bank customer happy;
2. Well before the BPO agent arrives, the short sale house is marketed on MLS by the investor.  They start the price at the highest value that might work and then start dropping the price some set amount (typically $5K- $10K) per week.  At the higher prices, frequently no house showings occur; i.e., nobody is interested.  As the price drops, you will find a price where a few showings occur and then finally a price where lots of showings occur.  For a good short sale investor, their job is to explain to the bank’s BPO agent that no showings occurred until they reached a certain price….. One could argue that this is a good data point for determining true market;
3. Next, the short sale investor will be very well prepared….. Lots of comps, lots of repair estimates, and any other justification that they can provide to the BPO agent.  It makes the BPO agent’s job easier and helps them truly evaluate real value.  A skilled investor can work magic at this stage.
4. And of course, the short sale investor ALWAYS, ALWAYS meets the bank’s BPO agent on site so they can explain their point of view.

For the short sale investors who understand how to “play the game”, they get 1 out of 2  deals approved and their are some really good investors that are hitting 90% approvals.

Want To Learn More About Short Sales?

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Good News For Short Sale Investors

April 6, 2009

Its Monday morning so do you want the good news first or the bad news?

Since we mostly hear bad news these days, let’s start with the good news for a change.  If you are a short sale investor, or someone considering getting into short sale investing, then you may be in luck.   A new report from the Department of Treasury shows that banks approved almost 3 times more short sales in the 4th quarter of last year as compared to the first quarter.

Referring to the table and chart below, we can see that this is really a significant increase.

One of the biggest complaints of short sale investors has been that the banks are dragging their feet in getting their deals done.  In part, this may be due to non-ideal techniques used by many short sale investors: there are some short sale investors that are getting a lot of deals done on a consistent basis.  Even still, it sure would help to ride a wave of increasing short sales by the lending institutions.

If you are thinking about investing in short sales, you may want to visit this video that we put together.

So What Is The Bad News?

The bad news is that in all categories of loan defaults, foreclosures where just not getting any better by the end of last year…. Gee, isn’t that a surprise.  While we will cover this topic in much more detail later, the short story (no pun intended) is that when you look at the number of loans that are

• 30-59 days delinquent;
• 60-89 days delinquent;
• 90 or more days; or
• Foreclosure in process,

all were going up over the course of last year.  Looking at those stats, you know that we are not out of the woods yet.  Unfortunately, many of these type detail reports are a few months behind so it is just one piece of the puzzle that we all need to be watching.

Real Estate Investor Sentiment: The Bear & Bull Battle

April 1, 2009

A couple of weeks ago, we hosted an educational event for the REO & foreclosure world with several hundred people from around the country on the line.

We thought it would be interesting to see what the investor sentiment was given all the gloom & doom on the news.  We asked people how they were feeling about the real estate investment market.

Their choices where:

• I am bullish in this market and want to buy properties;
• I am bearish in this market;
• I am undecided

About 30 seconds after launching the poll, I was ready to fall out of my chair.  Well over 70% of the people responding were BULLISH.  Another 20%+ were undecided, and just a few percent where bearish.

Wow!   I was completely surprised with that result.  Given the news that exists out there today, I would have predicted a 3 way split….. Oh well, so what do I know.

As we launch NoBullRE.com, we thought it would be fun to do a similar poll here amongst the readers and let you see the results.  I know people are reluctant to do anything on the web but this is TRULY ANNONOMOUS and is really for everybody’s benefit.

Ok, I know it’s April Fool’s day but if you will, please vote how you actually feel so that everybody can use these results.

Vote To See Current Poll Results

Also, we would love to hear from you below and expound upon your thoughts and reasons.

San Francisco Area Sells 5,000 To Investors & Home Buyers

March 31, 2009

The market is totally dead, right?

Wrong!  Would you believe that about 5,000 homes are selling MONTHLY in the bay area right now.  Does not sound like the market is totally dead to me.

One of the interesting stats is that most of these homes sales are going to one of two categories of people:

• Investors; or
• First Time Home Buyers.

Let’s look at the first time home buyers first.  One of the things that has happened in the Bay area is the ability to use FHA financing for first time buyers.  Previously, the price points made this impossible but today, the FHA limit goes all the way to $729,250.  Personally I believe that is a bit ridiculous but that is besides the point.  So, with FHA financing, the buyer can put little money down and get into a fantastic deal.

The price points have changed dramatically as well in the area.  A couple of years ago, less than 10% of the homes in the area sold for under $300K…… Today, it is over 51%.

Investors are also finding good deals.  A recent article in the San Francisco Chronicle described how a real estate agent turned a quick $77,600 profit by buying a house with cash and the reselling.  While most investors are buying, then renting, then planning to sell in a few years, there is still a few flip type opportunities that exist.

This Is A Link To The Chronicle Article

Florida Existing Homes Sales Up —- Again

March 29, 2009

There is a interesting trend starting to develop in Florida with existing homes sales now up for 6 straight months on a year over year basis.

Existing home sales rose 20 percent last month, with a total of 9,858 homes sold statewide compared to 8,181 homes sold in February 2008, according to FAR.  February’s statewide existing home sales were 16.7 percent higher than January’s statewide sales.

You have to realize thought that many, many of these sales are coming from discounted sales.  According to the Florida Association of Realtors,

Florida’s median sales price for existing homes last month was $141,900; a year ago, it was $199,300 for a 29 percent decrease. Industry analysts with the National Association of Realtors® (NAR) report a significant downward distortion in the current median price due to many discounted sales, including a large number of foreclosures.

From our perspective however, anything that reduces total inventory on the market is definitely a good sign.

Click this LINK to get a good chart of how each of the Metropolitan Statistical Areas (MSAs) did across the state.

Some Positive Signs For The Housing Market?

March 27, 2009

Two pieces of data have been reported recently that actually give a glimmer of hope for the battered housing market.

• New residential building permits ticked up 3% from January to February; and
• Sales of New, single family homes increased by 47%

While this is a long way from a rip roaring “Buy” signal, it is an encouraging sign for a change.

According to the Washington Post:

The number of newly issued residential building permits, which offers a glimpse of construction activity in coming months, ticked up 3 percent in February from January. Existing-home sales were up 5.1 percent, according to industry data released this week. And yesterday, government data showed that sales of new single-family homes increased 4.7 percent, the first increase in that market in seven months.

“Between the new and existing-home figures, we have seen a little bit of a pulse showing up in a patient that was thought to be terminal,” said Mike Larson, a housing analyst at Weiss Research.

Of course, most of what happens in housing is going to be directly tied to employment/layoffs caused by the economy.  All of us are simply waiting to see how that plays out.

Get The Washington Post Article

Fannie Mae Actually Helping With Short Sales?

March 26, 2009

You are kidding me right? A quasi-government institution actually doing something that makes sense and helping homeowners.

Realcomp II Ltd., Michigan’s largest Multiple Listing Service provider to real estate professionals, Thurdsay announced a partnership with Fannie Mae to create a pilot program for homeowners in fear of foreclosure or staring down the barrel of a short sale.

The program will help streamline the short sale process, making it easier for homeowners who are under water in their mortgages to sell, thus reducing foreclosures by allowing these homes to be sold rather than seized by a financial institution.

My personal experience is that the banks and related institutions are their own worst enemy in this foreclosure crisis.  As an example, we had a 1.4 Million dollar, cash offer on the table to buy a complex in SW Florida.  Even though the price was competitive, the bank never even bothered to provide any sort of reply to our WRITTEN offer.

Hopefully things are starting to change for the better.

Click Here For The Entire Story

Freddie Mac Feb investment portfolio up 34.7 pct

March 26, 2009

NEW YORK, March 25 (Reuters) - Freddie Mac (FRE.N) (FRE.P) said its investment portfolio grew by nearly 35 percent in February, after shrinking the prior two months, though late payments on loans it guarantees also continued to jump.

The government-controlled mortgage funding company said the unpaid principal balance of its mortgage-related holdings rose to $822 billion at the end of February, for an annualized 12.9 percent increase year to date.

Read Entire Story

Understanding The 3 Stages Of Foreclosure

March 2, 2009

If you are like many people, you recognize that there is tremendous opportunity available in this real estate market.  Let’s face it, we have not seen bargains like this since the 1970’s.

However, what many people also learn is that finding, buying, servicing, and reselling foreclosures is a lot of work.

If you are like many people, you recognize that there is tremendous opportunity available in this real estate market.  Let’s face it, we have not seen bargains like this since the 1970’s.

Considering the home pictured to the left, you can try to acquire this home at 3 different stages:

• Preforeclosure - The bank has not yet foreclosed on the current owner;
• Foreclosure Sale - Typically auction style at the court house steps; and
• Bank REO - After the bank acquires the property.

PREFORCLOSURE:

In this stage, you are typically negotiating with the current owner to reach some sort of advantageous agreement.  Unfortunately, many owners at this stage are very unrealistic in their expectations and as a consequence, many times you cannot get a good deal.

Also during this stage, you will have to have a stratedgy to deal with the underlying mortgage holder…. the bank.  While there are many possibilities of how to accomplish this task, rest assured that unless you are trying to acquire $5M of property, you will not be high on the priority list of banks.

In short, this can be a very time consuming process where you need to look at many deals to get one.

FORECLOSURE SALE

The next option is to buy the property at the court house steps during a bidding process.  In this case, you are bidding against many other professionals in the hopes that you can get a great deal.  Of course, you have lots of issues like:

• You don’t know the minimum that the bank will take in advance;
• You cannot inspect the property (inside) before the sale;
• You will typically need to cash buy the property with 24-72 hours after the sale.

While some people make a living doing this, it can also be a very time consuming process.

BANK REO

This is our favorite stage to purchase….. after the bank has been forced to take the property back.   In this case, there is two methods to buy:

Method 1: Bank REO’s go out to brokers at somewhat reduced rates.  Generally, this is not your most advantegeous time to buy because the bank is still trying to maximize returned capital.

Method 2:  Banks bundle 100’s if not 1000’s of homes together and sell them to private equity groups at pennies on the dollar because of the large volume that they buy.  What BankREOSpecialists.com does is then bring those properties to you at incredible prices.

• Who Is "REALLY" Making $ In Today's Real Estate Market? Our 29,689 Members Tend To Agree... It's Usually Not The GURUs Have you ever noticed that every "Guru" real estate pitch sounds the same........ They once were poor, but now are rich working only 5 hours per week, and you can be rich too if you just buy their "can't fail system". Or have you noticed that every property promote has a can't miss proposition, if you just buy TONIGHT.  At the NoBullRE club, we are huge believers in real estate investing...... but we also know that every approach has two sides: Nothing is perfect.  If you want unbiased ("No Bull") facts of who is making money, how are they doing it, and where do they get their knowledge, then you don't want to miss joining the NoBullRE Club  IT'S FREE (FOR NOW) Name Email See What Others Are Saying SECURE & CONFIDENTIAL Your info will never be shared CONFIDENTIALITY GUARANTEED

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