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Lisa's 2010 Summer Newsletter

Lisa's 2010 Summer Newsletter

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Published by Lisa Pak
Hello Facebookers! Please enjoy my summer newsletter. Hope you are enjoying your summer. It's going by fast!
Hello Facebookers! Please enjoy my summer newsletter. Hope you are enjoying your summer. It's going by fast!

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Published by: Lisa Pak on Aug 04, 2010
Copyright:Attribution Non-commercial


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Lisa Pak
Realtor6641-A Old Dominion DriveMcLean, Virginia 22101Cell: 703-395-3095Lisa.pak@c21nm.comwww.c21nm.com
page 2
page 3 July 2005. Incredibly, that was five years ago,and the genesis of the negative market cyclewhich we continue to work through today. Backthen, few accurately forecasted the severity ofthe downturn nor it’s duration. Unless one livedthrough the great depression, there is no per-sonal point of reference that would trigger con-templating such an abrupt and sustained evapo-ration of wealth.There is no question our market conditions aremore encouraging now than at any time withinthe last five years. Unfortunately,
homes ac-quired between 2004 and 2008 have likelydepreciated in value; some more than oth-ers.
An alarming statistic indicates that twentyfive percent of homeowners now owe more thattheir home is worth. Some forecast potential forfurther deterioration, proposing this number maygo as high as fifty percent.Our firm services the entire metropolitan area,but real estate is a very local business. We trackstatistics diligently. What remains clear, withlittle exception, reflects that the greater distancea market is located from the beltway, the moresevere is it’s decline in value. There are severalmarkets where over seventy percent of settledtransactions include a distressed seller.As a real estate professional, the consequenceof our representation has never been greater.The potential to impact the well being of ourclient, in either positive or negative terms, hasgrown exponentially. Our responsibility is nolonger 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 clienthas
the information they need to choosethe “best” strategy for their family
. This direc-tion may, or may not, involve our firm earning acommission. A family’s best alternative may bea loan modification. There are times it is best toallow a property go to foreclosure rather thanlisting it for sale. Our clients deserve access toexpert legal and tax advice; before they makedecisions. Without these resources, they maybecome exposed to hundreds of thousands ofdollars of unforeseen consequence. We cannot,and will not, allow that to happen.Our firm recently engaged Roger Arnold to speak with us regarding hisviews on real estate as a component of the global economy. Mr. Arnoldis a macro economist and respected author who consults with hedgefunds. He provides guidance and data which they rely upon to investbillions of dollars. His perspective on real estate is from a very differentvantage point than those of us that list and sell homes on a daily basis.
He reminds us that the steep decline in home values causedthis 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 residentialhome loans became known as “toxic assets” when the value of theproperty no longer met or exceeded the outstanding loan balance.
When marked to reflect the lower market value, banks no longer metthe capital ratios required by law, thus were deemed to be insolvent.
TARP was intended to purchase the “toxic assets” from banksand restore their solvency.
Mr. Arnold suggests that if the threetrillion dollars paid out in stimulus programs, instead been used topurchase toxic assets, we would be in a better position today.
Threetrillion dollars is enough to reduce the principal balance onevery 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 animplied accountability to lend. Unfortunately, the toxic assets remaintoxic and on the books of the banks. Despite the implied accountabil-ity, banks did not lend at anticipated levels. With more distressedhomeowners 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 firstadjustment dates. These loans were designed to be refinanced be-fore adjusting, however their makers never anticipated such anabrupt decline in the value of their collateral.
These borrowers willhave no “refinance” option unless lenders, or policy makers,choose to make one available
Regardless of how a family finds themselvesin the circumstance where they can nolonger make their mortgage payment, theirinitial response will likely be emotional. Re-gardless of the cause, their lives havechanged. Over the next six to twelvemonths, they will feel comfortable with noneof the choices available.Unfortunately, we become involved withthese families at one of the most difficulttimes they’ve encountered. They are at riskof losing their home, their savings, retire-ment accounts, and in too many situations,significant deterioration the family unit is aconsequence.Initially, there is hope that something willchange and they will get caught up. Theywould sell the property if it would bringenough to clear the liens; they owe$150,000 more than the home will bring.Savings supplement or make the mortgagepayment. Credit card balances reach theirlimit. As a last resort, retirement accountsare exhausted as are this family’s options.When finally reaching ninety days late, sav-ings are gone, retirement accounts aredrained and emotions are spent. Throughouttheir journey, many have come in contactwith the predators in our industry. Theypromise to fix everything; for a modest upfront fee. Now, the family feels as if they cantrust no one, and feel humiliated by the en-tire situation.These families are the reason we began arelationship with The Home Rescue Institute.As a result, our clients have access to legalrepresentation, tax advice and a thoroughunderstanding of the options available tothem. They are then able to make good busi-ness decisions, absent an emotional anguishwhich 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 goeslate, or savings become exhausted, our cli-ent controls their own destiny. While noneof the choices may feel good, they becomeempowered to make the best of an arraydifficult choices. Having the time to makeinformed choices is critical.Regardless of which choice, or choices, aremade, the order of events is critical. Thewrong sequence of events will have devas-tating impact.Statistics published by the Mortgage Bankers Association indicate that today,
fourteen percent ofall mortgages are at least one payment past due
. Of that fourteen percent, sixty eight percent ofdelinquent mortgages are ninety days or more past due.
The percentage of US homes that are inforeclosure 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”. Theseloans required little documentation from the borrower, while scheduled payments were for less than theinterest 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 shortsales. There are indications of additional government pressure on lenders to modify loans to avoidthis eventuality, but to date, banks seem to have little regard for policy maker’s preference.
Theseloans 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.
Forthe 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 lowrates. 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.
Often, when representing a purchaseracquiring a short sale, we are disturbed bythe loose ends the seller has failed to re-solve. The seller is content to transfer theproperty without reaching an agreement asto a lender’s right to pursue the deficiency.Since we represent the purchaser, it is notour place to alert the seller. However, it isclear the seller is unaware, uninformed andabsolutely at risk of another devastatingfinancial event down the road.
We make certain our clients are wellinformed and prepared to make their“best” business decision based upontheir own circumstances.
We know thatour client will never be served with a defi-ciency judgment from their lender, be-cause the issue was not addressed whennegotiating the short sale approval. Weknow that our client will never be surprisedto learn of an IRS lien for the tax conse-quence on a forgiven deficiency. We knowthat our client will not be surprised to learnthat if contemplating bankruptcy, theyneeded to do so before short selling theirhome, not after. After, they may no longerpass the means test.
We are real estate professionals, not law-yers, not accountants.
Distressed salesare extremely complex transactions whichrequire specific guidance in each discipline.We’ve spent countless hours in classroomsacquiring the designations, knowledge andcompetency needed to represent distressedsellers. Getting this right for our clients is tooimportant; getting it wrong is not an option.The stakes are too high.Many present themselves as “Short SaleExperts”.
Our competency is not a market-ing position. Our competency is a reality.
To reiterate, we are fortunate to reside in theWashington DC Metropolitan area. Valueshave certainly stabilized, and in many mar-kets, modest rates of appreciation have re-turned. However the reader feels about thegrowth of the Federal Government, publicsector hiring serves to somewhat insulate thisregion from negative trends apparent in otherparts of the country.The graphs to the right reflect two very differ-ent market trends within our MetropolitanArea. The top reflects trending for marketstypically defined as “commuter markets”;those within reasonable transportation accessto Washington DC. The lower graph demon-strates the steeper decline experienced inareas where foreclosure activity became theprimary inventory source within the market.While our Regional market experienced adecline in average sales price of over twentypercent, the
distressed markets saw theaverage sales price fall by sixty percent.
The regional market has recovered marginallyfrom it’s bottom, however,
those that had thecourage to enter the distressed market atit’s bottom, enjoyed a twenty five percentincrease in average sale since 2008.
Unfor-tunate for some, average sales price in dis-tressed markets remain at a level forty per-cent below their peak.Distressed properties are not simple transac-tions. They are sometimes well worth thepatience and diligence required from the pur-chaser. With interest rates at historical lows,and prices low, the opportunity is ripe forthose qualified to purchase.
The graphs above clearly dem-onstrate the situation owners are faced withwho purchased, or refinanced during the mar-ket’s crest. Owners with significant negativeequity have few good choices when faced witha job loss or life changing event. While valuetrends have turned positive, it is the propertyacquired, or refinanced peak values that willcontinue to be “distressed sale” opportunitiesfor purchasers.Qualified buyers can now borrow purchasemoney, using thirty year fixed rate loans, with aninterest rate below five percent;
the lowest inover five decades.
While recently, there havebeen 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 threeand a half percent down, or $8,750 on the sameaverage sales price. The opportunity is madeclear in the graph below. Policy makers havepriced money at this level to encourage demandfor housing. Rates will return to normal levels.At six percent, the principal and interest paymenton the same $250,000 loan goes from $1,342 to$1,498 per month.
Does it really make sense topay $156 more a month, or $1,872 a year, or$56,160 over the term of the loan for the sameamount of purchase money?
Likely not.
For the last several years, FHA insuredmortgage loans have been the best choice formost purchasers. These loans offer a uniquefeature which allow borrowers to refinance theirFHA 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 havepurchased in the last seven years.The
refinance qualifications are significantlyless stringent
than are those for a conventionalrefinance:
No appraisal is required.
This means thatthose with negative equity will qualify, regard-less of current home value.
No Income verification is required.
Thereare no debt to income ratio standards. Thosewho’s incomes have changed since acquiringtheir home will still qualify.
No Asset verification is required.
There areno “cash reserve” requirements to refinanceyour FHA insured loan.
Approvals are not credit score driven.
The basic requirements of for this refinance are:
The refinance must result in a lowering ofthe borrowers monthly principal andinterest payment.
The mortgage to be refinanced must al-ready be FHA insured.
The mortgage to be refinanced should becurrent. (There is no stipulation regardingprior delinquency)
No cash may be taken out using this refi-nance process.
Interest rates have fallen significantly since theexpiration of the “Home Buyer Tax Credit” onApril 30th. We are in contact with our clients whopurchased using an FHA insured leverage thisfeature of their loan.
Even those who pur-chased as recently as several months ago arebenefiting from this opportunity.
 Every indication is that rates will be higher by theend of 2010.
If you were our client, and havean FHA insured loan, we have already been intouch.
If you were not, but feel you could benefitfrom this program, please just pick up the phoneand call us. We can help.We are full service real estate professionals.Helping families lower their payment through thisprogram is not a commissionable event for anagent. We promise our clients full service; andlending is a critical component of full service realestate firms.
Promise made; Promise kept.
Regional Value Trend
   2   0   0  3   2   0   0  4   2   0   0   5   2   0   0   6   2   0   0   7   2   0   0   8   2   0   0   9   2   0  1   0
   A  v  e  r  a  g   S  a   l  e  s   P  r   i  c  e
Distressed Market Value Trend
$0$100,000$200,000$300,000$400,000$500,0002003 2004 2005 2006 2007 2008 2009 2010
   A  v  e  r  a  g  e   S  a   l  e  s   P  r   i  c  e
30 Year Fixed Rate MortgageRates - 2003 to 2010
   1   /   1   /  2   0   0   3   1   /   1   /  2   0   0  4   1   /   1   /  2   0   0   5   1   /   1   /  2   0   0   6   1   /   1   /  2   0   0   7   1   /   1   /  2   0   0   8   1   /   1   /  2   0   0   9   1   /   1   /  2   0   1   0
   3   0   Y  e  a  r   F   i  x  e   d   R  a   t  e

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