It is now "soon"

For the past couple of years, my website has had a big ol’ “Gone Fishing” sign hanging on it. When I let my license go inactive, I would have just closed it down all together except that the domain hosts were also taking care of my email servers, and I just didn’t want to figure that out, too. So I just left it there, awaiting the day I would come back and dust the place off, getting it ready for another go-round.

So here I am. When last I looked at the old site, there was not much more than a cryptic message that “big changes were coming soon.” Well, “soon” has arrived (finally), and I’ve spent quite a bit of time over the last couple of days sprucing up the place. I know a serious internet marketer would be appalled that I am using a template site, but I have reasons, so I’m sticking with it. Flash site or not, it was a conscious decision to stay where I am – for now.

In honor of basically restarting my career, I’ve thrown a new template on the site. In general, I like the layout and appearance, but I can’t help but wonder what the developer was thinking with the little fairy bubble that floats around. Another case of "just because we can doesn’t mean we should." Unfortunately, I can’t make it go away. It’s part of the code that I don’t have access to. I know, I know, that’s “proof positive” that I shouldn’t be using a template site, but I look at it as an annoyance rather than a deal-breaker. I like the look of the rest, so far; we’ll just pretend it’s the spirit of the website, OK?

I’ve also been adding a few things that folks might find useful and/or interesting. My new company, Equity Colorado, provides me with a newsletter service. Once a month, a new edition is put out, and I will be uploading them to the site, ready for anyone who desires to download and enjoy. I’ve added a few back editions, also, and I’ll be adding more as time goes by and I find a few free minutes. If you follow me on twitter or facebook, you’ll know when the new editions are ready.

A really big addition to the site will be the financing calculators. I’ll be adding those as I go. Each one is worthy of a blog post, so I’ll be doing a series on them, too. These calculators are a handy way to help with the decision process when buying and selling real estate. Some will mainly be of interest to buyers, some to sellers, and some to buyers and sellers both. There will eventually be some just for analyzing real estate as an investment. I’ll let you know when new ones are added.

Go take a look at the “new” site. It’s still a work in progress, and always will be. It’s just one of the resources I have available for your use. Definitely let me know if you want to see something else added, and I’ll look for way to get it there.

The best performance improvement is the transition from the nonworking state to the working state. ~J. Osterhout

You gotta know what you own

photo by Kevin Rosseel

By now, you have no doubt heard about the two foreclosures that were overturned by the court in Massachusetts last week. There has been a lot of talk about what this means for the foreclosure system. The opinions floating around are all over the board, from “nothing will happen,” to “foreclosures are rendered illegal.” As is almost always the case, the truth lies somewhere in the middle.


To find the truth, it is helpful to figure out exactly what happened, and to do that, we need to fully understand how real estate financing works.

The vast majority of real estate purchases in this country are paid for with borrowed money. In common terms, we use a mortgage, but that is really a simplification of what’s actually going on. Really, financing real estate purchases involves a two step process involving a note and a mortgage or deed of trust.

The note is a contract between the borrower and the lender. It spells out the terms under which one person gets to use the other’s money. The note is very specific about who is borrowing the money, what it is to be used for, how long the loan is for, and how much it is going to cost the borrower. This is the I-O-U.

Of course, in a real estate purchase, the amount of the loan is pretty substantial. It is not something that the average borrower can come up with at a moment’s notice, and is also large enough that the lender will not usually willingly take on all the risk of something going wrong and the borrower stops making payments during the life of the loan. In other words, the lender wants to make sure that if the borrower does indeed stop making the payments as agreed in the note, there is some recourse. That’s where the second part of the financing process comes in.

The deed of trust – or mortgage, depending on your state – is the part of the process the borrower uses to give the lender some piece of mind. With a mortgage, the lender is given the right to force the sale of the property in order to recover the amount that was lent out if the borrower does not meet the terms of the note.

Here’s where it starts to get a little complicated. The note, while considered a liability to the borrower is an asset to the lender. Assets can be sold, and a whole industry has been set up around the buying and selling of these notes. This is called the secondary mortgage market. It is quite common that loans are not made until it is known who will be buying it, and the loan is sold practically before the signatures are dry. By selling the loan, the lender has a more cash to lend out again, and the process starts over.

What we’re interested in here, though, is where the original note went, and what went with it. The note was sold, but was the mortgage? In some states, yes. In Massachusetts, no.

In Massachusetts, a mortgage is sold separately from the note, but, obviously, usually at the same time and to the same company as the note. In the cases that were just overturned by the Massachusetts high court, that is not what happened, although the banks that owned the notes thought it did. There is a requirement in Massachusetts that states that a mortgage buyer must be identified when a mortgage is sold, or there is no sale for that mortgage. That didn’t happen here, so, in these cases, the note was sold, but the mortgage was not.

Now remember, the mortgage is what gives the lender the right to force the sale of the property. If the lender does not own that right, it cannot foreclose when the loan is not repaid. Technically, the owner of the mortgage can foreclose, but if it doesn’t own the note, why would it bother? The foreclosure process is expensive and time-consuming.

So what’s going to happen? Are hundreds of foreclosures going to be overturned? That remains to be seen, but this is a clear demonstration of why title insurance is a requirement in a real estate transaction. That, however, is a conversation for another day. What I can say, though, is that lenders will be stepping up their efforts to making sure that all the details are taken care of during the foreclosure process, even if it means slowing the process down to make sure it is done.

The foreclosures are not going to stop, though. That, I can guarantee.


Creditors have better memories than debtors. -- Proverb

The best gift

The holiday season is quickly drawing to a close, and I hope yours has been full of peace, joy, and all the good things you were hoping it would be. I hope you were able to give and receive the gifts you wanted, and that meant something special to you. I especially hope that you were able to give some thought to one of the best gifts you will ever be able to give yourself and your family: your own home.

A home is a place of your own where you can raise your family, share with friends and feel safe and secure. Other benefits for homeowners include better physical health, higher lifetime income, higher student test scores, and lower teen delinquency.

Reduced prices and low interest rates have placed housing affordability at its highest but rates have started inching up in the past few weeks which will directly result in higher payments.

Credit, debt ratios and income are the limiting factors that could be keeping you from taking advantage of these opportunities. Isn't it time you found out where you stand to buy a home?

The benefits of talking with a qualified mortgage officer and pre-approval are without question. It saves time, money and removes the uncertainty of not knowing. The direct benefits include:

•Amount the buyer can borrow - as interest rates rise, the amount decreases

•Looking at the "right" homes - price, size, amenities, location

•Find the best loan - interest rate is tied to credit score; do you qualify for the best rate?

•Uncover credit issues early - time to cure possible problems; 90% of credit reports have errors

•Bargaining power - helps negotiate price, terms and timing

•Close quicker - verifications have been made; takes less time to close

Call me for a recommendation and a list of what you need to share with a loan officer. It may be the best gift you give your family.

Each day comes bearing its own gifts. Untie the ribbons. ~Ruth Ann Schabacker

Buy low, sell high . . . and lose

We all know the drill, don’t we, that the key to success with financial investments is to “buy low and sell high”? So, since the majority of the predictions floating around right now are that real estate prices are going to continue to drop for another 12 to 18 months, we should wait that long before we buy any real estate. Makes perfect sense, doesn’t it?

Well, not necessarily, and especially with real estate.

The important thing to keep in mind here is that there is the difference between “price” and “cost.” For an investment like real estate, which is usually leveraged with a mortgage, you need to be more concerned with the cost than the price. This is such an important concept that lenders are required to disclose the total cost to the buyer – as accurately as possible – and give the buyer the opportunity to back out of the deal. If it turns out that the estimated cost was not accurate enough, lenders are now required to recalculate it and disclose it again.

So what is the difference between price and cost? Simply put, the price of the house is only part of the cost. Over and above the price, you have to pay for a lot of other stuff. In real estate, most of the “other stuff” is interest on the loan that was taken out to pay for the house. There are other pieces and parts included in “cost,” but the interest on the loan is the most important part.

The thing about interest is that little changes in the rate can have dramatic effects on the true cost of the house. Let’s imagine you’re buying a new home, and the 30-year loan will be for $350,000. If the interest rate is 4.5%, the principal and interest payment will be $1,773.40. If the interest rate increases only half a percentage point to 5%, the payment will be $1,878.88. An increase of only half a percentage point will cost you over $100 every month for the next 30 years.

Now here’s the thing: interest rates are rising now.

As of today, average 30-year mortgage rates are over two-tenths of a point higher than they were last week. In other words, if you closed that $350,000 loan today at the average rate (4.83%), your payments would be $1,842.68, or $46.33 higher than if you closed at last week’s rate (4.61%, with a payment of $1,796.35).

But what about the falling price of the house? Won’t it offset the increase in interest? Only if the decrease in value is substantial. To expand on that last example, the price of the home would have to fall to about $341,200 to offset that rate increase of half a point. In other words, the price would have to fall more than 2.5% in the same week to come out even with the increase in the interest rate.

Real estate values are not falling that fast, and are not expected to in the coming months. Most predictions I’ve seen are in the range of 5 – 10 % spread over the next 12 months or so, but the falling prices are not nearly as important as the rising interest rates.

If you are in the market for a new home, it is time to make a decision. Choose wisely.

The essence of strategy is choosing what not to do. -- Michael Porter

Rebuilding

I had the opportunity yesterday to watch a video of a presentation that had been given last month in New Orleans at the annual convention of the National Association of Realtors. The subject was the current state of the real estate business, and where it’s going from here. In a nutshell, right now we are in the depths of the valley of despair. The market is in a shambles, and it’s not going to get any better until we – real estate brokers – actively get to work to rebuild it. There is a lot of sense in what the speaker said, and I’ll talk more about his speech in another post.


What he said, though, resonated strongly with me. While I would not say that my career is in the depths of the valley of despair, it is definitely at a low point. It is time to rebuild, which has been somewhat of a theme around here lately.

Of course, building with a plan always makes more sense than just throwing a bunch of stuff together and waiting to see what will survive. The first step in making a plan, is determining what you are really trying to accomplish, and then comparing it to where you are now. For me, the end is still the same as it has always been: I want to be a trusted advisor and consultant rather than a salesman. To that end, I will be working toward strengthening my ability to analyze the financial aspects of real estate transactions to help create situations that make sense for my clients.

A lot has changed in the financing of real estate in the last couple of years, and the effects have been profound. Some folks, in fact, are convinced that real estate is a poor investment now. I don’t think it is; it never has been. The key is finding the way that makes most sense to you. In the next few years, that way is probably going to look very different than it has looked for the last few years. I’ll be talking more in depth about some of these changes in future posts.

The road to success is always under construction. -- Lily Tomlin