1.) Home prices may fall even more! Yes, they may. When you make a stock purchase, you certainly buy with some understanding it may go up, down, up, and down over the course of ownership. The same with the home.  You don’t sell when its low and you hold until its high. Now that the “crash” has passed, do we really believe housing prices could fall another 10-40%? OK, maybe if the entire EURO fails. OK, maybe if the sky falls. But really, unless you plan on putting your money under a mattress (and even that has risks – rodents, fire…) every investment has risk. The real question is how do you reduce your risk? First, understand what you are buying. Much like buying a stock, review the history, check out what the professionals are saying about that market, look at competition, and with your real estate agent pull together some predictions. Know what you’re buying and set reasonable expectations on the holding of that investment. In spite of real estate history between 1992 and 2007, real estate is a “BUY AND HOLD” investment. Long term. Not forever, but not 2 years.

2.) I need a deal or my friends will think I am stupid!  Yes, they may.  There is a huge amount of pressure on any home buyer in this market because whether it is around the water cooler, over dinner, or sporting events, a buyer’s friend upon hearing you are shopping for a home will say, “What? No, don’t do that now!  What do you mean you are writing a full price offer?  You should be getting 10-20% below market!”  Really? Oh yes, I forgot, your friends spend time looking at Zillow and reading the web and believe they know everything about real estate anyone could possibly know.  I understand they mean well.  But I have to ask, do you also take their advice on buying stocks for gospel?  Do you call them before you buy a TV? Maybe you do.  Certainly buying a house in the Bay Area can not be compared to buying a TV but the point is really, know your own stuff.  Advice is nice but knowledge is power.  The best way to respond to the questions you may get from friends and family is to know why you are buying a home and then know the reasons why this is a good deal even if it isn’t 10-20% below market and you are writing a full price offer.  Make sure your real estate agent is helping you pull together this information and support. 

Why are you paying list price? Answer:  Because this is 1 of 1 houses in a good school district and this is the only one that has been updated and I am competing with 4 other buyers.  Why aren’t you buying a foreclosure? Answer: After pulling estimates together on the cost of repairs and remodeling needed, the 10% under market price was not real.  Why are you buying now?  Answer: Because I want a home not a rental.  Rents are projected to increase 4% this year alone!

3.) With all the maintenance of a home, it is better to rent!  Yes, there is maintenance.  If your landlord is completing maintenance (important point: IF), then you will also be paying for that maintenance in increasing rent over the years. You will also be helping to pay the landlord’s taxes.  You will also not be taking advantage of the current mortgage interest deduction (assumed to last for at least some period of time).  You will also not know when your landlord is taking your rent and not paying her/his mortgage and then suddenly you see a for sale sign in the yard or worse, a notice to vacate because the home has been foreclosed upon.  But more importantly, maintenance is a part of anything you own.  Your car needs oil changes but that does not prevent you from purchasing a car.  You can buy service packages that cover your oil changes.  You can also pay for gardeners and handy persons to help maintain the home.  You can also purchase a condo/town home or PUD (planned urban development) and pay a monthly HOA (home owners’ association) dues to maintain the exterior and the like so you don’t have to think about it.  Life requires maintenance. (relationships, cars, skills…)

4.) How do I know I am getting the best loan?  Great question.  Maybe even more importantly, how do you know when you aren’t getting the best loan?  First and foremost, do your home work about loans.  There is a great book called, Mortgage Confidential: What You Need to Know that Your Lender won’t tell you by David Reed.   Great book.  Easy read.  Know the different products and decision points about how to decide on a loan product.  There is not just one product.  Like finding a deal in real estate, you need, must, find a professional that you can trust.  The loan products available are available to almost anyone completing loans.  Whether you work with a broker or a direct lender (advantages and disadvantages to both – read the book), find someone that can review your specific situation, your short and long term financial goals and offer the best options for you.  ALERT:  The lowest interest rate may not be the best product to meet your financial goals.  Seriously, it is not all about rate.  Understand this and you will be 95% closer to mastering an appropriate decision on what loan to choose.

5.) All real estate agents are liars and you can’t trust them!  Yes, the industry has its issues.  There are some really bad, bad agents out there.  I feel your pain.  However, there are those of us who went into the profession to make it better, to really help home owners and home buyers, and we really, really know our stuff.  We are professional, we return calls, we do our home work, we know the neighborhoods like the back of our hands, we see anywhere from 12-50 houses a week (a staggering 3000 homes a year), we drool over MLS (multiple listing data) until wee hours in the morning, and maybe most importantly we believe in the concept of home (read land) ownership.  Tangible dirt ownership.  Tangible memory producing home ownership.  Tangible legacy and generational asset potential.  If you don’t have an agent you feel you can trust, if you don’t believe they have your back; fire them.  Find an agent that supports your goals, places your best interest first, will answer every question with a smile, and addresses every concern before, during, and after the sale.

In summary, caution in any market is prudent and necessary. If you are considering buying a home there must be a reason, an understanding of the reason and a desire to support the  goal with true professionals and knowledge.  Knowledge is simply smart living.  If you have questions or concerns about buying a home contact me.  Whether you buy a home or not, don’t go without addressing your questions and concerns.

If you listened to the debates, why should property taxes go to big developers? Pet projects like parking garages in Los Angeles and high rises in San Jose, were considered foolish in a time of economic recession. Makes sense to stop providing subsidies to wealthy builders. Or so it seemed at first glance. But redevelopment money is not just for big developers.  Redevelopment money was  intended to rebuild neighborhoods by providing encouragement to builders to take a risk. Redevelopment money was meant to fuel jobs in areas of the county where there were very few jobs to be had. Redevelopment money was meant to provide an opportunity for lower income families to own a home. Redevelopment money was meant to support public servants like teachers and firefighters the ability to afford a home in Silicon Valley when their salaries alone where not enough.

The Governor was successful at making sure developers did not get subsidies. But what he also did is gave teachers and other public servants no choice but to accept foreclosure. Why? If a teacher is facing a hardship, loss of job (teacher cuts), divorce, or health issues and can no longer pay their mortgage they would normally have the option of a short sale. However, many teachers and other public servants like fire fighters, police, and paramedics, utilized redevelopment funds to provide down payment assistance through low interest loans when buying a home. But now, the redevelopment agencies are closing and per the San Jose short sale manager for these loans, there is a moratorium on these negotiations for short sales or loan modifications normally processed through the department. Which directly leads anyone who has one of these loans into potential foreclosure. In a short sale, all lien holders must be willing to approve a short pay off of the note. So even though the senior lien holder might approve the short sale, if the second lien is owned by the City of San Jose through redevelopment funds, there will be no approval.

Even more illogical is the fact that the closure of redevelopment agencies was meant to save the state money. But if a teacher is forced to accept foreclosure over a short sale then not only does the state loose any potential chance to recoup money on the junior redevelopment funded lien but now they have a public servant who has damaged credit and more likely to sink further into financial challenge and need welfare help. This simply does not make sense.

When a home owner submits for short sale approval they must provide every possible financial statement to support the fact they can no longer afford this home.  Two year tax returns, bank statements, monthly bills, 401k, pay stubs, and a personal letter describing their hardship.  Too bad we as tax paying citizens are not provided the same full disclosure when decisions like ending redevelopment agencies are made.  This is not a decision that only effected “fat cat developers”.  This decision effects many more average Americans than any of us most likely realize.  This public policy change has now landed on my and my clients’ doorstep and this blog post is the first step to my response to our state government in regards to this issue.

1. Homeowner must qualify as a low-to-moderate income household, as follows:
   1. Low-to-moderate income of 120% or less of the HCD Area Median Income (as defined by the California State Department of Housing and Community Development), for a family of four, in the county where homeowner resides.  (For Santa Clara County, for a family of four HCD is $124,000)
   2. A loan financed in whole or in part by bonds that are tax-exempt under IRC section 143, the homeowner is presumed to satisfy income limits.
2. Homeowner must complete and sign a Hardship Affidavit / 3rd Party Authorization
   documenting the reason for the hardship.
3. Homeowners who have recently encountered a financial hardship due to
   underemployment or unemployment, including those whose financial hardship is related
   to their military service.
4. Homeowner must agree to provide all necessary documentation to satisfy program
   guidelines established by CalHFA MAC.
5. Homeowner must be currently eligible to receive unemployment benefits.
6. Mortgage loan is delinquent or at risk of imminent default as substantiated by
   homeowner’s hardship documentation. Loans in foreclosure are not eligible.
7. Homeowner in an “active” Chapter 7 or Chapter 13 bankruptcy is eligible for the program
   subject to the homeowner’s counsel or bankruptcy trustee approval in accordance with
   local court rules and procedures.
8. General program eligibility is determined by CalHFA MAC, the housing counselor or
   servicer based on information received from the homeowner. Program-specific eligibility
   is determined by CalHFA MAC on a first-come/first-approved basis until program funds
   and funding reserves have been exhausted. Loan servicer will implement the HHF
   program based on participation agreement terms and conditions.
9. Current unpaid principal balance (UPB) of the first lien mortgage loan is not greater than
   $729,750 (GSE conforming limit for a one-unit property).
10. The property securing the mortgage loan must not be abandoned, vacant or condemned.
11. The applicant must own and occupy the single family, 1-4 unit home (an attached
    or detached house or a condominium unit) located in California and it must be their
    primary residence.

The program provides “mortgage payment assistance equal to the lesser of $3,000 per month or 100% of the PITI (principal, interest, tax, insurance) and any escrowed homeowner’s association dues or assessments, for up to six (6) months, with the purpose of preventing avoidable foreclosures until such time that the homeowner retains employment sufficient to meet the demands of satisfying their regular mortgage payment.”

Program assistance limitation is “up to $18,000 per household total (average funding of $14,455.43), equaling the lesser of $3,000 per month or 100% of PITI and any escrowed homeowner’s association dues or assessments (and in all cases, subject to the HHF Program maximum benefit cap of $50,000 with respect to monies previously received under other HHF Programs, if any).”

The structure of the assistance is in the form of non-recourse, non-interest bearing, subordinate loan secured by CalHFA.  At the conclusion of 3 years, the subordinate loan will be released.  “Loan funds will only be repaid to Eligible Entity (CalHFA MAC) in the event of a sale or refinance with sufficient net equity proceeds prior to forgiveness. Recovered funds will be recycled in order to provide additional program assistance until December 31, 2017, at which time any recovered funds will be returned to Treasury.”

To read more or apply see the Keep Your Home California website.

click image to go to site

Need Help with your Mortgage?

Santa Clara Association of REALTORS (R)  is pleased to announce a great program brought to us by the Department of Treasury and Housing & Urban Development to help at-risk homeowners in our community.

On February 24th, the ‘Help for Homeowners’ Community Event will be held from 11am to 730pm at the San Jose Convention Center

150 W. San Carlos Street, San Jose, 95113   Most importantly,  this event is absolutely free to attend!
For more information:

• Call the Homeowner’s HOPETM Hotline at 1-888-995-HOPE (4673).
• Visit MakingHomeAffordable.gov or HopeNow.com.
• To get tips to avoid scams, visit LoanScamAlert.org.

What you will need to bring:

• Monthly mortgage statement; Information about other mortgages on your home, if applicable;
• Two most recent pay stubs, documentation of income you receive from other sources or most recent quarterly profit and loss statement if self-employed;
• Two most recent bank statements;
• Account balances and monthly payments for credit cards and other debts;
• Estimates of other monthly expenditures (such as utilities, insurance and medical bills).
• The Request for Modification and Affidavit Form and the IRS Form 4506T-EZ will be available on site. You can also download and print the forms on MakingHomeAffordable.gov.

There is no doubt there are a lot of home owners in trouble.  There is no doubt the banks have inventory that they have not sent back to the public consumer.  There is no doubt you can complete a web search on  shadow inventory and find a ton of articles about the reality of its existence and whether or not these homes will come to market.  More importantly, when will they come to market?  Who knows?  Maybe some high paid executive of the in the asset manager kingdom knows.  They aren’t telling.  But in San Jose, foreclosures are the smaller part of the market.   I am more interested in the 1/3 of the market called short sales.  These are the challenges of real life sellers, buyers, and agents.

As of today, February 15, 2011,  there are 777 active short sales in San Jose.

Of that 777 homes, 81 have been on and off the market for over 1 year (10%) and 17 have been on and off the market for over 2 years (2%).  Of the total listings pending sale, 1635 are short sales.  Of that 1635,  123 have been pending for over a year and 19 have been pending for over 2 years! 104 of these homes are vacant. Anyone think we have a problem moving short sales out of the hands of struggling borrowers and into the hands of new eager buyers?  Why is this so difficult to do?  Let me count the ways:

1.) Bank short sale process is non-standardized and the banks are overwhelmed by the process. This is improving and I applaud the efforts that I have witnessed with Bank of America – Equator system, and Wachovia/Wells Fargo Short Sale Fast Track.  There is still a great deal of improvement needed.  Automated systems are nice but standardization of short sale packets, approval process, assigned negotiators up front, contact information, and communication is critical.

2.) Many sellers are desperate, scared, and some are unwilling or unsure of what to do next. Most can’t afford their house because of hardship. Their credit is taking a monthly hit and in many cases they can not even find an apartment because of damaged credit. They try loan modifications and are stuck in a quagmire worse than the short sale approval process and are simply tired of the entire experience.  Can you imagine having your house on the market with people coming in and out every day, 7 days a week for over a year? Ask any seller after the experience of selling a home and they will tell you how quickly they tired of keeping everything picked up and how stressful it is to constantly manipulate their home life around showings.  No surprise that some short sales do not have access  and even more make it nearly impossible to make an appointment.

3.) Short sale agents have less than 3 years experience. Even if an agent has been doing short sales full time, each one is different.  Different circumstances, different lenders, different negotiators, and different levels of cooperation from all involved.   Some agents hire “professional” negotiators to handle their files because they are tired of the daily phone calls and pleading  with negotiators to make it happen.  On top of the cost of the negotiator, the bank reduces commission on average by 1%.  Can you imagine the motivation you would have to do your job for a year before you got paid and then your paycheck was cut 30-40%?  Many short sale listing agents would be happy with a nickel for every time they answered an email or phone call that ask the questions: How many lenders? Any offers? Who are the lenders? Yet I believe if you are going to take a short sale listing, it is critical to provide the absolute best service possible.  If the agent can’t, doesn’t want to, or gets tired of it, they should give the listing to another agent.

4.) Short sale buyers believe all short sales are going to be deals. But in fact, banks know the value of the home and expect a near market if not at market offer.  Of the 87 short sale homes that sold the first 15 days of February, the average sales price to list ratio was 99.7%.  More specifically, 16 sold for the same as list, 31 sold for higher than list, and 40 sold below list.  If the home (mostly condos) were priced lower than $200,000 it was more likely to go under list price.  I assume that is because they are more likely to be all cash deals.

The final information I want to share with you are the number of short sales for different  price points.  If you are a first time home buyer, excited that you can now afford a home in California, you will be competing with other buyers for homes that are mostly short sales.  Make sure you understand the process of offering on a short sale and don’t assume because the days on the market are long, that they will take a discounted sales price or will not be snatched out from under you while you are trying to decide.  It is a very competitive market. If you want to talk about your strategy to buy a home or in particular to buy a short sale or foreclosure, contact me.

San Jose Stats for Single Family Detached Homes

Click to enlarge.

Click to enlarge

All data is collected from the multiple listings service on February 15th, 2011 and presented graphically by CJ Brasiel.  The information is deemed reliable but not guaranteed.  The graphs and content of the blog are property of the author CJ Brasiel and should not be used, duplicated, or distributed without express permission by CJ Brasiel.

Q. What repairs do lenders require in Santa Clara County, Ca before approving a loan? We’re buying a 1940′s house in forclosure. It needs a lot of clean-up & cosmetic work. It has almost no kitchen cabinetry, a really grimey counter & sink and the stove doesn’t work. We think the roof leaks too.

There are some standards an FHA appraiser will look for but you should recognize  the appraiser has the right/ability to point out anything that he/she thinks affects value and place in that in the appraisal report for the underwriters review. “Below Average” condition is one that can catch a underwriter’s eye.

For most, there must be a working range – oven, stove. Windows and doors that are able to be secured (not broken out). Working furnace. Water tight roof (from visual inspection).

These are top of mind issues but recognize dirt and grime is not normally an issue for approval. They are mainly looking for structural issues (Broken foundation in a way that house is leaning or shows movement), safety related items (doors windows) and minimum appliance operation (like stove and furnace working so that hot plates and space heaters are not main sources).

It is best to touch base with your loan officer and agent and find out any specific requirements to your loan type. Different loans have different requirements. Homepath verses FHA verses conventional – all different.

Good luck,
CJ

Got a Real Estate question? Talk to CJ!

• FHA: An event that was out of the borrower’s control that made a significant impact on the borrower’s finances and led to bankruptcy or foreclosure.
• Fannie Mae: A nonrecurring event that’s beyond the borrower’s control that results in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.
• Freddie Mac: A nonrecurring or isolated circumstance, or set of circumstances, that was beyond the borrower’s control and that significantly reduced income and/or increased expenses and rendered the borrower unable to repay obligations as agreed, resulting in significant adverse or derogatory credit information.

Realize that every situation is different and how your specific financial situation is perceived by an underwriter is, well, up to the underwriter.  These are broad guidelines but are helpful to understanding the impact of a choice made in regards to your mortgage and total debt.

If you know that you owe more than your home is worth and you know that soon you will not be able to keep up on all of your bills, review this chart carefully and consult with a REALTOR®, accountant, and attorney.  Sit down with all three before making  a decision.  One of the best options may  be to short sale your home before you fall behind on your mortgage payments.  This will be best case for protecting your credit and therefore your best chance for renting a home or buying a home again.  The links in table provide definitions.  This information is sourced from the FHA Handbook, Fannie Mae Selling Guide, and Freddie Mac Selling Guide.