WalletPop

Book review: Trump: The Best Real Estate Advice I Ever Received

Zac Bissonnette — 2008-05-13T18:00:00+00:00

As I have written many times before, I hate Donald Trump. But as I discussed in my review of Trump Style Negotiation, his unfortunate status as the most prominent figure in real estate has attracted some great collaborators for his books. A book with Trump's name on it sells better than a book by someone nobody's heard of and, consequently, some of the best real estate minds you've never heard of have lent their work to Trump's name.

Trump: The Best Real Estate Advice I Ever Received is a perfect example of this. Basically, this book contains 100 short essays written by some of the most successful real estate people in the world, all sharing the best piece of advice about the business that they ever received.

Happily, the book is free of get-rich-quick charlatans like Robert Kiyosaki, and includes passages from the likes of Barbara Corcoran, Robert Boykin, and Steve Bollenbach. If you've never heard of these people, that's the point: they're real real estate tycoons who've focused on creating wealth and value rather than ego trips, unlike the man whose visage appears on the cover.

True: a lot of the advice is trite and obvious. But it's a book that you can't read without learning something, which is more than can be said for most investing-related books.

If you're more interested in stocks than real estate, check out Liz Claman's very similar book The Best Investment Advice I Ever Received: Priceless Wisdom from Warren Buffett, Jim Cramer, Suze Orman, Steve Forbes, and Dozens of Other Top Financial Experts.

Read | Permalink | Email this | Linking Blogs | Comments

Three tips for buying a home on shaky credit

Geoff Williams — 2008-05-13T16:30:00+00:00

Filed under: Borrowing, Debt, Home, Real Estate

It's a buyer's market, they say. You can get a house for a really low amount of money, they say. In fact, they say, it's a wonderful time to purchase a home.

(Who are they? I'm not sure, actually. But I know that they say this sort of thing a lot, and besides, it's a useful device we writers employ when we don't quite know how to begin writing.)

Anyway, I've been wondering -- with banks tightening their policies for lending and being reluctant to give anyone a loan, is it really a buyer's market if people aren't given home loans so they can buy?

Ernestine Crews is the founder and president of eCrews Enterprises, which is what she calls a wealth building academy and opened last month. And Crews, who hosts "The Road to Wealth and the Guide to Financial Freedom" on KLSX-FM in Los Angeles, says, "The easy lending with low FICO scores -- the party is over. If you don't have prestige 700-plus credit, you're going to have a difficult time."

Well, sure, tell me something I don't know.

But then she did.
Tip #1
If you have credit as low as 580 and are having trouble convincing a bank to give you a home loan, sometimes you can offset your low score if you have enough in reserve in your 401K. (I'm not saying it's a great idea to use your 401K as a way to pay for your house, and Ms. Crews isn't either. Just that it's an option and possibly a bad one. I can just picture my fellow blogger and ultra-responsible accountant Tracy Coenen starting to write me a stern note right now.)

Tip #2
Ms. Crews also says that if you can offer a large down payment, of at least 20% down, and verify your income with W2's, "there are hard money lenders who are non-traditional and their guidelines are more lenient, but may accept lower FICO scores." But she warns that by taking out what is literally called hard money loans, you'll walk away with a higher interest rate, a prepayment penalty and a choice between interest only or a fixed rate loan. In other words, an option, but again, not a great option.

So what can you do, if you have shaky credit, but a good job, and you really want a home? You're probably not going to like it, but...

Tip #3
Wait it out, suggests Ms. Crews, adding, "This is a good time to spend time now, learning how to enhance your credit."

Her advice is a wee bit self-serving, since that's what eCrews Enterprises does. They offer classes on wealth management and teach people how to improve credit scores. Still, self-serving or not, it's probably the best advice out there for someone who is almost, but not quite, ready to buy their own home. After all, not waiting to improve their credit is how a lot of people got into this mess in the first place.

Geoff Williams is a business journalist and the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).

Read | Permalink | Email this | Linking Blogs | Comments

Internet connections go down the tubes

Bruce Watson — 2008-05-13T15:30:00+00:00

Filed under: Extracurriculars, Real Estate, Technology

Recently, Bournemouth became the first English city to get a new form of super-fast internet. While that's great news for the 88,000 homes and businesses that will get new 100 Mbps connections, the real news is how they're going to get it. H2O Networks Ltd, the company that's funding the project, will be bringing the internet cable through Bournemouth's sewer system.

While I appreciate the humorous potential that a sewer-borne internet system offers, the truth of the matter is that this is an amazingly brilliant idea. Having spent years dealing with incredibly slow dial-up connections, I finally sprung for a cable connection when it came to my neighborhood. In addition to the considerable monthly cost, I also had to pay to have the cable laid across my (landlord's) lawn. Now that I live in the big city, I don't have to shell out cash to have cable laid, but my area of the Bronx only has one internet service provider, which means that I'm stuck with paying the monopoly rate for my internet.

One of the major problems with internet access is the fact that companies often have to lay miles of cable to offer it. In the process, they have to dig up streets, put in conduits, and generally spend a small fortune before they can even offer their services to potential subscribers. Of course, once the subscribers are online, they get to compensate for the considerable capital investment that the providers laid out.

While not every city has an impressive sewer system like Bournemouth's, there are many areas where old sewers, aqueducts, and other conduits are laying empty, waiting to crumble. For example, New York's Croton aqueduct runs from the Public Library at 42nd Street all the way up to northern Westchester County. Rather than dig holes to lay cable, it seems like re-using the last century's infrastructure would be a cheap, green way to go. Besides, until alligators learn to eat cable, the city's sewers should be pretty safe!

Bruce Watson is a freelance writer, blogger, and all-around cheapskate. If he could get a 100 Mbps connection...well, let's just say that Websudoku would have a new master.

Read | Permalink | Email this | Linking Blogs | Comments

Mortgage Confidential: Re-qualify yourself

David Reed — 2008-05-12T17:30:00+00:00

Filed under: Real Estate, Shopping, Mortgage Confidential

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Rates over the past few months have been volatile, to say the least. I recall one day where mortgage rates on a 30-year fixed rate loan went up nearly 1/2% in one day. That's a rare occurrence, but not unheard of. Rates can move throughout the day based upon a variety of economic or political factors but the fact that they do move requires a portion of prudence when it comes to qualifying.

Realtors, lenders, even your beer buddies acknowledge the importance of getting pre-approved by a lender before you go shopping for a home. When you do so you can shop in confidence. That is unless you were pushing debt ratios to begin with while mortgage rates hovered near 5 1/2%, like they did last March. Now, rates are closer to 6% and if you got pre-approved for a home loan a couple of months ago and are still shopping you might want to contact your lender and make sure you can still qualify.

This is especially true for those who might have been pre-approved for a mortgage to buy a brand new house but the builder isn't finished with your new abode. A lot can happen over several weeks, shoot, a lot can happen in the course of a business day. If you're pre-approved, it pays to contact your lender to find out how high rates can go and still keep your pre-approval. If you make an offer on a house and rates have gone up, you might be in for a sad surprise.

Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.

Read | Permalink | Email this | Linking Blogs | Comments

A sex offender will likely impact your home's value

Tracy Coenen — 2008-05-12T10:00:00+00:00

Filed under: Real Estate

The Real Estate Adviser on Bankrate.com has answered an important question from a reader: Does a registered sex offender living in your neighborhood affect your home's value? The unfortunate answer is "yes."

One study found that a sex offender within one-tenth of a mile of your home makes your house sell for about 17% less than comparable homes without a sex offender in the neighborhood. If a sex offender is within two-tenths or three-tenths of a mile from your home, expect a 9% to 10% lower sales price. A separate study found that homes within one-tenth of a mile of a sex offender only sold for 4% less than comparable homes.

Even though there is a range of numbers presented, it's clear that the presence of a registered sex offender in your neighborhood will have an impact on the sale price of your home. It's no wonder. What parent would buy a house in close proximity to a registered sex offender? For most parents, that's too big a risk to take when you know your child will want to play outside during summer.

This is a good time to remind buyers to check registries to see if a sex offender is living in the neighborhood you're considering. If you can't locate a registry, check with the local police station for guidance on sex offender registration. You want to make an informed choice before you buy a home for your family.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Read | Permalink | Email this | Linking Blogs | Comments

Depressing: Self-storage unit auctions on the rise

Zac Bissonnette — 2008-05-11T14:00:00+00:00

Filed under: Home, Real Estate

When I was about 10 years old, I went to an abandoned property auction at a local self-storage place with my mother. We thought it would be a fun end to a long day of yard-saling. It was anything but. It was cold and rainy, and it was one of the more depressing experiences I've ever had. An old and sickly auctioneer went from unit to unit, auctioning off the contents by the lot, with no time for any kind of inspection. People bid $10 or $15 for a chance to acquire someone's property because they couldn't pay the $50 a month to keep it. Notably, a large collection of Jackson 5/Michael Jackson memorabilia went to auction after the family failed to pay its storage bill.

With foreclosures hitting record rates around the country, many former homeowners are packing their life's accumulations into storage units. But the financial woes that made it impossible for them to keep their homes are making it tough for them to keep their stuff in storage.

According to a self-storage center manager quoted in a New York Times piece, an increasing number of people are also trying to (illegally) live in their storage units.

Read | Permalink | Email this | Linking Blogs | Comments

Cheap digs: The United Nations follows Wal-Mart's architectural lead

Bruce Watson — 2008-05-08T14:30:00+00:00

Filed under: Extracurriculars, Real Estate, Travel

Last weekend, my wife and I went to Roosevelt Island, which we had never visited before. While checking out the ruins of a former smallpox hospital and the gorgeous cherry blossoms that line the shore, we also happened to look over at the U.N. headquarters. We were horrified to discover just how dingy and nasty the structures were. While the U.N. has always been a little strange looking, it was starting to get downright grubby. The beautiful blue Secretariat tower looked grayish, and the General Assembly building, which was once gleaming white, now resembled a scuffed sneaker.

Apparently, the interior is also showing its age. Constructed in the early 1950's, the buildings have exposed asbestos insulation, dripping pipes, leaks, and lead paint. Although the U.N. is on international territory, and is thus not required to comply with New York City safety codes, it racked up an amazing 866 violations during a courtesy inspection last year. After years of spirited debate, the headquarters has finally been scheduled to undergo a massive, $1.9 billion renovation, which is expected to take five years.

Rather than find short-term housing elsewhere, the United Nations has decided to construct a gargantuan pre-fab building on the North Lawn of the complex. Ultimately, the U.N. hopes to return the North Lawn to its current, empty, state, so the new home has been designed to be "intentionally ugly," in the same style as "a Costco or a Wal-Mart." The cost of dismantling the eyesore has been factored into the overall project budget. Hopefully, this will ensure that the temporary building will be just that: temporary.

Bruce Watson is a freelance writer, blogger, and all-around cheapskate. Having spent much of his childhood in "temporary" classrooms constructed from trailers, he hails the U.N.'s decision.

Read | Permalink | Email this | Linking Blogs | Comments

Can't afford your mortgage? Buy a town!

Bruce Watson — 2008-05-07T18:00:00+00:00

Filed under: Real Estate

As the old joke goes, the three most important things in real estate are location, location, location. That having been said, with the plummeting real estate market, it might be time for some intrepid would-be homeowners to start thinking outside of the box, so to speak. With that in mind, here is a list of five abandoned places that are in in need of loving residents and an influx of dough. If you move quickly, you might just be able to make one of these undervalued wonders into your next home sweet home!

Bethlehem Steel: Once one of the largest steel mills in the United States, the Bethlehem Steel Mill in Lackawanna, New York is located just outside of Buffalo. Although attempts have been made to reopen it, turn it into a museum, or use it for wind farming, it has been abandoned since it closed in 1995. While this might not be your ideal vision of the perfect home, the "architectural details" include massive coke ovens, pipes, furnaces, and other remnants of its industrial past. For the modern minimalist decorator, it's a dream come true!

North Brother Island: Rich with history, North Brother Island has been the home of a hospital, veteran's housing complex, and drug treatment center. Most interestingly, this 13-acre island housed Typhoid Mary for over 20 years. It even features in New York's second-worst tragedy, the destruction of the General Slocum, a steamboat disaster that claimed over 1,000 lives. Located in the East River, North Brother is mere miles from the bustling heart of New York City, yet is totally abandoned. In addition to being highly-valuable, albeit overrun, real estate, North Brother Island has an Island of Dr. Moreau quality that will delight the mad scientists and feral survivalists in your family.

Homes in the Mojave: While some of the abandoned towns in the Mojave, like Goffs, have been rehabilitated for the tourist trade, Route 66, which runs through the desert, is littered with relics that testify to both the pioneer spirit and the awareness that man might not be designed to live in the middle of a vast, empty wasteland. If, however, you crave wide open spaces and think that maybe Charles Manson was onto something, you might try wandering through the famous Ghost Town Stretch, where the dry, relentless heat of the desert has preserved dozens of beautifully atmospheric old west towns.

St. Augustine's Monastery: In the middle of lovely Staten Island, the abandoned St. Augustine's Monastery is currently owned by nearby Wagner College, which doesn't seem inclined to do much with it. Once a school for both seminarians and non-seminary students, it is now boarded up, filled with graffiti and scrawled occult symbols, and is generally a really creepy place to be. However, if your tastes tend toward Satanism, animal sacrifice, and horror movies, this might just be the perfect home for you!

West Virginia Ghost Towns: When mining coal was a work-intensive, non-automated process, West Virginia was a bustling, well-populated hive of activity. With mountaintop leveling, however, the mining jobs dried up and the people moved on, leaving the Mountain state with a beautiful collection of ghost towns. While some of these former metropolises, like Thurmond, have been preserved, dozens have been left to moulder. If you're looking for a nice place to sit on the porch, practice your banjo, and eat fried bologna sandwiches, you might try taking a peek at this list of West Virginia ghost towns.

Bruce Watson is a freelance writer, blogger, and all-around cheapskate. He once spent a day wandering around Thurmond, West Virginia, reveling in the wonderful Deliverance vibe of the place.

Read | Permalink | Email this | Linking Blogs | Comments

Whose fault is it that housing prices are slashed?

Tracy Coenen — 2008-05-07T15:00:00+00:00

Filed under: Real Estate

Today a fellow blogger pointed me to this blog post, which basically shows a 50% price cut for homes in a California neighborhood. One home was sold for $855,000 in April 2006, and now two houses down, a similar one was listed for sale at $400,000 in April 2008.

The writer of the blog says, "Mr. Bernanke, that'll be $455,000 to keep the poor folks at 4565 Casa Nova from foreclosing, thank you very much kind sir."

But whose fault is it really, that there is such a disparity in home prices over two years? What if the real value of each home always was in the $400,000 range? Doesn't that just mean that the buyer from 2006 was stupid and overpaid for his home? Why do we automatically assume that it is the fault of the government that someone's house isn't valued high enough?

I'm a realist. I recognize that real estate values have declined and therefore many homes are "worth" less than they were before. But there comes a point where common sense must play a part in the debate. Plenty of homeowners probably paid too much when they bought their homes, and now the market has reduced those values to be more in line with reality.

Those who overpaid on their homes need to pay their mortgages and sit tight for now. Maybe the housing market will rebound, maybe it won't. If you can't get your money back out of your house, there's a possibility that you overpaid. Learn the life lesson and get over it. Quit looking for someone to blame.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Read | Permalink | Email this | Linking Blogs | Comments

But it's for the children!!!

Tracy Coenen — 2008-05-05T15:00:00+00:00

Filed under: Real Estate, Recession

There is still talk of a second economic stimulus package from our federal government, this time it may be focused on helping homeowners in danger of foreclosure. Those in favor of it say it's necessary because foreclosure negatively affects children. I don't disagree that a child can be upset when he or she has to move out of their home. The child may have to change schools, may have to make new friends, and may lose connections made with neighborhood kids.

What I think is more upsetting, however, is having parents who put the child in such a situation. Parents should be parents. The government should not have to be the parents... the government should not be bailing out homeowners who got in over their heads. Parents should be making a conscious decision to put their child's needs first, and that includes offering the child a stable home life and place to live.

Let's face it: The answer to the problem is not to have Uncle Sam come to the rescue of people who bought more house than they could afford. The real answer is to have them dig themselves out of their problems, and hopefully learn an important lesson. Our government can't bail out every problem. And it certainly isn't fair to make taxpayers foot the bill for those who are in foreclosure.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Are you better off renting a home?

Zac Bissonnette — 2008-05-05T10:30:00+00:00

Filed under: Real Estate

The housing market was given a huge boost in recent years by lax lending standards that enabled a ton of people to buy houses that they never should have been able to using gimmicky mortgages. The result has been record foreclosures, and lot of people who pursued the American Dream are regretting it. Now they're back to renting and a lot of people witnessing the carnage are wondering: Is homeownership really worth it?

In a column in Parade, Mike Hammer lists 4 "great reasons to rent": renting can save money, homeowners' tax deductions are overstated, there are more options available to renters, and renting gives you flexibility. Hammer writes:

According to popular myth, renters are just throwing their money away. But the reality is that when you buy a home, you're paying for closing fees, mortgage interest, property taxes, private homeowners' insurance and maintenance -- costs that return nothing on your investment.

The first part is a very valid point: at the height of the housing bubble, people were paying far more to own than they would to rent. My suggestion to homeowners is to look at homes the way an investor would: if you're renting, you're probably paying enough to cover the owner's interest, taxes, insurance, and maintenance, plus enough to leave him with a nice profit and a paid-off mortgage in 30 years. This is why people own rental property. If renting in your area really is cheaper than owning, then renting is probably the way to go.

But if you look hard -- and are willing to lower your standards a bit -- you can probably own for about the same amount as you can rent. You might not be able to buy as nice of a home as you can afford to rent, but you might be able to buy something. One of the great truisms of homeownership is that your first is home is the home you can buy, and your next home is the one you want to buy. Very, very few people have accumulated wealth in this country without owning real estate.

Hammer also writes that "before the housing boom went bust this year, homeownership was considered a good investment. But now, with the rash of mortgage foreclosures, renting may be a more attractive option."

Huh? If you parse the sentence, you end up with "Buy high, sell low." Hammer seems to be suggesting that when prices were soaring to heights out of line with rent levels, buying a home was a good idea. Now that homes are cheaper, it's better to rent. That goes against the methodology of the world's smartest investors: buy when there's blood on the streets.

The fact is that homeownership remains the most common -- and best -- wealth accumulation vehicle in America. A decline in prices makes that more true, not less.

Read | Permalink | Email this | Linking Blogs | Comments

Mortgage customers don't know what they're doing

Zac Bissonnette — 2008-05-03T16:30:00+00:00

Filed under: Debt, Real Estate

Back in October, The Federal Reserve released a startling -- and widely ignored -- study showing that a large chunk of recent home buyers know almost nothing about their mortgages. Here are some findings from the Fed's survey:

25% could not identify the APR on their mortgages.
25% didn't know how much they spent on settlement charges.
50% didn't even know much the loan was for.
Two-thirds were unaware of any prepayment penalties.
75% did not recognize that the loans included charges for optional credit insurance.

Major, major props to Forbes' Josh Zumbrun for digging this up. Zumbrun adds that "It's a point you don't hear much about. Yes, lenders maliciously tricked borrowers, and yes, frenzied speculators bought houses they knew they could not afford. But it's just as true that a lot of well-intentioned people simply signed mortgages they did not understand."It's easy to understand why this happens: home buyers are asked to sign a slew of documents -- some lawyers explain them in detail, some don't -- and then sign their names to indicate understanding.

This is the equivalent of assessing a second grader's competence in math by handing him a sheet of math problems with answers and asking him to sign that he understands. If he signs, he gets an A+!

One possible solution: to get a mortgage, borrowers should be handed a "quiz" with questions like "What is the APR on the loan?" and "Describe any pre-payment penalties." Then the borrower would have to rifle through documents -- and ask the lawyer -- to find the answers to those questions. If we did that, every home buyer would understand her mortgage.

Read | Permalink | Email this | Linking Blogs | Comments

Are you living in a recession proof city?

Josh Smith — 2008-05-03T13:00:00+00:00

Filed under: Real Estate, Career, Recession

We have already covered recession proof jobs and recession proof demographics, but now you can find recession proof cities to live in. Forbes has compiled a listing of the top ten cities to weather out a recession in. The study looked at 50 different metro areas in the U.S. and based the ranking on many factors including unemployment data, non farm job growth and median home prices. Forbes didn't just look at static data to determine these top cities, they also looked at projections based on a November 2007 study regarding metro areas and the current economy adding more value to the list overall.

Just because these ten cities from San Jose to Raleigh are predicted to weather a recession well, doesn't mean you should call up U-Haul and plan you move just yet. If you are already settled down in a city with a job and your house isn't going into foreclosure anytime soon the move may be more trouble than it is worth. On the other hand if you are looking for a fresh start or you just graduated these cities might be the best places to focus your search for a slice of the American dream.

If we were going to pick up and head to any of these metro areas to get through the recession it would definitely be San Antonio. Not only is it a spectacular city, the housing market is doing well and it has good employment numbers. The biggest downside to picking up and moving to a recession proof city is that you will likely be paying more for a house in the strong local market and taking a hit trying to unload your current home in small-town USA.

Read | Permalink | Email this | Linking Blogs | Comments

Traditional real estate agent services going out of style?

Tracy Coenen — 2008-05-03T12:00:00+00:00

Filed under: Real Estate

More and more, home sellers are using non-traditional real estate service companies to sell their homes, and I wonder if this says something about the future of real estate agents.

Up until several years ago, a home seller had to list their home with an agent if they wanted their property to be a part of the Multiple Listing Service (MLS). And most sellers wanted to be a part of MLS because that's how the majority of homes were advertised and sold.

But now there are discount brokers and real estate service companies that offer home sellers the opportunity to be a part of MLS at a much lower cost. Many are featuring "a la carte" pricing, so sellers can pay for exactly which services they want, but often save significant money when compared to traditional real estate agent commissions.

Consider a home selling for $200,000. A typical commission is 6%, or a total of $12,000 on the sale of this house. Then consider a service like Custom Fit Realty. Services start at $499 for a listing with MLS. Sellers then add on services, with choices including $99 per month for the agency to handle all phone calls regarding the listing, $99 for an online video tour of your house, $349 for an appraisal, $199 for a 90-minute Sunday open house, $499 for closing services, and more. Even if you maxed out on all the company's services, the site estimates you'd spend only $8,900. That's a significant savings off the $12,000 fee for a traditional agent.

Naturally, a non-traditional real estate agent arrangement might not work for all sellers. But I bet it would work for a good percentage, and the savings seem to make this type of business model a no-brainer. I think that we're going to start seeing more and more of these types of services springing up as home sellers realize they can save thousands of dollars and still get quality services to help sell their homes.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Read | Permalink | Email this | Linking Blogs | Comments

Jose Canseco is the latest victim of the housing bust

Zac Bissonnette — 2008-05-02T17:00:00+00:00

Filed under: Real Estate

Try to hold back your tears. The Wall Street Journal reports (subscription required) that "Faced with sinking property prices and heavy legal fines, he has abandoned a multimillion-dollar home in suburban Los Angeles and let it lapse into foreclosure."

It seems that the deflation of the steroid-enhanced housing market is hurting baseball's most infamous drug abuser.

The decline and fall of Jose Canseco has been pretty remarkable to watch, and the players whom he accused of steroid use in his bestselling -- and heinously bad -- books have to be looking on with more than a little bit of schadenfreude.

For a great look at everything that is wrong with Canseco, check out this wonderful piece from DeadSpin.

For more on celebrity foreclosures, check out this awesome blog. Here's the foreclosure listing for Michael Jackson's ranch.

Read | Permalink | Email this | Linking Blogs | Comments

Mortgage Confidential: Refinancing in a declining market

David Reed — 2008-05-01T16:30:00+00:00

Filed under: Real Estate, Mortgage Confidential

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Q: David- I have a 3-1 arm. Every 6 months the payment goes up. I need to refi and lock in lower payment but I now live in a "decreasing" neighborhood. My credit is excellent but nobody wants to refi me. I have no money to bring to closing!!! H-E-L-P!!!!!! -Groovner

A: Groovner: It's not a situation of a lender wanting to refi you, they certainly do, but only under underwriting guidelines that include a consideration of living in a "declining market." When an appraiser appraises a property, she must check a box that states if the market is stable or declining. Other lenders and mortgage insurers have identified various counties throughout the United States as "declining." When a property is in a declining market, lenders will require a lower loan amount compared to the current appraised value, typically 5% lower than normally required.

Perhaps you can save some money by taking a higher fixed rate in exchange for a lender paying some of your closing costs, but other than that all I can suggest would be to wait it out. One good point is that adjustable rates have been on a downward trend as of late and it's likely your next adjustment will be down, not up. -- David

Read | Permalink | Email this | Linking Blogs | Comments

Recession watch: Recession makes for suprising roommies

Josh Smith — 2008-05-01T15:00:00+00:00

Filed under: Real Estate, Recession

This post is part of a series about real-life signs we're in a recession.

Does the thought of moving to a new city after graduation, as the economy heads towards a recession, frighten you? If so, you may want to do what some whippersnappers are doing: move in with grandma and grandpa in order to save money on rent. While this may induce thoughts of plastic-covered furniture and conservative talk radio blaring from the living room, many families are making it work. Living with your grandparents can also provide benefits to the entire family. They can rest easy knowing someone is around to help out around the house and be a point of contact in case of emergencies.

CNN recently provided a set of tips for living with your grandparents. It includes laying down ground rules and having separate spaces. Moving in with "Oma" and "Pop Pop", in their two bedroom efficiency in Manhattan, may not work out for any of the involved parties. If you are lucky enough to have grandparents near your new job, moving in with them could insulate you from the rising cost of living which has come in the form of gas and food price increases. Having a support system in place is another "value add" in the event your new position gets cut during a recession. One example is Jennifer Blankenship, who lives with her grandparents to save money as rent in her town approaches $1,500 per month!

As I spoke with friends from college I didn't find anyone who was living with their grandparents but several did express concern about what they would do if a recession brought layoffs. Several friends mentioned that their grandparent's houses could provide a place close to work which would allow them to maintain their jobs and friends even during a recession. If we were in a boom period I doubt we would see young adults moving in with grandparents just to save on rent. When times get tough, the tough go to grandma's!

Read | Permalink | Email this | Linking Blogs | Comments

Mortgage Confidential: Will a higher rate give me more tax write-offs?

David Reed — 2008-04-28T15:30:00+00:00

Filed under: Real Estate, Ripoffs and Scams, Investing, Mortgage Confidential

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Q: David -- I've been asked by Freepoint to refinance with them. This company claims that I would build up wealth by investing the difference in my equity with them, getting an interest only loan. They state that having equity in your home is not good because someone can sue you and have a claim on your equity. After several years, one would have enough money to pay off their mortgage if they desired. I would like to get advice on this. They said the higher interest would be a tax write off and I would be investing the equity and getting a higher return. Please advise. Thank you. - Helen

A: Helen -- Don't return their phone calls. I don't know who that company is, and while I'm sure they're a fine organization, I'm not comfortable. I see three big problems with this "pitch" which used to be very popular among mortgage loan officers yet seems to be falling by the wayside.

Build wealth by investing the different in equity with them
Having equity in your home isn't good because someone can sue you
The higher interest would be a tax write off

Sheesh. And I thought loan officers like that were out of business or selling cars or something.

Build wealth: Sure. The math always works with their calculators that show how much money you'd be making if you invested XX amount over XX number of years. Okay, fine. Which stocks? Which mutual funds? For how long? And how do they know any of this? The fact is that they don't, and you can bet your bottom dollar (if you have one by the time these folks get through with you) you'll be signing a horde of disclaimers saying that there are no guarantees. And you can still invest money each month any way you want without such a plan.

Equity isn't good. Since when? Since when all those people over the past few years tried to sell their house but couldn't because they didn't have any equity? Personally I think equity is darned good, especially when you have it and no house payment. Yeah, yeah, I know. If push came to shove then you use the proceeds from your investments to bail you out. Right. That apparently went down really well in places like Miami, San Diego and Detroit. And people can sue you all they want but that doesn't mean they can take your house

The higher interest is a better tax write-off. This is the hilarious one. If that were true, then why not take a mortgage with a 99% interest rate so you can take advantage of the higher mortgage interest deduction? These guys are some real Einsteins.

The fact is that people like these folks really don't care about you or your situation, they want to do two things: Strip the equity out of your home via a refinance so they can make money on your mortgage (with a higher loan amount, by the way, so they can make even more money off of you) and make commissions on investments they make on your behalf. I know this is only my opinion, but such pitches -- and they are pitches -- (and I'll just bet their "loan officers" are trained to read a script), make me sick to my stomach. -- David

Read | Permalink | Email this | Linking Blogs | Comments

Book review: House Poor: Pumped Up Prices, Rising Rates, and Mortgages on Steroids: How to Survive the Coming Housing Crisis

Zac Bissonnette — 2008-04-28T09:00:00+00:00

Filed under: Real Estate

It's too early in the housing mess for there to be a full length book on what went wrong. But The Wall Street Journal's June Fletcher pinpointed many of the factors that would lead to the current mess in her 2005 book House Poor: Pumped Up Prices, Rising Rates, and Mortgages on Steroids: How to Survive the Coming Housing Crisis.

Ms. Fletcher discusses with prescience some of the disturbing trends that led to the current mess: lax lending practices, interest-only/pay-option/reverse amortization adjustable rate mortgages, home ownership costing far more than renting even with a big down payment, and speculative "investors" playing an increasing role in the nationwide run-up in housing prices.

As a description of an era, this is a great book. It falls short as an advice book however, because it was written as a word of caution during an irrational time. For instance, Ms. Fletcher advises readers to only invest in rental properties at prices where they'd be OK if the property is vacant 6 months per year. That's not realistic, and her advice that people should cancel credit cards is dangerous because it can lead to FICO score problems.

Still, it's worth reading because it essentially outlines all of the problems that led to disaster, and provides a great answer to the question "How did we get into this mess?"

Read | Permalink | Email this | Linking Blogs | Comments

Mortgage Confidential: Is Now the Time?

David Reed — 2008-04-27T18:00:00+00:00

Filed under: Real Estate, Mortgage Confidential

Mortgage expert David Reed invites Walletpop readers to ask him questions about real estate financing. leave your questions in the comment section of this post.

Q: What are your thoughts on the feds likelihood of dropping the interests rates again. I'd like to buy a home during this period of lower home prices, and relatively low interest rates. Trying to judge the housing market and interest rates to get them at there best levels is tricky. When do you think it will be the best time to jump in to get the most for my money. Thanks in advance, Steve

A: Steve- Fixed mortgage rates anticipate Fed moves and don't react to them. When the Fed makes a cut, mortgage rates view that move as an indicator of the future of the economy. When the Fed slashed the Fed Funds rate over a series of cuts, mortgage lenders saw that the Fed interpreted our economy as in dire, dire straits. Rates moved downward as a result. Wall Street is in general agreement that the next Fed cut will be a less draconian 1/4%.

But there are rumblings of an economy that's recovering. As well, inflationary fears are still being stoked. This is a double whammy for mortgage rates and in a bad way. First, mortgage lenders as well as the rest of Wall Street have already factored in a 1/4 point cut at their next meeting. Combine that with next week's barrage of sensitive economic data, most importantly payroll numbers, wage inflation, and the core price index and it's dicey at best. Finally, if you look back at all the Fed moves, mortgage rates are always higher after the last Fed cut. The trick is figuring out when that last Fed cut might be.

I agree with you, home prices are at relative lows as are interest rates, but the crystal ball simply isn't that clear to accurately predict the future. But a best guess is always in order. And my best guess would be to buy now. If rates go down even further sometime in the future, you can always refinance. But if they start to rise, you made a mistake you'll be paying for every month each time you write the mortgage check. -David

Real estate finance expert David Reed is president of CD REED Mortgage Bankers in Austin, TX and author of Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You and Mortgages 101: Quick Answers to over 250 Critical Questions About Your Home Loan.

Permalink | Email this | Linking Blogs | Comments