Category Archives: investment property

Making Sense of Loan Modifications

Losing one’s home is a gut-wrenching experience. It’s something no one should have to go through. Now, sadly, many, many people are having to do just that. In many cases, however, there is another answer.

The Home Affordable Modification Program, or HAMP.

Part of the Federal Government’s economic stimulus plan, HAMP is an option that has yet to pick up a head of steam. It’s possible that it hasn’t gotten the necessary publicity, which is a shame, because keeping homeowners in their homes is vital not just to their well-being, but to the well-being of our economy.

Here’s how HAMP works:

Not a refinance, which replaces your loan with a brand-new mortgage, a loan modification happens when your lender reworks the terms of your existing loan. Generally speaking, this lowers payments and makes the home more affordable for you. Often, the lower payments are the result of a lower interest rate, an extension in the loan term, a reduction in principal, or any combination thereof.

If your home is your primary residence and the balance of your first mortgage is less than $729,750, then you may qualify for the program. Additionally, you’ll have to demonstrate that you’re facing hardships that are affecting your ability to make payments on your mortgage. From there, your lender will ask for documentation about your income, bank statements, as well as other financial data. You’ll also be asked to complete a Hardship Affidavit, in which you’ll describe extenuating circumstances with which you’re dealing.

“I’m doing just fine with my mortgage payments. Why is this important for me?”

Why? I’ll tell you why. The prospect of tens of thousands (yes, that many) homes suddenly appearing on the market is a pretty gruesome specter for our economy. Part of the problem of “shadow inventory” that we mentioned several weeks ago – a tidal wave of foreclosed homes entering the marketplace – would be a crushing blow to a real estate market that is only just showing signs of recovery.

Also, unoccupied homes are blights on communities. Too many can splinter a neighborhood, driving down everyone’s property values — not just those that are empty. And make no mistake: this isn’t just a problem of lower-income communities. No. Foreclosure is just as much of a problem in higher-end neighborhoods.

As Bloomberg reported late December – Homeowners with mortgages of more than $1 million are defaulting at almost twice the U.S. rate. This brings the rate of default for these considerable loans up to a skyrocketing level of 12 percent as of September, compared with 6.3 percent on loans less than $250,000 and 7.4 percent on all U.S. mortgages. This is quite a jump from the year prior where the rate for default on the $1 million dollar plus mortgages as only 4.7 percent.

So, take a look at HAMP. HAMP is offering distressed homeowners a second chance. A chance to keep a roof over their family’s head. A chance to keep the sense of pride instilled by owning your own home.

It’s not a cure-all. But it’s a place to start.

By Gino Blefari
President and CEO
Intero Real Estate Services

Mission: Distressed Properties

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

No one can deny the economic challenges we face as a country. They are the most challenging we have seen in generations. This environment demands more from brokers and Realtors than ever before; especially when dealing with those caught up in the epidemic of distressed and foreclosed properties.

Planning. Organization. Training. Execution. Leadership.

Let’s take a lesson from our own military, the Marines. Their reputation as hardened fighters is well documented. Their success stems from their organization and the precise training that enables the unit to understand and execute the mission of the unit leader. Their order consists of these five elements:

  • Situation
  • Mission
  • Execution
  • Administration
  • Command and Communication

Simple. Direct. Concise. Effective. And I believe this order can be implemented in real estate and guide us through and out of this current market situation. I’ll break it down as follows:

Situation – This is the background to your problem or the events leading up to where we are now. We have been facing incredible pressures and fluctuations in the housing market for over 24 months. Starting with the stricter lending requirements and plummeting home values during the sub-prime mortgage crisis that started in 2007. Two years into this foreclosure crisis we see unemployment, the traditional driver for foreclosures, come into play. While the focus has been primarily on Wall Street and the individual homeowner we recognize the tremendous pressures that have been placed on the individual agent and brokerages.

Mission – This is what we do about it. As I assess this new environment, it becomes painfully apparent that in order to respond to the needs of a distressed marketplace, we had to first and foremost ensure that our own company did not become distressed.

Secondly, we recognize that for our neighbors and prospective clients the immediate goal is saving their home. Granted, this appears counter-intuitive to our core mission of selling homes, but the underlying situation called for this. As Realtors, our mission is to get up to speed quickly, briefed on issues and expand our network of strategic business partners like never before. Therefore it became our mission to train our agents to do just that.

Execution – This describes how our mission is to be achieved. In a distressed market like the one we face today, the solutions we offer and the unique obstacles associated with delivering those solutions are changing rapidly. That is why we have created a department that specifically addressed the problems, opportunities and solutions in the distressed markets. We provide internal loss mitigation training through our Short Sales Division. We also encourage our agents to become Certified Default Resolution Specialists, to better connect and guide distressed homeowners through all of the options available to them. In addition, we are reaching out to servicers, local government agencies, non-profits and to the community to work collaboratively to address the issues and to help jumpstart neighborhood stabilization.

Administration –
This regards the resources required to accomplish your mission.  A brokerage’s most important resource is its agents and empowering them was the most important thing we could administer.  Everyone is working frantically to create new processes, new technologies, new laws to help homeowners, but they are all fruitless if there is not a trusted source to help the homeowners engage in the process. This is where our agents come into play. Servicers are overwhelmed by the number of defaults and homeowners not able to make contact with their servicer, thus never realizing they have options to avoid foreclosure, who better to address and administer to their problems than the Realtor.

Command and Communication – Who’s in charge? Who do you report to? How do you communicate with each other?

With all other forms of loss mitigation, making initial borrower contact is still the key. The fact remains that in a great number of foreclosures, estimates are between 50-60% of all REO properties, there was never any contact between the homeowner and the servicer. Obtaining accurate borrower and property data is challenging to say the least. There are many moving parts and players, which can easily lead to loss of communication.

At Intero, it is the individual agent that remains the most viable solution to engage the distressed market and affect the greatest change in the housing recovery in the years to come.

Semper Fi

The challenges we face are daunting. The road is neither short nor straightforward. It is littered with obstacles, both old and new. But it is the road we must travel in our chosen profession and the road we choose to improve for the well being of the communities we serve.

Take inspiration from my Dad, a decorated WWII Veteran awarded with two Purple Hearts, and the Bronze Star of valor (just to name a few,) quoted often, “Courage is not the absence of fear, it is forging ahead in spite of it.”

4 Reasons to Buy

Lately there has been a lot of discussion about the $729,750 loan limits being extended through 2010. And, many are excited that the tax credit for home buyers has been extended and expanded to include buyers who have owned their current homes for at least five years.

Even with those two incentives in place, there are some would-be-home-buyers that are still sitting on the fence. Here are two additional data points that may help move you into action:

  • Today the 10 year Treasury yield is at 3.2%. This indicator corresponds to mortgage rates – typically when it’s down, mortgage rates are down. Throughout this year rates have remained at historical lows; the average 10 Year Treasury yield for the last 12 months was 3.17%. However, the average yield over the last 10 years was 4.50%. In fact, from April 1953 to December 2008 the average annual yield for the 10 year Treasury was 6.36%. The highest rate during that 55 year period was 15.32%; the lowest rate was 2.29%. The high was attained in September of 1981. The low was achieved in April of 1954. Translation: Evidence shows the 10 year Treasury yield and conforming mortgage rates are at historic lows; it’s unlikely they’ll continue in this range throughout 2010. How often does a 55 year interest rate low occur? About every 55 years!
  • According to the National Association of Realtors®, last month showed another big gain in existing-home sales and inventories continue to decline. Translation: the competition is getting tougher.

Please contact us if we can answer any specific questions or if you’d like to discuss buying or selling strategies.

For Rent Scam!

Recently, a home we have listed for sale ALSO popped up as “for rent” on Craigslist; offered for rent by
someone neither the owners or ourselves have ever heard of!!

The scam is they give you a story about how they were recently transferred, and need to rent the home out
quickly and for below market rent to someone who will take good care of it for them.  Since they’re
already “gone”, you have to send them a rental application (and possibly mail them a deposit check) over
the internet.  If you send them a check, you’ll never see or hear from them again.  If you don’t mail a
check, they still benefit from having your name, address, social security number, date of birth, driver’s
license number, etc.  That information is on all standard rental applications.  Plenty of information for
identity theft, opening credit cards in your name, etc.

So, before renting ANY home, make sure you meet the owner AT THE HOME.  This will help eliminate the
chance of your getting scammed out of your money or your identity.

Pitfall to Refinancing?

Are you considering a refinancing of your current mortgage(s)?  Maybe to lower your interest rate, to switch from an adjustable rate mortgage to a fixed rate, or maybe to consolidate a first and second mortgage into one loan?

Given today’s low interest rates, these could be prudent financial moves.  However, there is one potential pitfall which should give pause for thought.  Legally, there is a difference between a “purchase money loan” and a “refinanced” loan.

A purchase money loan is a loan (or loans) that is put into place at the time you are making the purchase of a property.  For an owner occupied property, if you have financial difficulty at some time in the future (as many people are having today), and your home ends up in foreclosure, the only recourse the lender(s) has is to foreclose, sell the home, and get back as much of their loan as they can.  The lender can NOT go after your other assets to make up their loss.

Once you have refinanced, and no longer have the loan(s) that were put in place at the time of purchase, the lenders DO have recourse.  They’ll have an unsecured lien against your name.  With this, they can attach your future wages, and come after you to make up every penny they have lost on that loan.

Disclosure: we (Robert and Gary) are not accountants or tax experts, but this is our understanding of the law.  If anyone has a different point of view, we encourage your writing on this blog and sharing that viewpoint with others.

Gary Shapiro and Robert Gosalvez

Intero Real Estate Services

Loan Limit Increase

According to a report in the Wall Street Journal U.S. House and Senate lawmakers are making a proposal to extend the time for the temporary higher limits on the amount used for home mortgages issued by Freddie Mac and Fannie Mae are able to buy or guarantee as a part of the temporary solution funding legislation that, by the end of this week, could be passed by Congress.

Stated in a press release by Sen. Daniel Inouye of Hawaii and Rep. David Obey of Wisconsin, the continuing resolution legislation give lawmakers more time to complete appropriation measures. The legislation would also extend loan limits, currently set to end on December 31, 2009, through the end of next year.

While the legislation must still pass through both houses of Congress, it would extend the temporary limits on the size of mortgages the FHA would be able to insure.

More on the $8,000 tax credit

Gary and I are and constantly asked if we have any update on the $8,000 first time homebuyer tax credit, and whether it will truly expire on Nov. 30th, 2009, or whether it might be extended.  While we are not accountants or tax experts, we do know there is a lot of pressure to extend the credit, and possibly even increase it to $15K.

In a report dated Tuesday, Oct. 27, we read there is an agreement to extend the soon-to-expire $8,000 tax credit for first-time homebuyers, according to Senate Banking Committee Chairman Christopher Dodd.

But a Republican who has worked with Dodd cautioned that they were still negotiating on the measure.  “We’re close, we’re close but I can’t get into any details until it’s a done deal,” said Republican Senator Johnny Isakson.

The popular tax credit, which has helped lift the housing market out of its worst slump since the Great Depression, is set to expire on Nov. 30.

Dodd and Isakson want to extend the credit through June of next year and broaden it to anyone buying a primary residence, not just first-time buyers.

Senate Majority Leader Harry Reid had backed a narrower version which would extend the full credit through March and gradually phase it out through the end of 2010.

Dodd said that the deal would merge the two proposals.

The House, which would also need to approve the measure, has yet to act.

The issue is front and center for financial markets. U.S. stocks sold off and the dollar moved sharply higher on Monday after a misleading media headline said research firm ISI Group had written that the tax credit probably would not be extended when it expires Nov. 30.

A Senate vote is expected around 6 pm Tuesday on whether to take up a bill to extend insurance benefits for unemployed workers.
Simply extending the current tax credit is estimated to cost $1 billion a month.

House Speaker Nancy Pelosi appears to be waiting to take her cue from the Senate. Asked about the tax credit earlier this month, the California Democrat said “the question is, would that be just first-time homeowners or would you open it up to other purchasers of homes?”

A House Democratic aide said House leaders would likely adopt whatever language the Senate approves, which would avoid the need for negotiations to reach a compromise. Unlike the Senate, the House has already passed an extension of benefits for unemployment insurance.

**Keep reading, more to come

Robert & Gary

EXTENDING THE TAX CREDIT?

At this point, the $8K first time homebuyer tax credit is due to expire on December 1, 2009.

But, we’re now hearing that Congress is considering extending it AND increasing it!  The new proposal will be available to ALMOST all home buyers, not just first timers.  And the credit may be increased to from $8K to $15K!

We’ve also heard the IRS has decided a taxpayer can deduct interest on the first $1.1 million of a home mortgage, an increase of $100K over the earlier limit.  And get this, it’s retroactive three years!  This means taxpayers can file amended returns for the past three years to claim refunds for these added deductions!

Stay tuned as we hear more!

Gary and Robert

Is this a good time to buy an investment property?

YES!  In fact, an investment opportunity like we have today might never come around again!  Why?  We believe we’re nearing the end of what has turned out to be the most severe downturn in real estate values ever experienced here in the Silicon Valley.

We’ve always believed that owning real estate is an excellent long term investment.  We’re not just saying that; we each own multiple investment properties.

It’s always been difficult to purchase investment properties in high priced areas, as the rents didn’t rise as fast as prices did, so you would end up with huge negative cash flows.  We’ve found that buying homes in a first time buyer price range (under $500k and some even as low as under $300k) works best in terms of getting the rent to cover all or almost all of the mortgage costs.  But here’s the good news for investors; due to the bursting of the “subprime mortgage bubble”, the first time homebuyer price range has suffered the largest percentage drop in value over the last two years.

Now, buying an investment property in the first time home buyer price range (under $500K) has never been more attractive.  We KNOW this price range will recover; as there are always renters who want to get into home ownership.

Basically, it takes a 25% down payment in order to purchase an investment property, and not be in a large “negative cash flow” position.  In some cases, you can have positive cash flow.

Please give us a call if you’d like to discuss how we can help you take advantage of today’s unique buying opportunity and purchase an investment property of your own!

2009 First-Time Home Buyer Tax Credit Facts

The federal government is providing a first-time home buyer credit of up to $8,000 for qualified
purchasers of a principal residence in 2009. However, that program is scheduled to end as of
December 1, 2009. Although other incentive programs, such as the “cash for clunkers” giveaway,
were extended beyond the originally scheduled termination date, there is no indication that the
first-time home buyer credit will be extended beyond its originally scheduled termination date.
To qualify for the credit, the first-time home buyer must close escrow on or before November 30,
2009 and meet other eligibility requirements (see below).

Unfortunately, many factors can delay the close of escrow. Such factors include, but are not
limited to: the buyer’s ability to secure financing; the seller’s ability to resolve any and all
outstanding financial obligations affecting the property; and the condition of the property.
Mortgage professionals have no control over any or all of these potential timing problems and thus
are not able to guarantee the precise date that escrow will close.

—————————————————————————————————————————

2009 First-Time Home Buyer Tax Credit Facts


Who is Eligible

• The $8,000 tax credit is available for first-time home buyers only.
• The law defines “first-time home buyer” as a buyer who has not owned a principal
residence during the three (3) year period prior to the purchase.
• All U.S. citizens who file taxes are eligible to participate in the program.

Payback Provisions
• The tax credit is a true credit. It does not have to be repaid.
• The only repayment requirement is if the homeowner sold the home within three (3) years
after the purchase.

Income Limits
• Home buyers who file as single or head-of-household taxpayers can claim the full $8,000
credit if their modified adjusted gross income (MAGI) is less than $75,000.
• For married couples filing a joint return, the income limit doubles to $150,000.
• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to
receive a partial first-time home buyer tax credit.
• Married couples who earn between $150,000 and $170,000 are eligible to receive a partial
first-time home buyer tax credit.
• The credit is not available for single taxpayers whose MAGI is greater than $95,000 and
married couples with a MAGI that exceeds $170,000.

Effective Dates for the Tax Credit
· First-time home buyers can receive an $8,000 tax credit for the purchase of any home on or
after January 1, 2009 and before December 1, 2009. To qualify, you must actually close on
the sale of the home during this period.

Tax Credit is Refundable
• A refundable credit means that if you pay less than $8,000 in federal income taxes, then the
government will write you a check for the difference.
• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS
and receive a $3,000 payment from the government.
• If you are due to receive a $1,000 tax refund from the government, your refund would grow
to $9,000 ($1,000 plus $8,000 from the home buyer tax credit).
· Buyers can take the tax credit on their 2008 or 2009 income tax return.

Types of Homes that Qualify for the Tax Credit
• All homes, whether single-family, townhomes, or condominium apartments will qualify,
provided that the home will be used as a principal residence and the buyer has not owned a
principal residence in the prior three years. This also includes newly-constructed homes.
For more details on the tax credit, go to www.federalhousingtaxcredit.com