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Journal

120% Mortgages

In the last downturn, there were a surprising amount of people who were underwater but hung on – and today with record-high prices, they are glad they did.  We learned that whether you had equity or not, the chance of default was influenced by other factors.  If that’s the case, lenders might as well finance the whole enchilada, and price in the same or similar percentage of defaults as last time.

http://www.housingwire.com/articles/39288-burkeyloan-to-offer-120-ltv-mortgage-that-also-pays-student-loans

BurkeyLoan launched its BurkeyLoan Mortgage division Tuesday which included its 120% loan-to-value mortgage product that funds both a home purchase and the borrower’s student loans.

BurkeyLoan, a portfolio mortgage lender, will issue, hold and service BurkeyLoan mortgages. The company’s 120% LTV product will allow Millennials to pay off or reduce their student loan debt in order to buy a home.

“After considerable research, review and analysis, we needed to build an access to capital product for the millennial generation,” BurkeyLoan Chairman and CEO John Burkey said. “Many millennials feel they are on a financial treadmill, making every effort to pay off student loans and save for a home while interest rates and home prices escalate.”

“Our mortgage product offers features and benefits that support the needs of the millennial generation,” Burkey said. “The company will utilize sound conservative underwriting that incorporates borrower credit, character, skin-in-the-game and risk mitigation.”

The program is available to community, regional and other banks as well as credit unions that broker residential mortgages.

But BurkeyLoan isn’t the first company to reach out to first time homebuyers struggling with student loans. Back in November, SoFi and the government-sponsored enterprise Fannie Mae announced a new loan option allowing homeowners to refinance their mortgage at a lower rate and pay down the balance of an existing student loan.

The average student graduates with just over $30,000 in student loan debt, according to the Institute for College Access and Success. The median home price increased to $228,900 in January, according to the National Association of Realtors. The new LTV 120% program may enable homebuyers to pay off the average student loan amount, while offering a change to invest in their housing.

Posted by on Feb 23, 2017 in Ideas/Solutions, Jim's Take on the Market, Mortgage News | 0 comments

Wire Fraud by Hackers

It happened to us – hackers got into somebody’s account.

They posed as the escrow officer and tried to divert my buyers’ down payment to the wrong bank account.  Their timing was impeccable too.

Six days before closing, an email was sent to the buyers that looked like a normal email from the escrow officer:

Good morning (buyers’ names),

We are getting close to closing. It is important that we get the Cash to Close to avoid delays in closing.

Please tell me when you would wire the Cash to Close.

Regards, (escrow officer’s name)

The buyer asked for the amount and for wire instructions by email – and the hacker responded three times by email and even sounded like the escrow officer.  This was the tip-off though:

Please find attached the wiring instructions. It is an account of one of our subsidiary company as our main account is currently undergoing compliance audit. As such, any funds entering the account would be held for review which would grossly affect the scheduled closing date.  The total closing cost is X.

The hacker asked for an amount that was within $2,000 of being accurate, and if the buyers had been in a big hurry, they might have just sent it.

Thankfully, Mr. Buyer called the escrow officer direct to verify. The escrow officer was stunned – she hadn’t sent any emails to the buyers that day!

Because no crime was actually committed, the escrow, title, and mortgage companies just shrugged it off.  We won’t ever know who the hackers were, or how they got in, but to call it unsettling is an under-statement.

From my buyer:

We felt very unnerved yet relieved. I couldn’t sleep that night, knowing how close we came to losing a substantial amount of money, by nearly anyone’s standards. I personally felt helpless, because I’m not sure what I could have done to recognize this fraud. We consider ourselves pretty plugged in and so we didn’t think twice about getting a wire request from escrow.

The bottom line is, escrow and bank request a lot of items and need responses ASAP so that escrow proceeds to a timely close. Therefore buyers are, in many cases, reading highly technical documents ‘on the fly’, often from smart phone screens. In my case, this meant that I was usually just skimming documents and electronically signing without really studying the material.

The escrow company did say in their instructions that buyers should call before wiring any funds. I didn’t notice this until after the attempted theft of our money. In the future, I would like to see escrow go back to speaking with buyers more often, instead of just emailing documents for signature. It sets a more personal tone and makes buyers more comfortable in picking up the phone to talk to the escrow agent with questions, rather than always relying on electronic communication.

Some escrow companies are now encrypting their wire instructions, but they are missing the point.  The hackers are way ahead of us!  All they need is a copy of the purchase contract (which agents, buyers, sellers, escrow and lenders email around unsecured), and the hackers can figure out the rest.

They just pose as the escrow officer a day early, and ask the buyers to wire the down payment and closing costs to them!

Posted by on Feb 23, 2017 in Fraud, Jim's Take on the Market, Mortgage News, Scams | 6 comments

San Diego Tiered Pricing

It looks like pricing might be getting more squishy on the higher-end homes.

We’ve seen everything above $672,984 but below $1,000,000 be hot and rising, yet the high-tier Case-Shiller Index has been flat for months – which means the ultra-high-end stuff is really sloshy.

What can sellers do?

  1. Make your house easier to show, especially on the weekends.
  2. Keep doing home improvements while on the market.
  3. Respond to offers promptly.
  4. Counter-offer in big chunks (more than 1%) to keep buyers enthusiastic.

For buyers, the thrill of making an offer dies off quickly. Try to make a deal within 2 counters or three days, whichever comes first!

Posted by on Feb 22, 2017 in Jim's Take on the Market, Sales and Price Check | 0 comments

Auction Questions

David from Louisiana sent this in:

Jim,

I just watched your first attempt at the auction and must say that you did a fine job as the auctioneer. I have been a real estate auctioneer/realtor for 30+ years and have often recommended an auction to fellow realtors in high demand situations such as yours. Of course, it usually falls on deaf ears as the realtors usually feel that they don’t need the service nor do they want to share the fee.

I hope you don’t mind the questions but I have been trying to work with realtors for many years and it seems to be a constant struggle.

I’m curious about what made you suddenly decide to utilize an auction when you could have easily achieved more than the asking price without it?

JtR:  Because there were multiple people at the open house that said they would be interested in purchasing the house, I thought this would be the best way to determine the winner fairly, and create maximum urgency.  The agents involved were willing, and so was the seller, so it worked out.  We did close escrow with the winning bidder at the price determined by the open bidding.

What was the seller’s opinion when you told them you were having an auction?

JtR: She was motivated to sell, so that made the difference.  Sellers who aren’t that motivated are suspicious of selling too quickly, thinking that this is like most jobs in the world where you work hard for weeks or months to achieve the desired result at the end.

But selling real estate in this low-supply, high-demand environment is the exact opposite – you stand the best chance of selling for top dollar in the beginning when the property is a hot new offering, and has max urgency. Buyers think something must be wrong with houses that aren’t selling in a hot market.

Did you consider actually marketing the property as an auction for a longer period of time and possible having more bidders?

JtR: No, because the highly-motivated buyers are there first.  There could have been other people interested later, but if they aren’t interested enough to come to the open house, then they probably weren’t willing to pay 4% or more over list price.  Yes, there could always be two in the bush, but our environment has trained buyers to race to hot new listings that might be a perfect match for them.  Not only will they be the most likely to pay more than others, but they are more likely to close escrow too.

I consider the quality/suitability of the property too.  This was a 1,541sf two-story house with a steep slope behind, so it wasn’t for everyone.  There were 3x as many people who didn’t bid.  Sellers and listing agents should consider how many people who came and didn’t offer.

Will you consider using the auction method in the future?

JtR: Absolutely, it is the best way to achieve top-dollar sales.  The animal spirits are driven when competing with your opponent eye-to-eye.

But auctions aren’t commonplace yet, so when I have multiple offers on a listing, I create a similar experience by pitting bidders against each other to increase the price.  I tell them the price to beat, which nobody does. Realtors want you to think it is better to bid blindly, but buyers are much more likely to go higher if they have a number to beat.  I take advantage of the competitive spirit, which you don’t have with blind bids.

For those who might think an auction format would only work for lower-priced properties, let’s note that there have been three sales in Rancho Santa Fe that utilized the no-reserve auction process, and closed for more than $10,000,000.

Those three are the ONLY sales over $10 million in the last five years in the Ranch, and there are 30 for sale today.  Let’s give auctions a try!

Of course, I would be happy to answer any questions that you may have.

Thanks, David

JtR: David, if a trusted name-brand company brought a slick and easy auction process to home sales and advertised it properly, do you think they could succeed?  Do you think they could change everything, and potentially eliminate realtors as we know them today?

Save

Save

Posted by on Feb 21, 2017 in Auctions, Jim's Take on the Market, Listing Agent Practices, Realtor, Realtor Training, Realtors Talking Shop, Why You Should List With Jim | 6 comments

Market-Rate Sellers

Marc Davison suggested here that we re-brand the word ‘realtor’:

http://www.inman.com/2017/02/14/the-case-for-killing-the-term-realtor/

He was met with the usual drivel from agents, some of whom mentioned the big difference between a real estate licensee and a Realtor is that we subscribe to a strict Code of Ethics.

But if we’re going to re-brand the name Realtor, then let’s stop the charade about ethics.  Realtors have stood by idly while their fellow agents have fleeced the banking industry with fraudulent short sales.  We intentionally deceive consumers by re-inputting our listings to make them appear like hot new offerings.  We make off-market deals and boast about them in the MLS that they were ‘sold before processing’, when every realtor has signed an agreement to share their listings with each other.

None of that is ethical, and if you participate – or stand by and watch others participate and do nothing about it – then you’re not an ethical agent.

Let’s put an end to it.

Either be ethical, or let’s stop saying we’re ethical, when we’re not.

Because the industry is so fragmented and independent, we’re not going to get a million agents to be ethical when you can double your commission by telling sweet little lies.

But we could educate sellers on the truth, and save our jobs.

The auction format would help to drain the murky cesspool of home selling.  Buyers and sellers would enjoy full transparency, and everyone would have a shot at paying what they think a property is worth.

Auctions would invigorate the marketplace!

But sellers are leery of the idea, and they don’t want to give it away.

Here’s my idea:

The MLS is a dinosaur, and has been complicit in the fraud.  Instead, let’s take this idea straight to Zillow – they already have different categories of listings on their website: Pre-foreclosures, Coming Soons, Make Me Move, etc.

Let’s add a new category: Market-Rate Sellers.

First, we properly educate a seller by having them read and understand the definition of a property’s value.  We give them this disclosure:

A property’s value is defined by how much a ready, willing, and able buyer will pay for it.  After proper marketing, I am willing to sell my property for what the market will bear.  Signed, Seller.

Why don’t we already have this piece of education?  Because sellers think they determine the value, and agents do nothing to convince them otherwise.  Instead, we encourage the idea just to get the listing.  Is that ethical?

If a seller is stuck on his price, then they go into the Make Me Move category.  No problem, I take listings like that – and I might get lucky some day.

But for the sellers who want to control the entire process and move promptly, we will have a solid game plan to get them top dollar now:

The Slow-Motion Auction:

  1. Tune-up house.
  2. Open house for 5-10 days.
  3. Buyers engage in open bidding at the house on X date.

Sellers and buyers deserve to have this full transparency, and the ethics it would impose on agents will save our jobs.

Posted by on Feb 20, 2017 in Auctions, Ethics, Jim's Take on the Market, Listing Agent Practices, Zillow | 11 comments