February 2010 Newsletter

WILL I TAKE A FSBO? The market is starting up again, and many of us in the escrow industry have seen Sellers who want to save on commission and sell their property themselves. The question is: Is it worth it? The attached article delineates 5 very valid questions to ask first:

1. Do I know the value of my home?
2. Am I ready to work with a Buyer’s agent?
3. Will I take charge of sales and marketing responsibilities?
4. Can I bear criticism of my home?
5. Am I willing to screen potential Buyers?

In a FSBO transaction the escrow agent is sometimes forced to take on the roles of the real estate agents, just to make sure the transaction goes smoothly. We become the buffer through which negotiations are conducted and sometimes forcing us from our “third party” neutral position. So to answer my question, we will take the transaction (of course), but we will also prepare ourselves for double the work. Read more about it here.

FHA GUIDELINES CHANGES: The problems encountered on FHA insured loans are may put a whole new wave of foreclosures on the market.  Like regular conventional lenders, the FHA was also hit hard, and like conventional Lender, they are also tightening their guidelines. And it’s no wonder as the demand for government insured loans has increased dramatically at the same time that default on existing loans have increased. Some of the changes to look out for:

  1. Higher credit scores for lower downpayment or
  2. Higher downpayment if credit scores are low
  3. Reduction in Seller credits for closing costs
  4. Increase in mortgage insurance premium
  5. More monitoring of lenders doing FHA mortgages

An FHA loan is perhaps the only way many Borrowers are able to afford a new home and like everything else today, the government has to step in to guarantee this affordability. Here are 2 articles regarding these issues, here and here.

PITFALLS ON GETTING A NEW LOAN: I am a numbers person, and I just love these articles that enumerate what to watch for. Here is an article on 10 things that can kill your loan and oh, boy, can I empathize! Right now I have a transaction which is classic to # 8 – “The lender doesn’t like your condo association’s finances”. And we all know about this deal killer – # 3 – “You have too much debt” – as Fannie Mae has reduced the allowable debt ration to 45%. Go through this article; it is very informative. The author, Liz Pulliam Weston, is a favorite of mine.

SHOULD I REMODEL? I grumble that since I don’t have the time, energy or money to move, the next best thing is to remodel my dated kitchen and bathrooms. Okay, so I don’t cook but I still want my kitchen to look more modern and I sure would love Jacuzzi style tubs in our bathrooms. I figure this is an investment that adds value to my house, right? WRONG! According to this article, remodeling is not investing; it is consumption spending. And when it is consumption spending we should use cash on hand. “The only time it makes sense to borrow money is when you are buying an asset that stands a chance of gaining value over time.” Okay, let’s re-think this. I need to spend my hard earned rainy day funds to upgrade and feel good. Question: Do I need to feel this good when the future of my livelihood is still so uncertain?

10 THINGS NOT TO BUY: Here is another “10 things” article. Authors probably realize that reader attention span is best captured by numbers, 5 of this, 10 of that… Here are some items that are already on the brink of extinction in my little world: home telephone service (sometimes I can’t even remember my home land line number), compact digital cameras ( I love my single lens Nikon E40) and newspaper subscriptions (forget the yucky paper stuff, although I do have my weekly magazine subscriptions). Hey, in this day and age, we need to keep on top of what is worth our money and what is not.

COMMERCIAL LOANS ARE NEXT! Residential foreclosures may have been the media’s main focus of interest but this is not to say that commercial loan foreclosures have not been a serious source of worry. Pundits call it a “train wreck in slow motion”, and I guess that is as good an analogy as anything. This is how it progresses: People are losing their jobs → so they will spend less → so businesses are getting less income → so businesses are forced to scale down or even close down → so more jobs are lost → and businesses can’t afford to pay their rents/lease → so landlords can’t meet the mortgage payments → and they can’t refinance because of value drops → so loans go into default → so banks have to foreclose →and bank losses trigger more bank closures. Though not as obvious as the effects of the residential industry, the commercial real estate meltdown has happening over the last couple of years and will extend for the foreseeable future. Hence, Train. Wreck. Slow. Motion.

IMPORTANT NUMBERS TO CALL WHEN YOUR WALLET GETS STOLEN: The shopping rush has passed, but thieves are still on the prowl for easy pickings. What do you do when your wallet gets stolen? Besides calling all the numbers on the debit and credit cards in your wallet, you should also call the following right away:

  • Equifax: 1-800-525-6285
  • Social Security Administration (fraud line): 1-800-269-0271
  • Experian (formerly TRW): 1-888-397-3742
  • Trans Union : 1-800-680 7289
  • My suggestion is that you photo copy your credit cards and put the above numbers on the same sheet of paper for easy access just in case. Oh, and don’t put it in your wallet.

    THINK BEFORE YOU SPEAK: We all know the problems Toyota has been having with its massive recall for the sticky accelerator pedal and other issues (Prius anyone?). U.S. Transportation Secretary Ray LaHood’s statement was “… if anybody owns one of these vehicles, stop driving it.” This statement, broadcast in the morning around the world, made Toyota’s stock drop about 8%. LaHood backtracked in the afternoon, but by that time it was Oops! Too late! Ah, the power of the spoken word!

    Talking about Toyota, its troubles are causing real worry in the City of El Monte, whose coffers are very much dependent on the sales revenue received from the country’s largest Toyota dealer – Longo Toyota. The loss of anywhere from $80,000 to $120,000 per month in revenue from Longo will mean the layoff of around 100 people. This is from the city that has a 10.25% sales tax rate in comparison with the standard 9.75% in surrounding cities and the rest of LA County.

    This February is such a HAPPY month! Besides the Saints winning the Superbowl, which made many people ecstatic, we wish you and yours much Prosperity in this new Chinese Year of the Tiger and a Happy Valentine’s Day, both of which fall on February 14th.

    Roses are Red,

    Violets are Blue,

    Sugar is sweet,

    And boy, do I appreciate you!

    We welcome your thoughts and insights - post your comments here.

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