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Beginning on August 1st, a new underwriting rule goes into effect to halt the “buy-and-bail”. 

Fannie and Freddie underwriting guidelines will require that borrowers applying for a mortgage to purchase a property, and who already own another, must verify that they have at least 30% equity in the old property – or they can’t get a loan.

Countrywide has already instituted the new guideline, and is also applying it towards FHA applicants as well.  This came into play on the Arthur deal, and as a result, we don’t have a winner yet – but stay tuned, tomorrow is the day!  In an interesting twist, Countrywide is applying the rule towards FHA loans, and Bank of America is not – at least, not yet.

FROM COLDWELL BANKER

After the gloom in the media and on Wall Street about housing values, someone forgot to check the stats!

Recently there have been a lot of stories about isolated areas that have seen 20% reductions in home values. Most agree that these areas saw the highest run-ups over the last few years. What seems to be working is the fact that housing affordability is now driving a reversal. Again, not everywhere, but the stats need to be appreciated. Interest rates are still very attractive and stable these days. In fact, the Mortgage Bankers Association reported increased mortgage applications and listed stable rates as an indicator.

The National Association of Realtors has now reported four straight months of rising housing prices, but it seems no one is listening.  According to NAR statistics, the median home price has fallen from a high of $230,200 in July 2006 to a low in February 2008 at $195,600, a drop of 15%. Since February, however, it has risen steadily every month. By May the index (which will be revised on July 24) had risen to $208,600, up $13,000 and a full 6.6%. Another indicator, the mean home price (otherwise known as the average home price), has also shown strength and has risen from a low of $242,000 also in February of this year to $253,100, a rise of $11,100 or 4.5%. It has also risen every month since February of this year.

‘I just don’t know where Wall Street’s brains are today,’ said David Michonski, CEO of Coldwell Banker Hunt Kennedy in New York City. ‘Everyone on the Street is wringing their hands over housing when in fact the average American has been out this spring buying homes and pushing the median price higher. This has got to go down as one of Wall Street and Main Street’s biggest disconnects in history.Rising prices on expanding volume should not a crisis make on Wall Street,’ says Michonski.

So why the crisis?

They say that there are bulls and bears on Wall Street but there are also pigs. Pigs try not just to profit from a crisis but create one to profit from. Today there are just so many people who have positioned themselves to profit from a crisis that they refuse to admit the reality of what is happening on Main Street. It might hurt their positions.
Is this the bottom?

No one can know for sure, but the hard data is clear. The median price has risen four straight months. The average American is out there taking advantage of bargains in their local real estate market. They are not listening to Wall Street but following their own belief that the best time to buy is when no one else is, and they are out there buying. If this keeps up, February may prove to have been the low in prices.

It is possible that it will not be Hank Paulson or Ben Bernanke who will pull this country out of a housing recession, but the good common sense of the average American whose affordability to buy a home is at a five year high and is acting on it.

Here’s the wrap-up on the Arthur REO contest.  The 4 br/2 ba, 1,279 sf house was listed for $169,900 on , and there were nine offers.  The bank did the usual, and asked each offeree to submit their highest and best offer.  Some people feel like they are getting worked over when that happens to them, but it is the fairest way to make sure everyone has an equal shot to buy a house.

The period given to submit offers has closed, and here are the three highest contenders:

1.  $202,000, all-cash

2.  $209,000 net, FHA ($219,000 with a $10,000 credit for costs) B of A lender

3.  $213,000 net, FHA ($220,000 with a $7,000 credit for costs) mortgage bkr

Tomorrow morning the bank will decide which deal to take.

To assist with the decision-making, I called the B of A lender who I’ve known for years, and discussed the appraisal concerns.  The house is in disrepair, and on a FHA deal the appraiser has the ability to require repairs he deems necessary, which then fall on the seller to complete.  In our purchase contracts it has a blank to fill in the limit on the amount of repairs to the seller, but neither agent put in an amount.

If you are the asset manager, do you take a chance on a higher sales price, even though the FHA appraisal could set you back?  Or do you take the sure bet, the cash deal that doesn’t need an appraisal?  We don’t fear the appraisal not coming in at the right value, the last two sales were $234,000 and $250,000 in the last sixty days for the same floor plan.  It is the possible-repair issue that has the potential to turn into a blank check from the seller.

Here are the contest entrants – price, name, and # of offers:

$149,000 – No_Such_Reality, 1

$150,000 – JE, 1

$174,000 – doughboy, 1

$180,000 – Simone, 7

$184,000 – ericabiz, multiple

$184,000 – mybleachhouse, 7

$189,000 – Merc Mont, 5

$190,000 – Chuck Ponzi, 3

$190,100 – First Time Renter, 11

$191,500 – money market, 5

$193,000 – SMC, 5

$195,000 – GLG, 10

$197,500 – Don, 7

$199,900 – CVman, 5

$200,750 – Al in IC, 7

$206,500 – FreedomCM, 7

$210,000 – Mojo, 7

$210,000 – Mr. T, 14

$210,000 – loharp, 20

$212,000 – Neil Diamond, 27

$215,000 – Steph in RB, 5

$219,500 – CVBidder, 10

$224,500 – Rob Dawg, 5

$237,000 – Stephen Watts, 14

$240,000 – Coconuts, 11

It looks like the winner will be either Al in IC, or Neil Diamond, unless B of A gets favored as the company lender – then it’ll be Mojo! 

The all-cash offer had gone up to $208,000, but the buyer and agent went back to the property this morning and found that the neighbor across the street was sitting in his car, on his lawn, blaring the music at full volume.  They lowered their price back to $202,000 – sorry FreedomCM.

This is a bank decision – what would a regular home-seller do?  If this were a typical seller, and not a bank, most would go for the higher offer, or want to counter-offer the cash deal at $209,000.  I’m not kidding – most sellers would pass on the cash deal, or at least try to get them up higher.

Have any doubts about foreclosures moving up the food chain?  Check out these higher-end properties – they have received their notices of trustee sale, and will be on the couthouse steps in the next few weeks:

Town/Amount Owed/Trustee Sale date

Carlsbad

3553 Calle Palmito  $1,071,433  7/24/08

3570 Calle Palmito  $1,756,702  7/31/08

6493 Wayfinders   $998,893  8/6/08

7365 Calle Conifera  $1,102,102  8/7/08

6562 Petunia   $1,029,411  8/11/08

6443 Merlin  $902,675  8/15/08

1005 Canvasback  $1,126,742  8/18/08

Carmel Valley (92130)

4442 Shorepointe  $997,230  7/23/08

Del Mar

13443 Caminito Carmel  $1,070,985  8/7/08

1157 Highland  $1,264,195  8/11/08

Encinitas

574 Park  $1,046,317  7/23/08

La Jolla

254 Playa del Norte  $2,208,841  7/23/08

6616 Tyrian  $1,261,558  7/28/08

2497 Darlington Row  $1,005,793  7/31/08

5491 Bahia  $1,626,079  8/1/08

5712 Rutgers  $1,788,665  8/11/08

Mission/Pacific Beach

3333 Ocean Front Walk #4  $1,074,933  7/25/08

1040 Van Nuys  $1,152,701  8/1/08

2056 Emerald  $989,997  8/14/08

Rancho Santa Fe

7965 Camino de Arriba  $2,208,841  7/24/08

6347 Las Colinas  $1,761,385  7/28/08

4538  Via Gaviota  $2,421,936  7/28/08

16625 Via de la Valle  $1,684,797  7/28/08

4S/Santaluz (92127)

1007 Winecrest  $1,400,858  7/25/08

16834 Stagecoach Pass  $1,233,165  7/28/08

7436 Rancho Cabrillo  $1,063,825  7/30/08

14629 Arroyo Hondo  $1,463,731  8/5/08

17075 San Antonio Rose  $1,317,626  8/21/08

7419 Rancho Cabrillo  $1,089,316  8/25/08

17165  San Antonio Rose  $1,128,063  9/3/08

The lenders and trustees are still doing a miserable job of informing the public of what the minimum bids will be on these – none have an opening bid published at this time, and some of the sale dates are this week!  Possible bidders are reluctant to get a cashier’s check and go down to the courthouse without knowing what to expect, price-wise – and here’s an example of what can happen:

7071 Cordgrass, Carlsbad

4 br/4.5 ba, 3,199 sf

$300,000 in upgrades

$1,541,249 owed

$880,000 opening bid on 7/16/08

no bidders, back to beneficiary

If people knew that they could buy a newer 3,200sf house with a load of upgrades and nice ocean view for $880,000, I’m pretty sure they’d take advantage of it.  But nobody knew – or they didn’t have all-cash, another problem with properties sold at the courthouse steps.  I’ll cautiously mention that I have arranged private financing for those who have their eye on a defaulting property, but are a little short of the total needed to buy one at the courthouse steps.  Contact me for more details.

On a side note, please endure the new formatting inflicted upon us by my blog host.  Much like Sandicor, they have rolled out a new package and are trying to fix it along the way.  Crazy changes too – for example, they took away the ability to all-justify a paragraph.  You can justify right, left, or center, but not all-justify like it used to.  Adding images got messed up too.

When considering buying a house, wouldn’t it be nice to know how many people around you have a neg-am loan?  This isn’t readily-available information, unfortunately.  But if you are thinking about buying in a new or newer tract, you can judge by the builder’s in-house lender. 

The builders give incentives to buyers to use the in-house guy, and it’s usually enough money that it’s crazy to NOT use them, as long as the rates and programs are competitive.

Take Pardee Home Loans, for example.  They are a joint-venture with Wells Fargo, and though Wells has had their share of write-offs lately, they weren’t from neg-am loans – they’ve never done one.

So those of you who might consider buying in a Pardee tract around Carmel Valley, and are waiting for the resetting neg-ams to kick in, you might be disappointed.  Work with a five-year and seven-year timetable instead, Wells Fargo is more of 5 and 7-year-fixed lender, for those borrowers who may have taken a loan other than a 30-year fixed. 

Here are the May and June sales counts from the MLS, and the trustee deeds (foreclosures) taken from Ward Hanigan’s website:

SD County Closed Sales, Attached and Detached

In hopes of providing some pricing data, I tried the Sandicor statistics function, but it came up with gobbly-gook. We’re two months into the Tempo minus-five debacle, and they still can’t get a simple statistical formula together, and furthermore, they prevent us from downloading big subsets. Pretty soon, people are going to think it’s a big conspiracy or something.

Ray Ewing, president of Sandicor, has been telling others about me. He singled me out by name as a guy who, if I would have been practicing on Tempo 5 before it was released, I wouldn’t have had a problem. Ray, if you can’t get your basic programming down, what good is it for me to practice, and go to more trainings?

FORECLOSURE RELIEF BILL BECOMES LAW

This week, the State Legislature enacted foreclosure reform law to address the adverse effects of high foreclosure rates in California. The new law requires lenders to contact homeowners to explore options for avoiding foreclosure at least 30 days before filing a notice of default. It also requires owners acquiring property through foreclosure to maintain the exterior of vacant residential properties. The new law also extends from 30 to 60 days the time for residential tenants to move out of properties that have been foreclosed upon, unless other laws apply. These requirements will remain in effect until January 1, 2013.

Highlights of the new law are as follows:

• Contact Between Lender and Borrower: Effective on or about September 8, 2008, a lender, trustee, or authorized agent may not file a notice of default until 30 days after contacting a borrower to assess the borrower’s financial situation and explore options for avoiding foreclosure. A lender must generally contact the borrower in person or by telephone, or satisfy due diligence requirements for contacting a borrower. During the initial contact, the lender must inform the borrower of the right to request a meeting with the lender within 14 days. The lender must also give the borrower the toll-free number for finding a HUD-certified housing counseling agency. A subsequent notice of default must include the lender’s declaration that it has contacted the borrower, tried with due diligence to contact the borrower, or the borrower has surrendered the property. A lender who had already filed a notice of default before the enactment of this law must include a similar declaration in the notice of sale. This requirement to contact borrowers applies to loans secured by owner-occupied residences made from 2003 to 2007. Certain exemptions apply if the borrower has filed for bankruptcy, surrendered the property, or contracted with a person or entity whose primary business is advising people, who have decided to leave their homes, on how to extend the foreclosure process and avoid their contractual obligations.

• Maintenance of Vacant Properties: Effective July 8, 2008, anyone who acquires property through foreclosure must maintain the exterior of vacant residential property. Violations of this law include permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action against trespassers or squatters, failing to take action to prevent mosquitoes from breeding in standing water, or other public nuisances. This law authorizes a governmental entity to impose a civil fine up to $1,000 per day for any violation, as long as the owner has been given notice and an opportunity to remedy the violation. A violator must be given at least 14 days to begin, and 30 days to complete, such remediation before a fine can be assessed.

• 60-Day Notice to Terminate Tenants: Effective July 8, 2008, a tenant or subtenant in possession of a rental housing unit that has been sold through foreclosure is generally entitled to a 60-day written notice to quit, not just 30 days. However, a borrower who remains on the property after foreclosure may be served a three-day notice to terminate. This law does not affect, among other things, rent-controlled properties with just-cause evictions. Effective on or about September 8, 2008, the lender, trustee, or authorized agent posting a notice of sale must also post and mail a specified notice of a tenant’s right to a 60-day eviction notice from the new owner, unless other laws apply. This requirement to notify tenants of their rights applies to loans secured by residential real property where the borrower has a different billing address than the property address.

Still waiting to see or hear about the first former owner to receive a three-day notice - guessing that the lenders/eviction attoreys either can’t process them that fast, or they don’t want to risk bad publicity.

This 3 br/1 ba, 1,034 sf attached home in Oceanside sold for $368,000 in February, 2005. Today’s price? $147,900

SD Scientist is tracking the San Diego home prices, a la Case-Shiller, with a predictive element looking three months into the future.  For more, click here to visit the blog:  http://sdhpi.blogspot.com/

Here is the first chart you’ll see – it shows some leveling in prices:

The new listing on Arthur has been on the MLS for about 24 hours, and it’s a little slow out of the gate – there have been about 25 calls, and three offers submitted, the highest at $180,000 with a $7,000 credit to buyer from seller (net $173,000).  Two offerees state that they are owmer-occupants, one an investor.

It’s going to run at least until Monday, so we’ll see if momentum picks up over the weekend.

Historically the best offers come in within the first four days – it takes a day or two for buyers to find time to visit a new listing, and then sleep on it, and then write an offer.  Ideally, sellers who have more than one offer should grab the best one on the fourth day and put it to rest – it’s not likely to get better if you hold out longer.

In the meantime, some random thoughts:

1.  An agent this week said she has had two short sales in process at Countrywide for FIVE months, and no response yet.

2. Another agent who lists REOs from Fannie Mae, IndyMac, and others but not Countrywide, said she had 18 listings sent to her last month, but only 3 this month so far.

3. New pendings have continued this month, but the resulting closed sales will likely be around last year’s total, or less.  Here are the pendings between July 1-16, those in 2002-2007 have already closed:

2002 – 1,203

2003 – 1,517

2004 – 1,339

2005 – 1,326

2006 – 999

2007 – 815

2008 – 1,108 

Of this year’s 1,108, only 22 have closed already, and virtually all of the remaining are still within their 17-day inspection period.  If 30% of those fall-out of escrow, the final closings will be less than last year during the same period.

4.  Our long-time tenant moved out of the one rental property I own because of the price of gas.  We ran two ads on Craigslist, one the first weekend of July and one last weekend, and have had at least 100 phone calls and a dozen applications.  The rental market appears to be alive.  There have been a handful of interested parties who have walked from their mortgage, or are doing short sales, but with all the other action I noticed that I wasn’t too interested in their stories.  I committed to two different applicants, but both flaked after a few days, the first because her escrow fell-out that she was sure was solid (she signed the rental contract and gave me the deposit).  The others disappeared.

5.  The biggest concern I have for the overall market is how ignorant the listing agents are to the current market conditions.  If you are making an offer on a non-REO house, not only are the sellers dug in, so are the listing agents.  They think their job is to protect their sellers from lowballing thieves.  In the meantime, they aren’t selling, and the market is slipping further away, squashing any chance they might have had.  For those who don’t need to move, no problem.  But I feel for those who do, and the agent is getting in the way.  I spoke with some sellers off the record who said they wanted to lower their price, and the agent refused – saying that somebody will come along someday.  If you are selling, don’t let your agent get in the way of you lowering your price!

An old photo from Arthur – it used to have a roof ornament!