Presently, I have two immediate concerns:

1.       The proposed plan for mortgage modification does not reduce the principal on loans. What happens when the homeowner goes to sell?

2.       The seeming trend of homeowners postponing the resolution of their distressed property problem, waiting for the government to bail them out. The longer homeowners wait, the harder it will be to resolve their situation.

Here are highlights on the new mortgage program proposed by President Obama at the State of the Union address:

To be eligible, borrowers would have to have made their mortgage payments over the last six months with only one delinquency, and their loan amount couldn’t exceed the FHA loan limit for their area. If borrowers owe more than 140 percent of the value of their home, the lender has to agree to reduce the loan balance. 

Bottom line:

1) The owner is allowed to have only missed one payment in the past 6 months. That shouldn’t be too large of an obstacle for most owners to overcome……but….

2) Owners who are underwater by more than 40% must get their lender to agree to forgive the negative equity. LENDERS must agree to do this. Lenders would have to get investors to agree to this forgiveness.

3) The negative equity is STILL ON THE LOAN with this re-fi plan. Owners would get a lower payment but, still be underwater. When these owners go to sell and if they were still underwater they would have to sell as a short sale or lose the home through the foreclosure process. As long as owners are underwater there will never be a real housing recovery.

4) This proposed plan is open for non-GSE backed loans.

5) Congress has to sign off on this housing plan.

During his State of the Union speech last week, President Obama proposed to help boost the housing market by helping more upside-down homeowners.

In the details he released today, the President said he wants to make the federal government’s existing mortgage refinance program, called HARP (Home Affordable Refinance Program) available to more home owners. It’s currently available to struggling borrowers with loans backed by Fannie Mae and Freddie Mac. For these borrowers, incentives are provided under certain conditions to make refinancing more attractive.

Under the new proposal, this HARP program would be expanded to include borrowers with loans that aren’t backed by Fannie and Freddie. These are the borrowers whose loans were securitized in private-label securities without any federal backing, and they would be allowed to refinance into FHA-backed loans, the same as the Fannie and Freddie borrowers. The administration has estimated that borrowers would save $3,000 a year in mortgage costs.

To be eligible, borrowers would have to have made their mortgage payments over the last six months with only one delinquency, and their loan amount couldn’t exceed the FHA loan limit for their area. If borrowers owe more than 140 percent of the value of their home, the lender has to agree to reduce the loan balance. Also, borrowers wouldn’t have to submit a full file of paperwork for the refinancing as long as they can verify their employment. The proposal also would enable borrowers who still have equity in their home—up to 20 percent—to participate.

The changes will require legislation, so Congress will have to agree to them for the expanded program to take effect.

In his State of the Union speech last week, Obama said he would pay for the expanded program using a fee charged to the country’s largest banks so the initiative wouldn’t add to the deficit. But some members of Congress have said they oppose charging banks a fee to cover the cost.

The Obama plan would also introduce a Bill of Rights for home owners, part of which is intended to smooth the mortgage modification and foreclosure processes, which today can be contentious and difficult for borrowers to understand. A key part of this is an effort to curb banks’ practice of undertaking a mortgage modification while at the same time proceeding with a foreclosure—a process called dual tracking. Before they can start foreclosure, banks will have to show they took all reasonable steps to modify a borrower’s mortgage.

To help ease inventories of foreclosed homes, the plan would give a green light to Fannie Mae to implement a pilot program to make foreclosures available to investors in bulk purchases for conversion to rental housing. Under the pilot, Fannie would package for sale foreclosed homes in a limited number of markets and require them to be used as rental properties for a period of time.

NAR (National Association of Realtors) has concerns with this proposal and has been talking with federal regulators to ensure that the program is carefully tailored to the communities who can truly benefit from it, that small and medium-sized investors be able to participate, and that real estate professionals continue to play a role in the disposition of the homes.

In a statement released after the President outlined the details of his proposal, NAR said it’s urging the regulator of Fannie and Freddie, the Federal Housing Finance Agency, “to proceed cautiously with the REO-to-rental program since housing markets are complex and varied.

“NAR believes an overly aggressive REO-to-rental program that is not privately administered by local entities and does not involve substantial participation of local market experts, especially licensed real estate professionals, could be disruptive and counterproductive to communities already suffering from high foreclosure inventories and lower housing values.”

In this scenario there is always an elephant in the room which no one wants to address: where does the government get the money for the “stimulus”? Excellent question since government does not produce or create any wealth of any kind. They simply extract wealth from one area of the economy (us) and distribute it to another (us). They can do this mainly in three ways:

1. Increase Taxes – Increase whose taxes? Big business (GM, Bank of America, ect.)? Remember, they’re the ones receiving the stimulus money this time around. Small business? The majority of economic growth and job creation comes from this group. How does taking money from small business people stimulate the economy? It doesn’t. When costs are increased small businesses tighten their belts and run leaner and meaner. They stop spending money, cease hiring new employees, and begin hanging on for dear life waiting for the economic storm to pass. Okay, so who do we have left to tax? Middle and lower class America? Obviously not. If you take their excess money they can’t spent it. So…now begins the war chant for “taxing the rich” and “making them pay their fair share”.  Go ahead and try it. Here’s what has and will happen: The “rich” people will take their business and begin moving it overseas where tax rates and labor costs are much less. They’ll take their money from banks here and put it in foreign banks. You don’t have to be Nostradamus to see this because it already is happening and has been for some time. 
2. Borrowing – The government cannot borrow from private citizens because the amounts are so large. They must indebt themselves to foreign nations (the largest holder of US debt is China). So not only does the country go into debt but it must also pay interest on this debt. Let’s suppose this scenario is successful; the US government borrows foreign money, infuses it successfully into the economy, and the recession ends. Everything is back to normal. Except…now we have debt and like all debt it eventually has to be paid. Remember that government does not create or produce wealth. So where do they get the money to pay the debt? They can borrow from Nation(A) to pay off Nation(B). But that still leaves us in debt. The only way the debt (with interest!) can be truly paid is by the American people through….wait for it…increased taxes. Borrowing money is a favorite solution among politicians because they won’t be in office when it has to be paid. Not to mention the US is borrowing money at a catastrophic rate.
3. Inflation – aka printing more money. Let us say that Babe Ruth autographed 100 baseballs throughout his life. We already know that a ball signed by Babe Ruth is worth some serious dough. But what if he signed 10,000? Would those baseballs be worth the same amount of money? Of course not. So now let’s say there are 2 million twenty dollar bills in existence. But the government prints 2 million more. Is that twenty dollar bill worth the same amount now? No. That twenty dollar bill will buy you less. When money becomes less valuable this is known as inflation. How does this help stimulate the economy? It doesn’t.

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” ~ Ernest Hemingway

It all goes back to the fundamental principle that money isn’t free. Wealth does not appear out of thin air. Everything has a cost. Someone must pay and that someone is always the American taxpayer. The wealth of the United States can only be created by its non-government paid citizens. Therefore, the answer to economic stimulus lies in empowering the American people to be productive.

On a 1,000-point scale, home buyers rated RE/MAX 805, while home sellers gave the company a rating of 791.

“It all comes down to professionalism and a commitment to a premier level of customer service,” said RE/MAX Chairman and Co-Founder Dave Liniger. “Because RE/MAX agents average more experience and training than other agents, they are better prepared to deal with home buyers and sellers in any kind of market. That’s why we have led the industry for well over 30 years. “

Click here to view the embedded video.

Good morning,

I have extremely exciting news to share with you!

J.D. Power and Associates announced today that RE/MAX ranks highest in customer satisfaction, for both buyers and sellers, in its 2011 residential real estate survey.

That’s right – we’ve earned the highest level of appreciation from BOTH groups of consumers, which is a remarkable statement about the Outstanding Agents in our organization.

I want to personally thank and congratulate every one of you for contributing to this prestigious recognition. It truly reflects your professional excellence, your enthusiasm for education, your commitment to distressed sellers, your individual drive, and many other qualities that serve the interests of your clients. Your efforts change lives, and those people have spoken.

Our team at Headquarters is working with J.D. Power and Associates to determine how we can use the results of the survey, as well as their name and logo. As soon as possible, we will let you know what the guidelines are.

In the meantime, celebrate this incredible achievement and enjoy the fact that once again you’ve proven yourselves to be the best in the business.

Congratulations!

Dave Liniger, Chairman and Co-Founder, RE/MAX World Headquarters

Traditionally, portfolio theory bases all of its calculations on the ‘risk-free’ rate of return, typically assumed to be the rate of return from government bonds.  By constructing a diversified portfolio of debt and equity investments of varying degrees of risk and return, the idea is to create a portfolio that approaches the ‘efficient frontier’ where an optimal trade-off is achieved between risk and return.  In this way, an investor can reduce the impact of sector-specific market movements on their overall investment portfolio.

The thing to understand when evaluating investments is the impact of volatility on your performance estimations.  Especially the impact of systemic volatility, which is a label that financial theorists give when disruptions in a particular market segment or of a particular variety impact ALL securities of a particular asset class.  The most prominent example of this phenomenon is the financial crisis of 2008.  When the financial crisis occurred, it had a large detrimental effect to large, medium, and small capitalization stocks, along with foreign and emerging market stocks.  The massive market disruption cut through the portfolios that were diversified among financial assets alone and slashed values.  This has caused some to question the value of portfolio theory and theorize that only ‘behavioral’ matters are important when making investment decisions.  (‘Behavioral’ finance is based on the notion that people do not make rational decisions, and are instead driven by various heuristics or decision-making paradigms)

At the Financial Freedom Report, our viewpoint is that both rational and behavioral matters are important.  While it is certainly true that people do not always act in a manner that ‘we’ consider to be rational, it is quite true that people act in a way that ‘they’ think are rational.  The ultimate effect of this is not that portfolio theory should be abandoned.  Quite to the contrary, the quantitative models of Harry Markowitz are very important to long-term success as an investor.  What we need to understand is the limitations of these models and the impact of events that are not contained within the bell-curve normalized statistics that are used to create the risk models.

A great deficiency of the financial industry is that it has limited itself to applying the fundamentals of portfolio theory to simple debt and equity investments.  Since most of these investments derive their value from market value instead of cash flow, the prevailing financial models are based on volatility of market values, which are assumed to be continuous in both the up and down direction.  Even with bonds, their market value fluctuates based on movements in the market rate of interest.  As astute investors, we should seek to build investment systems that truncate our volatility so that our downside is limited, but the upside is large.  This is very difficult to do with traditional financial instruments since stocks and bonds are necessarily bi-directionally volatile and option contracts incur transaction costs that require substantial rates of return just to cover your expenses.

The way that we use the fundamentals of portfolio theory to our advantage as astute investors is to build investments with multiple factors that have varying levels of (uncorrelated) volatility.  One of the most efficient ways to accomplish this goal as an individual investor is through income property.  The following is an analysis of the key factors specific to income property and the implicit volatility of each.

Income Property Factors:

1.  Market Value:
The market value or price of income property is where most analysis begins and ends.  It is the single factor that most people think of, and is the most volatile.  For an all cash buy-and-flip investor, market value is the only factor that matters.  For people who purchase property with financing, the effect of price changes are amplified, increasing the effective level of volatility.  Uneducated investors will not beyond market value when assessing real estate and income property, but astute investors recognize that there additional factors in play.
Base Volatility: Low to Medium
Leveraged Volatility: Medium to Very High
2.  Rent Income:
When a real estate investment is rented out to tenants, it becomes income property by nature of the rent income that it produces.  The inherent volatility of rents vary drastically depending on the type of property you own.  Generally speaking, residential income property near major employment areas have very low rent volatility.  The ample supply of tenants make it relatively easy to fill vacancies at the market rate of rent.  When a property is located in a vacation destination, rents will necessarily be more volatile since the rents come from many tenants and require constant marketing to find new renters.  Similarly, if a property is located in an area facing employment and population decline, it may be difficult to find tenants with stable employment.
Volatility: Very Low to Medium
3.  Mortgage:
One of the greatest gifts granted to income property investors is the 30-year fixed-rate mortgage.  The reason for this is that it allows investors to lock in their cost of financing for three decades.  In this case, your level of mortgage volatility drops to zero.  This is extremely valuable for an income property investor, since the single largest cost for most property investors is the mortgage.  If that cost can be fixed for three decades on a self-liquidating loan, it allows you to effectively plan for future rates of return with the main cost staying fixed.  To the extent that adjustable rate mortgages are employed by investors, mortgage volatility can increase, but it is generally optimal for long-term investors to seek fixed-rate financing.
Volatility: Zero to Low
4.  Tax Treatment:
Another tremendous advantage of income property investing is the highly advantageous tax treatment that real estate enjoys relative to other asset classes.  Some of these tax advantages phase-out as investors reach higher levels of income, but most have been in place for a long time, and are expected to continue into the future due to the extreme political unpopularity of taking away real estate related tax advantages since a very large number of politicians, voters, and key contributors hold significant real estate assets.
Volatility: Very Low to Medium

When these four factors are combined by an astute investor, they create a highly favorable blend of return generation and downside protection.  By purchasing an income property where the market value is low enough relative to rent income such that positive cash flow can be achieved each month, it places you in a highly advantageous situation.  The reason for this is because volatility in the market value is offset by the stability of fixed-rate mortgage payments that are paid by income received from renters.  In this situation, if the market value shifts downward it does not need to distress the owner since rent revenue can ensure that the mortgage payments are still made while market values recover.  If market values increase, the owner has the option to sell and re-invest the profits into new opportunities.  In addition to this, the tax advantages of depreciation and tax-deferral of capital gains are continually present.

By intelligently combining these factors, it creates a ‘free option’ for investors where downside risk is truncated and upside opportunities are preserved.  Furthermore, real estate markets are local and fragmented.  This means that income properties diversified across multiple markets will not move up and down at the same rate.  Each will perform based on the specific economics of its individual area.”

Are you a first-time homebuyer, a current homeowner looking to move up, or a potential investor looking for positive cash flow? If so, you should strongly consider that now is the time to pull the trigger and invest.
Over the last 10 years the prices of commodities has increased 178%. Just in this last year alone commodities have soared up 23%! Translation: almost everything is becoming significantly more expensive to buy; copper, tin, lead, lumber, granite, steel, etc. Our homes are built from these commodities. Consequentially the cost to build a home has risen dramatically over the last decade. Just recently on April 18, 2011 the Wall Street Journal reported that many companies have been keeping their prices down and taking losses but can no longer sustain the practice. The only option left to them is to raise prices.

Now, home building costs may have risen (and continues to rise!) but the cost to buy a home has not. Currently in many areas of the U.S. houses are selling for significantly less than they cost to build. Even if you exclude the land value the selling price is still less than the cost! If you are waiting patiently to find a bargain on a home, your waiting is done.

In PART I of my blog posted last week I discussed how lower-priced, smaller homes were the first group in the housing market to enter foreclosure followed by larger, more expensive homes. Where have the owners of these homes gone? Good question. The answer is; they haven’t gone anywhere. Due to damaged credit, most are no longer in a position to buy real estate so they must rent instead.

The flood of new renters entering the market has created a very unique and attractive situation for investors. The price to rent a home is high and the price to buy a home is low. Translation: positive cash flow. Not only can investors purchase homes for significantly less than their building costs, but they can create immediate positive cash flow as well. Add into the equation that mortgage rates are still at historic lows.

If you are interested in leveraging on today’s housing market contact me with your ideas, questions, or goals and I will work to show you several options.  For example: Investors…we are purchasing beautiful, good location “positive cash flow” single family properties in the fastest growing and financially secure city in the US, yielding 20% plus “cash on cash” returns each year with as little as 20% down.  That is going to be my next investment!

People reading the major newspapers or watching the mainstream news outlets are constantly bombarded with data showing the U.S. housing market continuing to decline–and this is true–for the overall national average. But real estate investment is not about “national averages”. When it comes to real estate investment do not think average–ALL REAL ESTATE IS LOCAL AND SPECIFIC.

During this recession falling housing prices have stricken different demographic, geographic, and economic areas all at different times. Sub-prime borrowers owning lower priced homes were the first to be affected. They were the first to lose their jobs, the first to stop paying their mortgages, and the first sector of the market to be foreclosed on by the banks.

As the housing crisis gained momentum owners of larger, more expensive homes began to be affected but unlike many of the lower-end homeowners, these homeowners had more assets at their disposal (savings, investments, income) to help cushion the blow. Unfortunately, housing prices have continued to plummet to the point where even many of the larger, more expensive homes have begun or are beginning to enter foreclosure.

Regionally speaking, California, Florida, Nevada and Arizona were the first areas to experience the crash and were also hit the hardest. This was mostly due to excessive speculation. However, the first to be hit will also be the first to recover as the banks work off their excess inventory of foreclosed homes. Once this happens housing prices in these categories will begin to jump. Many of the more expensive homes are just now entering into foreclosure and even though this may continue to keep the national average declining, many areas are already starting to see signs of recovery. Lower priced homes in these states are probably not going down any further and could already be on the rise.

In real estate, “national averages” are usually poor indicators for investment. To invest in today’s market you have to look at where the crisis began because those areas have probably already reached their bottom and are likely primed for recovery.

Not only does NAR expect sales of existing homes to increase in 2011, but they expect an increase (of 4.5 percent) in 2012 as well.  New, single-family homes are expecting the fastest rebound; however, as NAR’s chief economist, Lawrence Yun states, “Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions.  Mortgage rates should rise only modestly in the months ahead, so we’ll continue to see favorable environment for buyers with good credit”. 

For the entire article, see Inman News

The first thing you want to do is get a list of Chula Vista properties that have been foreclosed on. Take time to look at the properties and where they are located. Once you have found a property you like it is a good time to contact a real estate agent to act upon your behalf. Unless you are familiar with the process of buying a foreclosure property it is good idea to get professional advice.

After finding a property and a real estate agent, you will be able to make an offer on the property. The bank or finance company will then consider your offer and decide whether to take the offer, make a counter offer or refuse the offer all together. In case of a counter offer you have the option of accepting the counter offer, making a counter offer or finding a different property. If they accept your offer you just bought your first foreclosure in Chula Vista, California.

Being just minutes from San Diego and Mexico, Chula Vista offers a haven to live in while offering plenty of nearby attractions. There is a wide variety in the types of real estate available in Chula Vista. Whether you are looking for a townhouse, a condominium, or a house you can call your own, there are plenty available to buy.

Chula Vista offers very competitive prices and types of real estate. Offering good schools and a beautiful downtown area Chula Vista has everything you need to find a home. Chula Vista offers a wide variety of attractions to keep you busy outside your home. From swimming in the ocean to mountain hikes to beautiful golf courses there are many activities to keep you busy in your new town.

There is also a wide range of shopping, movies and restaurants to enjoy. Chula Vista has a lot to offer someone wanting a home where you don’t have to drive far to enjoy different activities. It is a beautiful town that takes great pride in being home to its citizens. If you are looking for a wonderful place to live you should be thinking about buying a home in Chula Vista, California.