INSIDE THIS ISSUE

Selling page 2
Buying page 3

A NATIONAL DISASTER?
July 2005. Incredibly, that was five years ago,
and the genesis of the negative market cycle
which we continue to work through today. Back
then, few accurately forecasted the severity of
the downturn nor it’s duration. Unless one lived
through the great depression, there is no per-
sonal point of reference that would trigger con-
templating such an abrupt and sustained evapo-
Lisa Pak ration of wealth.
Realtor
There is no question our market conditions are
more encouraging now than at any time within
6641-A Old Dominion Drive the last five years. Unfortunately, homes ac-
McLean, Virginia 22101 quired between 2004 and 2008 have likely
Cell: 703-395-3095 depreciated in value; some more than oth-
ers. An alarming statistic indicates that twenty
Lisa.pak@c21nm.com
five percent of homeowners now owe more that
www.c21nm.com their home is worth. Some forecast potential for
further deterioration, proposing this number may
703-556-4222 go as high as fifty percent.
Our firm services the entire metropolitan area,
but real estate is a very local business. We track
statistics diligently. What remains clear, with
little exception, reflects that the greater distance
a market is located from the beltway, the more
severe is it’s decline in value. There are several
markets where over seventy percent of settled
transactions include a distressed seller.
As a real estate professional, the consequence
of our representation has never been greater.
The potential to impact the well being of our
client, in either positive or negative terms, has
grown exponentially. Our responsibility is no
longer limited to valuing and marketing a home,
negotiating the contract and seeing the transac-
tion through to settlement.
Our mandate is to make certain our client
has ALL the information they need to choose
the “best” strategy for their family. This direc-
tion may, or may not, involve our firm earning a
commission. A family’s best alternative may be
a loan modification. There are times it is best to
allow a property go to foreclosure rather than
listing it for sale. Our clients deserve access to
expert legal and tax advice; before they make
decisions. Without these resources, they may
become exposed to hundreds of thousands of
dollars of unforeseen consequence. We cannot,
and will not, allow that to happen.

AS GOES REAL ESTATE; SO GOES THE ECONOMY...

Our firm recently engaged Roger Arnold to speak with us regarding his
views on real estate as a component of the global economy. Mr. Arnold
is a macro economist and respected author who consults with hedge
funds. He provides guidance and data which they rely upon to invest
billions of dollars. His perspective on real estate is from a very different
vantage point than those of us that list and sell homes on a daily basis.
He reminds us that the steep decline in home values caused
this recession. In 2005, accounting standards required financial insti-
tutions to value assets at market value. As home prices plummeted,
banks were required to re-mark their assets at the value of the prop-
erty, not the face value of the loan. Under collateralized residential
home loans became known as “toxic assets” when the value of the
property no longer met or exceeded the outstanding loan balance.
When marked to reflect the lower market value, banks no longer met
the capital ratios required by law, thus were deemed to be insolvent.
TARP was intended to purchase the “toxic assets” from banks
and restore their solvency. Mr. Arnold suggests that if the three
trillion dollars paid out in stimulus programs, instead been used to
purchase toxic assets, we would be in a better position today. Three
trillion dollars is enough to reduce the principal balance on
every mortgage in the United States by twenty five percent.
These dollars were instead used to make loans and buy equity posi-
tions in banks to restore solvency. With these cash infusions came an
implied accountability to lend. Unfortunately, the toxic assets remain
toxic and on the books of the banks. Despite the implied accountabil-
ity, banks did not lend at anticipated levels. With more distressed
homeowners on the horizon, the worst may not be behind us.
For the last year, we’ve anticipated the potentially devastating im-
pact of “Option Arms”. They are just now beginning to hit their first
adjustment dates. These loans were designed to be refinanced be-
fore adjusting, however their makers never anticipated such an
abrupt decline in the value of their collateral. These borrowers will
have no “refinance” option unless lenders, or policy makers,
choose to make one available.
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MARKET TRENDS | SELLER’S CONSIDERATIONS

THE EMOTIONAL JOURNEY… MAKING THE BEST OF NO GOOD ALTERNATIVES

Regardless of how a family finds themselves
in the circumstance where they can no
longer make their mortgage payment, their
initial response will likely be emotional. Re-
gardless of the cause, their lives have
changed. Over the next six to twelve
months, they will feel comfortable with none
of the choices available.
Unfortunately, we become involved with
these families at one of the most difficult
times they’ve encountered. They are at risk
of losing their home, their savings, retire-
ment accounts, and in too many situations,
significant deterioration the family unit is a
consequence.
Initially, there is hope that something will
change and they will get caught up. They
would sell the property if it would bring
enough to clear the liens; they owe
$150,000 more than the home will bring.
Savings supplement or make the mortgage
payment. Credit card balances reach their
limit. As a last resort, retirement accounts
are exhausted as are this family’s options.
When finally reaching ninety days late, sav-
ings are gone, retirement accounts are
drained and emotions are spent. Throughout
their journey, many have come in contact
with the predators in our industry. They
promise to fix everything; for a modest up
front fee. Now, the family feels as if they can
trust no one, and feel humiliated by the en-
tire situation.
These families are the reason we began a
relationship with The Home Rescue Institute.
As a result, our clients have access to legal
representation, tax advice and a thorough
understanding of the options available to
them. They are then able to make good busi-
ness decisions, absent an emotional anguish
which is further exacerbated by indecision.
The earlier we become involved with a cli-
ent, the more choices they will have avail-
able. When engaged before a payment goes
late, or savings become exhausted, our cli-
ent controls their own destiny. While none
of the choices may feel good, they become
empowered to make the best of an array
difficult choices. Having the time to make
informed choices is critical.
Regardless of which choice, or choices, are
made, the order of events is critical. The
wrong sequence of events will have devas-
tating impact.

OPTION ARMS...THE TICKING TIME BOMB

Statistics published by the Mortgage Bankers Association indicate that today, fourteen percent of
all mortgages are at least one payment past due. Of that fourteen percent, sixty eight percent of
delinquent mortgages are ninety days or more past due. The percentage of US homes that are in
foreclosure rose to record level in the first quarter, four point six eight percent.

The graph to the right shows the arrival of a whole new set of adjustable rate mortgages whose first ad-
justment will occur in the next two years. These are the most toxic of the toxic, the “Option Arms”. These
loans required little documentation from the borrower, while scheduled payments were for less than the
interest cost. Effectively, minimum payments add to the principal balance for the first five to seven years.

If left to their own resolution, the vast majority will default and hit the market as foreclosures or short
sales. There are indications of additional government pressure on lenders to modify loans to avoid
this eventuality, but to date, banks seem to have little regard for policy maker’s preference. These
loans carried the most risk when made, and the risk today is exponentially higher.

The “Option Arm” borrower is the borrower with the most to gain through strategic default. For
the first five to seven years, the loan balance was increasing, not decreasing. The initial “teaser rate”
was artificially low, so when the rate adjusts, the payment could double or triple. There is some optimism stemming from today’s historically low
rates. Adjustments are made based upon a margin over a specific index. Since rates are now low, the initial impact of adjustments may be sof-
tened. However, subsequent adjustments will be annual, so some believe the “can” is merely being “kicked down the road.” Time will tell.

TAKING CHARGE OF ONE’S OWN DESTINY

Often, when representing a purchaser
acquiring a short sale, we are disturbed by
the loose ends the seller has failed to re-
solve. The seller is content to transfer the
property without reaching an agreement as
to a lender’s right to pursue the deficiency.
Since we represent the purchaser, it is not
our place to alert the seller. However, it is
clear the seller is unaware, uninformed and
absolutely at risk of another devastating
financial event down the road.
We make certain our clients are well
informed and prepared to make their
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“best” business decision based upon
their own circumstances. We know that
our client will never be served with a defi-
ciency judgment from their lender, be-
cause the issue was not addressed when
negotiating the short sale approval. We
know that our client will never be surprised
to learn of an IRS lien for the tax conse-
quence on a forgiven deficiency. We know
that our client will not be surprised to learn
that if contemplating bankruptcy, they
needed to do so before short selling their
home, not after. After, they may no longer
pass the means test.
We are real estate professionals, not law-
yers, not accountants. Distressed sales
are extremely complex transactions which
require specific guidance in each discipline.
We’ve spent countless hours in classrooms
acquiring the designations, knowledge and
competency needed to represent distressed
sellers. Getting this right for our clients is too
important; getting it wrong is not an option.
The stakes are too high.
Many present themselves as “Short Sale
Experts”. Our competency is not a market-
ing position. Our competency is a reality.
MARKET TRENDS | BUYER CONSIDERATIONS

A HISTORICAL AND UNIQUE CIRCUMSTANCE FOR PURCHASERS

To reiterate, we are fortunate to reside in the While our Regional market experienced a
Regional Value Trend
Washington DC Metropolitan area. Values decline in average sales price of over twenty

Averag Sales Price

have certainly stabilized, and in many mar-
kets, modest rates of appreciation have re-
turned. However the reader feels about the
growth of the Federal Government, public
sector hiring serves to somewhat insulate this
region from negative trends apparent in other
percent, the distressed markets saw the
$600,000
average sales price fall by sixty percent.
$400,000
The regional market has recovered marginally
from it’s bottom, however, those that had the $200,000
courage to enter the distressed market at $0
it’s bottom, enjoyed a twenty five percent

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parts of the country.
The graphs to the right reflect two very differ-
ent market trends within our Metropolitan
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increase in average sale since 2008. Unfor-
tunate for some, average sales price in dis-
tressed markets remain at a level forty per- Distressed Market Value Trend
cent below their peak.

Average Sales Price

Area. The top reflects trending for markets
typically defined as “commuter markets”;
those within reasonable transportation access
to Washington DC. The lower graph demon-
strates the steeper decline experienced in
areas where foreclosure activity became the
primary inventory source within the market.
$500,000
Distressed properties are not simple transac- $400,000
tions. They are sometimes well worth the $300,000
patience and diligence required from the pur- $200,000
$100,000
chaser. With interest rates at historical lows,
$0
and prices low, the opportunity is ripe for
2003 2004 2005 2006 2007 2008 2009 2010
those qualified to purchase.

MORTGAGE RATES: A WINDOW OF OPPORTUNITY

Purchasers: The graphs above clearly dem-
onstrate the situation owners are faced with
who purchased, or refinanced during the mar-
ket’s crest. Owners with significant negative
equity have few good choices when faced with
a job loss or life changing event. While value
trends have turned positive, it is the property
acquired, or refinanced peak values that will
continue to be “distressed sale” opportunities
for purchasers.
Qualified buyers can now borrow purchase
money, using thirty year fixed rate loans, with an
interest rate below five percent; the lowest in
over five decades. While recently, there have
been rate dips to the mid four percent range,
even at a five percent rate, the principal and inter-
est payment on the average sales price of
$250,000 is only $1,342.
Financing is also obtainable with as little as three
and a half percent down, or $8,750 on the same
average sales price. The opportunity is made
clear in the graph below. Policy makers have
30 Year Fixed Rate Mortgage
30 Year Fixed Rate
priced money at this level to encourage demand
for housing. Rates will return to normal levels.
At six percent, the principal and interest payment
on the same $250,000 loan goes from $1,342 to
$1,498 per month. Does it really make sense to
pay $156 more a month, or $1,872 a year, or
$56,160 over the term of the loan for the same
amount of purchase money? Likely not.
Owners: For the last several years, FHA insured
mortgage loans have been the best choice for
most purchasers. These loans offer a unique
feature which allow borrowers to refinance their
FHA insured loan to lower rates when available.
As you can see in the graph to the bottom left,
this feature would likely benefit most that have
purchased in the last seven years.
The refinance qualifications are significantly
less stringent than are those for a conventional
refinance:
• No appraisal is required. This means that
those with negative equity will qualify, regard-
less of current home value.
•
The basic requirements of for this refinance are:
• The refinance must result in a lowering of
the borrowers monthly principal and
interest payment.
• The mortgage to be refinanced must al-
ready be FHA insured.
• The mortgage to be refinanced should be
current. (There is no stipulation regarding
prior delinquency)
• No cash may be taken out using this refi-
nance process.
Interest rates have fallen significantly since the
expiration of the “Home Buyer Tax Credit” on
April 30th. We are in contact with our clients who
purchased using an FHA insured leverage this
feature of their loan. Even those who pur-
chased as recently as several months ago are
benefiting from this opportunity.
Every indication is that rates will be higher by the
end of 2010. If you were our client, and have
an FHA insured loan, we have already been in

Rates - 2003 to 2010 No Income verification is required. There touch. If you were not, but feel you could benefit
7% are no debt to income ratio standards. Those from this program, please just pick up the phone
6% who’s incomes have changed since acquiring and call us. We can help.
their home will still qualify.
5%
We are full service real estate professionals.
4% • No Asset verification is required. There are Helping families lower their payment through this
no “cash reserve” requirements to refinance program is not a commissionable event for an
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your FHA insured loan. agent. We promise our clients full service; and
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lending is a critical component of full service real

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• Approvals are not credit score driven. estate firms. Promise made; Promise kept.
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CENTURY 21 NEW MILLENNIUM | REAL ESTATE NEWS

SUMMARY
If you are considering a real estate transaction, thorough analysis and competent representation
are essential. We are in a transitioning market. There is potential for profit, as is there risk of loss.
If we understand the underlying facts, we will make good business decisions; logically, and with-
out emotion. I am a real estate professional and accept responsibility for keeping my friends,
neighbors and business community informed as to all aspects of things affecting the real estate
portion of their holdings.

If you are currently listed for sale, this is not a solicitation. If you have a real estate question, I will Lisa Pak
be happy to answer it, or find the answer. If you have a real estate need, I will appreciate an op- Realtor
portunity to compete for your business. Our team is very good at what we do...our results demon-
strate that. Don’t settle for less. 6641-A Old Dominion Drive
Sincerely, McLean, Virginia 22101

Cell: 703-395-3095

Lisa Pak Lisa.pak@c21nm.com

www.c21nm.com

703-556-4222

5990 Kingstowne Towne Center

Alexandria, VA 22315

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