Friday, February 29, 2008

Can you be a successful Real Estate Flipper?

Can You Be a Successful Real Estate Flipper?

The idea is not to catch a shooting star in a rapidly appreciating market. Rather, the real plan lies in finding undervalued properties, rehab them, present them in an attractive manner, and sell them for a reasonable profit. Home flipping is an art. It's a business, which reveals your mind - the smartest wins - and your inner world - charisma and the ability to present your property in an attractive manner. If you think you cover these two characteristics, follow this article to the end to see what else is required from the successful house flipper.

1) A varied skill set. During the project of real estate flipping, you'll wear a number of masks, or so called 'hats'. Their role's to present you as a project manager, accountant, designer, problem solver, contractor, real estate professional, PR consultant, marketer, etc. While wearing all these 'hats' you have a better chance of success.

2) Ability to approach the flip strategically and with integrity. Smart is always the shortest and most effective way. And smart flippers know perfectly well what the value of approaching a project in a strategic manner truly means. If you're a calculated flipper, you have a plan in your head, you keep a tight reign on your budget, you only do the necessary fixes, immerse yourself in the local real estate market, have a clue in how to market and position your flip and you're constantly aware of how time can impact your project.

3) Time consciousness. They say "time is money", and they say it for house flipping industry. Not only do cosmetic updates or structural changes take time and resources, but every month, passing another mortgage payment is handed over to the bank.

4) Detailed vision. Always keep in head, that you're preparing to sell a project that's move-in ready. That requires you to stage your flip. Presenting your product means seeing every scratch, hiding it and creating a warm and welcoming appeal. Subtle sounds, smells and sights make people feel comfortable and your house, and further buying process, cozy. Only in case you don't forget to put down the toilet seat, of course.

5) A 'non-personal' approach to everyone and everything. Your potential buyer is your greatest aim as a house flipper. And you must be in tune with him. That means knowing the character, so you use the exact materials and design required. You also decide whether to position your project as entry-level or more high-end. You should interpret your target market in the right way so as not to over or under-do a renovation. Although it is tempting to go ‘all out’ when updating a flip, at the end of the day, flipping is about only doing what’s needed to get a place structurally and visually ready to sell. Don't let your project be personal, unless you want to lose extra money.

6) A perfect handle on the budget. A successful house flipping project has to be entered into with a budget, the realistic idea of the forecasted costs. This will help your flip not to run over your budget and negate the whole idea of house flipping for you and, in the first place, the profit. The careful research, related to costs involved in flipping such as mortgage payments, mortgage insurance, cost of materials and labor, whether labor is readily available and other researches prior to flipping turn you into a savvy house flipper.

7) The first thought is of the target market. A good house flipper is a person who has a firm handle on the market fluctuations with the local real estate area. This knowledge helps him to spot a deal. Moreover, there's no news for knowledgeable flippers that design plays sometimes the biggest role in the final product. And the decision must be smart: simplicity. Focus more on basic things, not on your personal preferences. Trying to appeal to the masses within your target market means you shouldn't go with materials or color schemes that most people won't relate with. Tasteful yet neutral design will create a comfortable image for your potential buyer.

Friday, February 22, 2008

Conforming Jumbo Limit Changed, but wait.......

Congress' plan to help the jumbo loan market -- passed two weeks ago as part of the Economic Stimulus Act -- still is a work in progress. Key details of the plan were left to the Department of Housing and Urban Development to nail down, which may take until next month. What's more, the securities industry's biggest trade group last week surprised lenders when it recommended that larger loans be in effect isolated from smaller mortgages in the "secondary" market, where loans are packaged into securities for sale to investors.That could keep interest rates on jumbo loans higher than some borrowers had hoped, analysts say. All of this has many homeowners who want to refinance, as well as would-be buyers, on edge -- particularly in the high-priced markets. The market for large jumbo mortgages has been a major casualty of the credit crunch that has slammed the economy since late summer.

As loan delinquencies have soared and scores of mortgage lenders have folded, many remaining lenders have become unwilling to make loans unless they know they can sell them to Fannie Mae and Freddie Mac, the government-sponsored mortgage finance companies.But under federal rules, Fannie Mae and Freddie Mac couldn't buy loans larger than $417,000 -- the limit for what was labeled a "conforming" mortgage.The Economic Stimulus Act gave HUD the ability to boost conforming loan limits in high-cost areas to as much as $729,750 through the end of this year.The hope was that that would quickly help support refinancings and home purchases in expensive markets hit hard by the housing downturn. But Congress left it to HUD to set new conforming-loan limits by region, based on a formula that takes into account the median home price in each region. The department has 30 days from Feb. 13 -- the date President Bush signed the act -- to revise the jumbo conforming loan limits. HUD officials said this week that they had not yet come up with numbers. The department is expected to set new conforming limits on a county-by-county basis, just as it does for Federal Housing Administration-insured loans. If HUD's home-price data are similar to recent figures published by DataQuick Information Systems, analysts say conforming-loan limits would skyrocket through much of California, from the current $417,000 to at least $572,500 in Los Angeles County and $650,000 in Orange County.

Loan balances, however, are just one component of what makes a loan conforming. Other issues include the type of income documentation provided and a borrower's credit score. At Freddie Mac in McLean, Va., spokesman Doug Duvall said the company was discussing what the standards should be for larger conforming loans."We are going to be defining the loan-to-value ratios, how much down payment the person needs and the credit score of the borrower," Duvall said. "These are some of the things that we measure. We are wrestling with how different those will be from the traditional conforming" loans.Even if Freddie Mac and Fannie Mae begin buying significant numbers of larger loans, it isn't clear how significant an interest saving that will mean for borrowers.

Since the bad inflation reports and government intervention in the mortgage market three weeks ago the rates for 30Y fixed jumbo loans has moved up .50%. Th best value for clients is the 5Y and 7Y jumbo interest only loan. We have seen various information that possibly fifteen counties in the whole country would see a boost. Your neighborhood might be expensive but HUD is using the median for your county. The Hollywood Hills Real Estate you've haid your eye on and that condo in South Beach might be 1.5m but both counties have a median value in the mid 500's.

In our opinion this proposal was created to address the home owner with a jumbo loan balance in the 417-600k range. This is a bandaid on a large wound. Credit markets will continue to contract until the losses stop and the loans begin to perform again.

Friday, February 15, 2008

Waking Up to The Problem Most Americans Face

Mort Zuckerman of U.S. News and World Report gave a gloomy assessment of the housing market yesterday: he gets it. This is a housing depreciation problem not a "contained subprime" issue.

How much longer will house prices keep falling? That collapse is a larger threat
to our economic well-being than even the headline-grabbing problems of our
increasingly frozen financial system. We’ve had half a century of rising home
values, capped by an inflation-adjusted rise of 85 percent from 1997 to 2006.
Now the loss of value tops $1 trillion, and the financial world has incurred
hundreds of billions of dollars of losses on the premise that U.S. home prices
would never fall. The median price of a new home is at $206,500, receding to
where it was in November of 2003, thus wiping out more than three years of price
appreciation. It takes 6.3 months to sell a finished home compared with 4.3
months a year ago. The ratio of inventory to sales is the highest since October
1981—there’s an unsold extra backlog of a million single-family homes and
condominiums. Builders have cut their housing starts by approximately 40 percent
over the past year. David Rosenberg of Merrill Lynch estimates construction will
fall from a million units to approximately 700,000 units, an all-time low since
World War II.
House prices, though, haven’t fallen enough to tempt buyers,
despite sales incentives and rebates. According to the Conference Board, fewer
Americans plan to buy in the next six months than at any time since 1994. The
decline in conventional mortgage rates has failed to spark sales because it has
been trumped by tighter lending standards. Speculators, who helped fuel the
bubble, have virtually disappeared from the market.

The rest of the article is also interesting, and he did a good job of discussing the problem of fighting a deflating bubble with lower interest rates:

Lower rates can help those with adjustable-rate mortgages, but they cannot stop
the deflation of the housing bubble or prevent a tidal wave of mortgage
defaults. This is partly because mortgage rates reflect the 10-year treasury
bond yield more than the federal funds rate. That rate has dropped, but the
spread of both fixed- and adjustable-rate mortgages over treasuries has widened,
which means smaller declines in mortgage rates. Then there are those many
borrowers who got mortgages in 2003 and 2004 when the federal funds rate was 1
percent; they’re not going to get a better deal than that. And if they now have
zero or negative equity in their home, they won’t be able to refinance in any
Zuckerman made this recommendation:
There is no time to delay in
combating the trends. Monetary policy cannot make bad investments turn good.
Cheaper mortgages won’t cure the market where properties are plunging so much in
value. The collapse of value will affect all homeowners and, through them, the
whole economy. It’s bound to be the most pressing issue in this presidential
election year. Voters in the primaries and general election should look to
candidates with credible policies in mind to address this downturn.
Too bad "candidates with credible policies" are in short supply. Too many of our politicians seem to believe that government can somehow stop the trainwreck if enough money is thrown at the problem. The FED and ECB have injected north of $500B into the markets in the last few weeks and mortgage rates have gone higher in the last few days. The FED is pushing on a string. Don't wait for the FED or a politician to handle your mortgage situation. Be proactive and review your options today as the programs, rates and/or your home value may be much worse tomorrow. We have spoken to dozens of people recently who can't refinance because they have little or no equity. The recent bill passed does nothing for these folks. The effects of the downturn can be addressed, but the downturn itself cannot be stopped. Policy can’t combat gravity.

Wednesday, February 13, 2008

New Conforming Loan Limit Becomes Law.

President Bush on Wednesday signed H.R. 5140, the Economic Stimulus Act of 2008, making official a temporary boost to both conforming and FHA loan limits. This might be the stiff drink the real estate market needs. The new law boosts the GSE conforming limit to as much as $729,750 through the end of this year, and also raises FHA lending limits to the same level for high-cost areas.

“I know many Americans are worried about meeting their mortgages,” President Bush said prior to signing the bill. “My administration is working to address this problem.” Bush cited HOPE NOW and the recently announced Project Lifeline initiative as examples of ongoing work by the administration to address the housing crisis.

A White House-produced fact sheet covering the new growth package is available here.
The U.S. Department of Housing and Urban Development now has 30 days to publish a database of house prices that will be essential in determining which markets get access to the new jumbo conforming’ or ‘expanded FHA’ loan products.

Of course, that could prove to be bit of a problem in and of itself, given that HUD doesn’t currently independently gather or otherwise publish home price data. Bankrate’s Holden Lewis was on this right from the start when Congress first passed the bill:
The Office of Federal Housing Enterprise Oversight, or OFHEO, compiles periodic indexes of home prices. Fannie Mae and Freddie Mac use the OFHEO data each November to update the next year’s conforming limit.

The Federal Housing Finance Board and the National Association of Realtors both collect and publish home prices. The FHA takes information from both entities to calculate the FHA limits for each metro area.

Congress could have pegged the conforming and FHA limits to data collected by OFHEO, the Federal Housing Finance Board or the Realtors. But it didn’t. Instead, the law says: “The secretary of Housing and Urban Development shall publish the median house prices and mortgage principal obligation limits … for all areas as soon as practicable.” The law gives HUD 30 days to publish the database of house prices.

The simplest solution would be for HUD to use the same house price information it uses to calculate FHA loan limits. But a HUD spokesman says: “We have not yet determined if the same data will be used to make the new calculations.” That leaves lenders in the dark until HUD makes a decision.

While price designations aren’t yet known, a few industry sources close to the process have suggested that the new conforming limits won’t be as broadly applied as many might expect; just 15 counties in California might be designated as eligible for the loan limit increase, for example.
That’s not the only grey area out there, of course — there’s also the as-of-yet unclear issue of TBA trading in the secondary market that will need to be settled. Mortgage bonds are sold before the loan are completed and funded. That's why you lock in a rate. (The unconfirmed word from our sources today is still that the industry agency SIFMA wants to keep the new ‘jumbo conforming’ loans out of TBA pools.)

It’s also unclear exactly how the new jumbo conforming will price, given that neither Fannie nor Freddie have experience underwriting within the jumbo mortgage market.

Similarly, it isn’t exactly clear what the initial underwriting criteria will be, although most expect it to at least sit close to existing ‘traditional conforming’ guidelines — if not ending up more restrictive. “OFHEO has already gone on record saying that jumbo loans are more risky, so I wouldn’t be surprised if the underwriting guidelines end up being tighter than what you’d see for usual conforming products,” said one executive at a large lender, who asked not to be identified.

Tuesday, February 12, 2008

GOV:Worst is yet to come in housing and foreclosures.

From today's Lifeline Meeting In Washington.

Remember for every distressed seller there is an ecstatic buyer that is getting a bargain.

Monday, February 11, 2008

Diverging Jumbo Rates, should you take an ARM?

Jumbo Mortgage rates are highly sensitive to expectations for the U.S. economy.
When the economy is expected to sag, mortgage rates tend to fall
When the economy is expected to surge, mortgage rates tend to rise

Currently, the economy is expected to sag and surge in the later half of the year. I disagree but what live with what the market gives us. This is why adjustable-rate jumbo loan mortgage rates are holding their ground as fixed-rate jumbo mortgage rates increase.
Fixed-rate and adjustable-rate mortgages are not as interchangeable as in the past and it's mostly because the Federal Reserve's routine has created expectations of runaway inflation later this year.
The "Fool in the Shower" bit goes like this:
A fool gets in the shower and it's freezing cold
To get warm, he flips the hot water on to full blast
Before long, the water goes way past warm and into hot. It burns him.
The fool turns the water back to cold and repeats the process in reverse.
The Federal Reserve is following the same pattern. The economy showed signs of weakness (i.e. being cold) last year so the Fed took steps to warm it up. Since September 2007, the Federal Reserve has shaved 2.25% from the Fed Funds Rate. With each successive cut, though, the Fed is turning the proverbial water farther towards "hot". This makes it more likely that the economy will go from "ice cold" to "scalding hot" sometime later this year.

Overheated means inflation comes back and now investors are taking notice and a quarter of all jumbo mortgage loans are owned by foreign investors and they don't like our falling dollar.
The growing likelihood of inflation is now priced into longer-term mortgage rates. Inflation erodes the value of mortgage bonds so it's causing long-term mortgage rates to rise.
Meanwhile, short-term rates are still reflecting the short-term economic weakness to which the Fed is responding. In the near-term, the absence of inflation is holding rates low for a host of products, including:
The 1-year ARM
The 3-year ARM
The 5-year ARM
And that's where it ends. There is a increase right at the 7-year marker. The 7-year ARM along with the 10-year ARM and the fixed products are all priced for the Fool in the Shower bit, jacked higher for inflation and the eroded dollar. Of every client is different, you should match your time frame for the home with your mortgage as best as possible. With all the consumer choice comes enormous responsibility.
Two months ago, the spread between a fixed-rate mortgage and a shorter-term adjustable-rate mortgage was .125%. Today, the gap is 0.625%. We are currently advising clients to consider the 5Y and the 10Y jumbo loan interest only. We often advise to go interest only and max out all retirement accounts with the funds otherwise allocated to the mortgage principal. For a customized proposal from a banker contact us anytime.

Thursday, February 7, 2008

Senate Passes Conforming Loan Increase!

As part of the overall Economic Stimulus package the Senate voted and passed the provision within the bill to expand the conforming loan limits to allow Fannie Mae and Freddie Mac to buy conforming loans worth as much as $729,750 for loans made between July 31, 2008 and Dec. 31, 2008, an increase over the current $417,000 loan limit, a move that could help struggling homeowners to refinance jumbo loans at a lower interest rate. It will also allow the Federal Housing Administration to insure loans as high as $729,750 in expensive markets. To find your areas median home value visit the National Association of Realtors site. They have the most user friendly numbers.

This should be a welcome boost to home sales within the price range of the 125% upper limit for median value of a city. We don't expect a dramatic improvement in 30Y jumbo loan rates, most analysts are speculating that rates might improve by as much as .50% compared to where they are now. Historical low jumbo loan rates are available now on 5Y, 7Y and 10Y fixed most clients are locking in rates in the low to mid 6% area. This is down from the mid to high seven percent range over the last few months. The jumbo market most improved by the congressional action is likely to be the 30Y fixed as investors(banks, foreign investors, etc) don't have a great appetite for 30Y paper so they are demanding higher rates than what one would expect.

The conforming loan limit change doesn't happen till mid summer. For those in falling markets looking at their neighborhood drop in value it is wise to consider your refinance options now as equity is the most important factor in lending. To get the best loan terms your loan balance should be no more than 80% of the value of your home and of course having great credit gives you access to the best jumbo loan rates.

Friday, February 1, 2008

Confusion reigns as to FEDs Impact on Mortgage Rates.

Contrary to the conviction of deeply confused clients and reports by lazy news media, mortgage rates are unchanged, about 6.50 percent for the lowest-fee 30-year jumbo loan.

Yet, the media refer constantly to "dramatically lower mortgage rates." They are better, but ... drama? Freddie's average for the whole of 2007 was 6.74 percent. A quarter-percent drop is nice for buyers, and a help to a few jumbo loan refinancers, but no fire sale.

"How can it be the same ... !?!" says the client, after a cumulative 1.25 percent cut at the Fed in only eight days? Answers follow.

Brand-new January economic data are not that bad. They're not bad enough to justify the Fed's panic, let alone to anticipate more cuts. Payroll growth slipped to flat in January (negative 17,000 is within the huge range of error and revision), unemployment down to 4.9 percent in a workforce statistical quirk -- soft, but hardly a recession. The purchasing managers reported their first gain in six months, likewise soft, but with persistent strength in foreign orders. Fourth-quarter GDP grew by a mere 0.6 percent; however, aside from a temporary drawdown of business, inventories grew at 2 percent.

The Fed's form is disturbing to long-term investors. Central banking is not figure skating, but Fed Chairman Ben Bernanke has departed his predecessor's 17 years of gradualism for lurching on the rink. A Fed that will lurch down will lurch up. This causes 10Y jumbo loans and 30Y fixed jumbo mortgage rates to stay elevated as who knows when the cuts will be taken back.

Investors bought long Treasurys and mortgages at these levels 2002-2004 because former Fed Chairman Alan Greenspan said after every meeting into 2006: Excessive monetary stimulus most likely will be "removed at a measured pace." Translation: You're safe for now, and we'll give you time to get out before we kill you.

In those late Greenspan years, deflation was the problem. Today, inflation is rising all over the world: Australia at a 16-year-high of 3.8 percent core; Europe at a 14-year-high of 3.2 percent; U.K. at 2.6 percent core; China at 6 percent-plus; and an economy completely out of control beginning to export inflation to us. Each time the Fed has lurched to a catch-up ease, all the way back to August, it has rescued stocks, commodities, oil, gold, and tanked the dollar.
I have chewed on the Fed for its inaction and credit-wreck oblivion. However, this situation is NOT a monetary problem: It is a banking-system near-insolvency that may morph into a recession, each making the other worse. The crying need for six months has been transparency of credit loss and bad-asset firewall. Cuts in the overnight cost of money may intercept recession, but inflation means that these cuts cannot be maintained or removed at a measured pace.

Two non-Fed forces holding up mortgage rates: Credit fear about Fannie and Freddie has the spread between mortgages and the all-defining 10-year Treasury (3.57 percent today) over 2 percent for the first time ever. Second, somebody by accident may arrive at an effective credit-wreck bailout: The giant bond insurers, Ambac and MBIA, may be resolved in days. If no collapse, then credit fear will give way to inflation fear.
The Fed's cuts have had a dramatic effect on ARM adjustments, and should revise estimates of housing doom to the better -- also reducing bond-market fear. This month, common one-year Libor-floating loans will adjust DOWN to 5.125 percent.