Archive for September, 2009

Will Option ARM Resets Cause a National Crisis?

Friday, September 25th, 2009

Are we in for a national crisis with option ARMs resetting in the next several years, or it is all just a bunch of baloney?

Option ARMs were the most popular types of mortgage product between 2003 and 2006, as they provided many borrowers who otherwise would be unable to afford a home with a chance to purchase. Offering low “teaser” mortgage rates for a fixed time (usually 5 years), interest rates were scheduled to readjust some time in the future.

Many of these loans were pay option ARMs, giving borrowers the ability to choose how much they wanted to pay each month. If the borrower elected a lesser-than-full amount the payments did not go toward the principal balance of the loan.dreamstime_7173646

Many borrowers jumped into these loans with the idea that they would be able to sell their homes for a profit or, in the alternative, refinance before the rates reset. When the housing market turned around these borrowers were stuck in homes for which they had not paid down any or much of the principal, and over the last several years many of those homes have lost value.

The result is the majority of borrowers facing rate resets are underwater with their mortgages, owing more than their homes are worth—on average 126% more.

It is predicted that from 2010 to 2012 there will be approximately $150 billion of option ARMs resetting. Some predict this will lead to a slew of new foreclosures across the country.

dreamstime_5131817The opposing view is that the resets will not have a catastrophic effect. One reason is that the Federal Reserve has kept short-term rates at record lows. As long as this continues borrowers may actually benefit from rate resets, providing them with lower payments.

Some say that the rates have remained historically low because of the infusion of cash from the government, and that once this bail out ends the rates will go up.

Although this may be a valid point it is doubtful that markets across the nation will be inundated with foreclosures. The higher-cost areas may be hit harder, as there is a prevalence of these loans in those areas (for example, in Northern California).

It is also important to keep in mind that inventory is at an all-time low and there are buyers out there…if these homes DO go on the market it may stimulate purchase power, which would be a very different scenario from the last foreclosure wave. If the government continues the first time buyer tax credit beyond November this will also help.

Another point to keep in mind is that the government is currently working to help the housing market and the economy as a whole. As the housing market is a huge indicator of the stability of the economy it would be detrimental to ignore this problem, raise rates and allow a new foreclosure crisis to begin. New programs may arise before the resetting begins.

It remains to be seen what will come of the rate resets from option ARMs, but one thing is clear: Washington needs to come up with some new programs to help those in this situation.

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What Happened to Ethics in Real Estate?

Thursday, September 17th, 2009

Has anyone wondered lately what happened to good old business ethics? With the overwhelming number of short sale and REO properties on the market, it seems that some real estate agents need a refresher course in ethics.

I have heard countless stories from agents about listing agents abusing their authority as the representative of or conduit to the lender. This typically has been seen, for example, when say a listing agent with a short sale or lender-owned property receives multiple offers. dreamstime_7227350As most lenders do not want to have to sift through these the agent is usually asked to submit one or several of the best offers.

This gives the agent a lot of power. After all, what if all the offers are close but another agent in his/her office submitted one? Or what if the agent holds the home open and a buyer comes along who writes an offer with the agent? OR…what if the agent uses the verbal intent of another agent to write an offer that is higher than offers he/she already has, and tells other potential buyers that a higher offer is coming?

Since the code of ethics tells us that we are representatives of our clients and must do right by them in protecting their interests, is there a conflict if your client is the lender? One can certainly argue that there could be in certain situations.

Unfortunately I have heard these stories too often. Why isn’t N.A.R. and the DRE policing this blatant disregard for professional ethics and unfair treatment of qualified buyers? The code of ethics gives the Commissioner broad authority to investigate ethical complaints, but the reality is that many agents are afraid to file these complaints. Why? Because it might mean losing a deal for their client or essentially “blacklisting” themselves from writing future offers to agents who list many of these types of properties (which could be detrimental to future clients).

I have to say that there are many agents who uphold the highest ethical standards, and to them we are all grateful. But as you know, it only takes one apple to spoil the bunch. These are the kind of shenanigans that put Realtors in a bad light. For those who choose to make their own rules, stricter investigatory procedures and penal consequences need to be implemented.

Please join me in drafting letters to N.A.R. and the DRE to get them to recognize what is going on in this market. We need to use our voices; hopefully others will join me in making them as loud as possible. In times like these we need to band together and be even more diligent in protecting the interests of our clients.

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Back to School Tips for Homeowners

Wednesday, September 2nd, 2009

It’s back to school time and my house is so QUIET! School started today for my children and if you are like me, that means it is time to address home projects that were put off during the summer. This is a great time of year to make sure your house is safe and running as efficiently as possible. Here is a Fall homeowner checklist:dreamstime_5464999

1. Chemicals: Go through your stash of cleaners and chemicals and make sure they are all still good. If you have younger children, place them all in a locked cabinet. If you keep all your cleaners under your kitchen sink as I do, this is a great time to pull them all out and check for any water leaks. Believe me, this saved me a few years ago. My sink had a slow leak and I had no idea until I pulled everything out to clean the cabinet.

2. Smoke alarms: Check all smoke alarms and change the batteries.

3. FIre Extinguishers: Keep a dry-chemical fire extinguisher on each level of your home. I also keep one in the garage. If you already have one you need to check the charge at least annually.

4. Carbon Monoxide Detectors: These should be installed near bedrooms and by your furnace. They are inexpensive and run on batteries, which you should also check at least annually.

dreamstime_3059245. Dryer Vent: Your dryer vent hose and outside vent should be cleaned to avoid fires, at least once a year.

6. Furnace: Should be serviced annually to avoid maintenance issues.

7. Rain Gutters: Fall is a great time to make sure all your gutters are clear of debris and free of leaks that could direct water down the sides of your home.

8. Sprinklers: After a hot summer it is important to make sure your sprinklers are operating correctly. Not only does this help with your water bill, but also helps the environment. Sprinkler heads are easily broken by car wheels, dogs, lawnmowers, etc. Also make sure to scale back your watering time on your automatic sprinklers once the heat subsides.

9. Closet cleaning: Usually known as “Spring cleaning,” I like to go through my closets at this time of year as well. You can make it a fun project and get the whole family involved. I have my kids put clothes that no longer fit them into boxes, and then we drop it off at a charitable center. It makes them feel they are helping others.dreamstime_8357862

10. Air/Heating Filters: After the summer heat subsides you need to clean or replace your air/heating filters…before the colder weather sets in and you need to use your heater. This keeps your units running efficiently and prevents danger.

I hope this list helps you in getting organized and ready for cooler days. If you have any questions about other things you may want to check to keep your home in tip-top shape before selling, please feel free to give me a call.

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