Simon says: "Looking for Foreclosures? Look for Short Sales Instead."

Simon says: "Looking for Foreclosures? Look for Short Sales Instead."

Published in the Santa Monica Daily Press

This article is the second half of a piece I published a couple weeks back about foreclosures.

Many people are under the misguided perception that there are a lot of foreclosures on the westside. They also tend to be under the impression that these are the best deals around.

Not only are there rarely any good buys in foreclosures, there just aren't a lot of bank owned properties period. Brentwood had six residential property foreclosures in 2007. Santa Monica 90402 had zero foreclosures. Santa Monica 90403 had three, 90404 had five, 90405 had eight and 90401 had one.
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There has not been any particular situation where I have seen more good deals than another. Sometimes a Bank Owned REO is a steal, sometimes a plain old under-priced property owned by a motivated seller is a fantastic buy!

However, if you are looking for a good buy (who isn't), one of the opportunities right now is in "Short Sales." A short sale is when a seller sells their home for less money than what they owe the bank. The bank has the option to accept the final sales price or not. Often, instead of going through the time and expense of foreclosing on a property, a bank will option to accept a small loss and approve the short sale.

The opportunity for you is that a seller engaged in a short sale has no incentive to achieve a high sales price. So, the agent lists the property usually at a price below the competition and then submits the low ball offers that come in to the bank. The bank then decides whether they want to accept the offer or not. What usually results is a final sales price that is below the current market value.

This hurts the bank but usually less than a foreclosure and adds a low priced comparable sold into the neighborhood. This lowers the public perception of value and eventually affects a banks appraised values. The increase in the number of short sales, in my opinion, has had a far greater affect on the real estate market than foreclosures.

This rise in short sales lies in the amount of financially strapped homeowners who are aware of this option. Not everyone knows this is an option for them. Another element that has contributed to their increase is a banking industry that puts little effort in discerning the difference between the real estate market in Inglewood and that of North Santa Monica. The way the banks view the different regions of L.A. County parrallels the way national news coverage draws no distinction between Riverside County and Beverly Hills. It all gets thrown together as L.A. County, Southern California, or California.

Therefore, if a bank thinks all of Los Angeles has gone down 20%, instead of the 5-10% that the lower end properties on the Westside have actually gone down, they are more likely to accept a low offer on a short sale.

This negative misinformation and sloppy analysis eventually becomes part of a self-fulfilling prophecy. When cash strapped sellers start hearing about short sales as an option, more sellers begin doing short sales. And the more the banks accept low-ball offers on short sales, the lower the comparable sales data goes and short sales happen with greater and greater ease.

In many instances, if the bank and/or the sellers hired a good agent to sell their homes, this course of action would be unnecessary. From what I have seen I would estimate that at least half of the short sales would have sold for 5-10% more if they were marketed better.

So, the current market, pleasant for a natural optimist like me, no. A fun and gratifying environment for the pessimistically inclined, yes.

However, if you are currently looking for foreclosures go to Realtytrac.com, don't call a westside real estate office. And know this-- if you are hoping for Santa Monica and Brentwood Real Estate values to go down 30%, stop immediately. If this did happen, it would be because the economy and the state of our entire country was in disastrous shape.

So, as a buyer, enjoy the modest leverage you have right now and find a good deal. Remember, once everyone begins thinking it's an OK time to buy, it won't be a "Buyer's Market" anymore.


Simon Salloom is a local Santa Monica and Brentwood based Realtor with Coldwell Banker. Research local real estate and comment on this article at his web-site: WestsideSimon.com

Fannie is doing 3% down loans again?!

Fannie Mae announced today that they will rescind the "declining market" policy on the loans that they purchase! It appears that this will lower the down payment back to 3% on loans up to $417K and 5% on loans up to $729K. The attached article outlines the new policy, and we will forward you more details surrounding the actual loan amounts that are not included in the article. Since the "high balance conforming" loans require manual underwriting, we are under the impression that this means loan amounts up to $729,500 but the details are uncertain at this point. Make special note that the article does specify Single Family Residence, so condo's may require a greater down payment. We will forward additional news as it becomes available.


News Release

May 16, 2008

Fannie Mae Announces Single National Down Payment Policy;
Replaces Policy Regarding Markets Where Home Prices are Declining
WASHINGTON, DC -- Fannie Mae (FNM/NYSE) today announced a new, national policy on down payment requirements for conventional, conforming mortgages the company will purchase or guarantee. Starting June 1, 2008, Fannie Mae will accept up to 97 percent loan-to-value ratios for conventional, conforming mortgages processed through its Desktop Underwriter® (DU®) automated underwriting system, and 95 percent loan-to-value ratios for loans underwritten outside of DU, in all geographic locations in the United States. The new national down payment policy will supersede the policy the company adopted in December 2007 that required higher down payments in markets where home prices are declining.
"As another part of our 'Keys to RecoveryTM' initiative, we are today announcing that we will be equalizing the down payment requirements for borrowers in all parts of the country, regardless of local market conditions," Marianne Sullivan, Senior Vice President, Single-Family Credit Policy and Risk Management, said. "This new down payment policy reinforces our goal to support successful home-owning, not just home-buying, as we seek to bring liquidity to all communities and help the housing market recover."
The new national down payment requirements of 3 or 5 percent will apply to loans for purchase of single-family, primary residences. Down payment requirements will vary for other occupancy, property and transaction types. The company will implement systems and operational changes over the summer to accommodate the new national policy.
"We are able to adopt this new, national down payment requirement, even in markets where home prices are declining, because our new automated underwriting risk assessment model DU Version 7.0 will limit risk layering and assess each loan more precisely," Sullivan added. "At the same time, we believe that equity matters, especially in this market. Down payments are a critical success factor in homeownership -- and responsible lending is good business."
Since the housing correction began, Fannie Mae has expanded its mortgage guaranty business to serve the market's urgent need for stability, liquidity and affordability. The company also undertook steps to help protect borrowers, manage the increased credit risk in the market, and fortify the company's capital position. Among these steps, the company has continued to assess and establish new pricing, eligibility and underwriting criteria for its business that more accurately reflect the current risks in the housing market and guard against the potential for foreclosure. These changes have been incorporated into DU and have included adjustments to credit risk assessment, loan-to-value ratios and down payment requirements, among other factors.
Among the changes in response to market conditions, in December 2007 Fannie Mae adopted a "Maximum Financing in Declining Markets Policy" that restricted the loan-to-value ratios on properties in markets where home prices are declining, essentially requiring higher down payments in these markets. The new single national down payment policy announced today will supersede that policy.
Fannie Mae Senior Vice President Jeff Hayward stressed the company's commitment to special affordable lending programs to support homeownership for families of modest means. "We are stepping up to provide more liquidity and affordability to some of the most distressed communities while also seeking at least a 3 percent down payment investment through our Desktop Underwriter system from borrowers to help ensure their success."
Fannie Mae will continue to provide support for homebuyers that need down payment assistance, and will continue to allow loans with Community Seconds® up to a maximum 105 percent combined loan-to-value ratio. Community Seconds allow a borrower to obtain a second-lien mortgage to help cover down payment and closing costs, with funding typically provided by a state or local housing agency; an employer; or a nonprofit organization. Fannie Mae also offers MyCommunityMortgage® and Flex mortgage products, which permit down payment assistance programs in the form of gifts and grants.
"We recognize that down payment assistance programs remain a viable tool for borrowers who can afford a mortgage long term, but might need a little help getting started," Sullivan said.
As part of its "Keys to Recovery" initiative, Fannie Mae is expanding its partnership with the National Council of State Housing Agencies. The company will provide up to $10 billion in financing to help Housing Finance Authorities (HFA) serve first-time homebuyers of modest means. In some cases, Fannie Mae will purchase HFA mortgages that have greater than 97 percent loan-to-value ratios.
The first "Keys to Recovery" initiative that Fannie Mae announced on May 6, 2008 also includes: streamlined refinancing for Fannie Mae borrowers whose mortgage balances exceed the value of their homes; improved pricing for jumbo-conforming mortgages to help borrowers in high-cost areas; and a neighborhood stabilization initiative with the Center for Community Self-Help for targeted areas with high home foreclosures.




Nader Chahine
Branch Manager
phone: (310) 372-8800
fax: (310) 372-6545
www.manhattanhomefinance.com
3601 Aviation Blvd #3480
Manhattan Beach CA 90266

Simon says: "Foreclosures have tripled, isn't this incredible!"

This piece was published in the Santa Daily Press.

Simon says: "Foreclosures have tripled, isn't this incredible!"


Pretty darn exciting-- isn't it? No, not really, not at all. In 2007 Brentwood had six residential property foreclosures. Santa Monica 90402 had zero foreclosures. Santa Monica 90403 had three, 90404 had five, 90405 had eight and 90401 had one.


In other Westside neighborhoods such as Playa Del Rey, there were four foreclosures in 2007. In Marina Del Rey there were seven and in Venice there were three. The neighborhoods of Westwood and Mar Vista/Palms were a little less fortunate. Westwood had fourteen foreclosures and Mar Vista had seventeen. Beverly Hills has remained strong with only four foreclosures.



Never before, when writing this column, have I felt so confident that my point was made within the first two paragraphs. However, it will probably be a little more interesting to everyone if I elaborate a little bit. And this is what I am going to do, with some of my own personal opinions thrown in.



Now, one could argue that this is only the beginning of the real estate "collapse." Truthfully, one never knows what is to come. However, I like to note that the less desirable parts of our county have already been experiencing significant declines in values for as long as three years now.



Additionally, if more than another 5% drop in values occurs, it will become effectively less expensive to own than it will be to rent. This applies mainly to those neighborhoods, like ours, where the residents are in the 30-45% tax brackets. This includes the majority of Westside residents with college degrees who are of working age. Santa Monica for example is always the last to drop and the first to rebound from a market slowdown.



I would like to say that it is somewhat upsetting to hear people talking about foreclosures as if they are rampant on the Westside. They evidently are not. In the past year, the most difficult part of being a Realtor in this market isn't how challenging business has been. The real drag these days is the unrelenting negativity of the media and some people.



I understand how people feel about all this. I also thought the excesses of the prior market boom were obnoxious and at times ridiculous. That is why now, as it was then, we all need to be able to approach what is happening in a grounded and well thought out way.



At the end of the day, we have to own or we have to rent. If owning isn’t much more than renting, many people will choose to own. It’s more pleasurable for most people to own and it has tax advantages. Renting involves less responsibility and provides greater flexibility.



I am involved in a half dozen conversations a week with prospective buyers who are under the impression that the Westside of Los Angeles neigborhoods are down about 20% and that foreclosures are everywhere. There have been statistics published that property values are down as much as 30% in Los Angeles County. This is true, but only in certain limited geographical locations. Places that most Westside residents have never been to and would need a GPS to find and would certainly find highly undesirable to inhabit. Remember, this is a big sprawling city.



The other day I was chatting with an agent friend of mine while he was doing "floor time." Floor time is when an agent takes random calls as they come into a real estate office. An annoyingly common call for "foreclosure properties" came in to our Brentwood office. The woman wanted a list of foreclosure properties. He told her to go on the internet and call some banks and that we didn't work directly with a lot of foreclosures. It's pretty silly to call a Brentwood real estate office looking for a "list" of foreclosures when there have only been six in the past year.

Unless a property being in foreclosure is your prime requirement when buying a property, it’s a poor business decision to look for foreclosures only. Remember that foreclosures are thrown into the market like every other property, subject to the competition like any old home on any old street.

The advantage with foreclosures is that the banks are the sellers and are often involved at an arms length. Additionally, some of the brokers involved in listing foreclosures for sale are out of the area, and have little knowledge and or concern for surrounding property values. Presentation can also be lacking. It’s not uncommon for a home in foreclosure to be filthy, broken down, unkept and littered with trash. This is not a good selling point for prospective buyers.

(Pick up a copy of this paper in two weeks for the second part to this article titled: “Short Sales.”)

Simon Salloom is a local Santa Monica and Brentwood based Realtor with Coldwell Banker. Comment on this and other articles at his web-site: WestsideSimon.com and he can be reached at: 310-749-8686

Santa Monica and Brentwood Condo Statistics last 8 Months

Click here to view as a spreadsheet (it's much more readable)

Brentwood Brentwood Santa Monica Santa Monica Total Total
Sales Days on Sales Days on Sales Days on
Volume Market Volume Market Volume Market
January-07 10,208,327 83 29,776,500 62 39,984,827 73
February-07 19,331,000 79 23,240,250 70 42,571,250 75
March-07 19,825,500 78 42,784,000 55 62,609,500 67
April-07 21,234,862 60 30,820,005 60 52,054,867 60
May-07 23,866,506 62 53,232,200 62 77,098,706 62
June-07 18,020,000 53 30,590,500 55 48,610,500 54
July-07 23,195,024 42 28,986,500 43 52,181,524 43
August-07 15,774,250 31 30,717,300 54 46,491,550 43
September-07 4,356,000 34 27,210,125 67 31,566,125 51
October-07 7,910,000 62 21,734,090 41 29,644,090 52
November-07 9,851,000 71 26,142,500 61 35,993,500 66
December-07 3,067,500 78 15,091,000 56 18,158,500 67
January-08 5,293,500 78 14,838,333 56 20,131,833 67
February-08 9,893,000 65 17,520,750 97 27,413,750 81
March-08 10,233,500 71 12,104,250 97 22,337,750 84
April-08 10,372,250 72 27,827,141 93 38,199,391 83

Active Listings 82,311,456 143,153,584 225,465,040

Monthly Absorbtion 13,277,014 27,038,465 40,315,479

Months of Inventory 6.20 5.29 5.59

Bond and home loan rates showed improvement with the early part of the week.

Bond and home loan rates showed improvement with the early part of the week.

The Fed Announcement on Wednesday cut the Fed Funds rate by .25%
Typically bonds and home rate react poorly to Fed cuts due to inflation concerns but the Fed's statement hinted that the rate cutting cycle may be nearing an end and Bond and loan rate reacted favorably.
Thursday - The Core Personal Consumption Index (CPE) showed core inflation at 2.1% and just a whisker above the desired 1-2% for inflation. No market movement resulted from this report.
Friday - The Jobs report brought word of 20,000 lost jobs in April and better than the expected 75,000 lost jobs. This caused bond and home rate to worsen dramatically but after the details of the report were released with worsening prior months revisions, bond and home rates improved.
Overall, after another volatile week and when the dust settled, we saw slightly better rates.

Mortgage Market View

Don't over pay... File a property tax appeal

The National Taxpayers Union estimated 60% of home values were assessed too high resulting in higher taxes.
Contact your local tax assessors office and ask for someone in the reassessment area to inquire of starting an appeal.
Ask for a copy of your property card and review all information for accuracy.
About 33% of property tax appeals succeed.


Here is the most recent newsletter, simply click on the link below to view. Please feel free to forward this email to your clients that are interested in economic new that impacts interest rates.

http://www.mmgweekly.com/w/index.html?SID=881c6efa917cff1c97a74e03e15f43e8



Nader Chahine
Branch Manager
phone: (310) 372-8800
fax: (310) 372-6545
www.manhattanhomefinance.com
3601 Aviation Blvd #3480
Manhattan Beach CA 90266