Nancy Moeller's Blog

A report issued by LPS on Monday and reported by DS News today, reports that as of the end of February, foreclosure inventory levels were more than 30 times the monthly foreclosure sales volume. In other words, we have over 2.5 years of foreclosure inventory to come through our market.

Ultimately, these foreclosures will most likely reenter the market as REO properties, LPS notes, putting even more downward pressure on U.S. home values.

LPS reports that the total U.S. loan delinquency rate stood at 8.8 percent as of the end of February.  By the company's calculations, there are a total of 6,856,000 mortgages in the United States that are considered non-current.

For people that think they are alone, think again. Your neighbors, friends, co-working and our team included ... we're all going through it together. The key is to review your options with a team of professionals.

The counseling team with Re-Create The Dream consists of a bank negotiator and CPA available by appointment to review all possible options and help homeowners execute a strategy that leads them closer to their long term equity and investment goals. The one-hour consultation is free of charge. To schedule your appointment, contact Nancy Moeller at 714 276-7006.

We talk to people everyday who have lost the equity on their home. We believe many of the reasons people continue to struggle instead of opting for a chance to rebuild their dream are based in some common myths. Now I realize you may not agree with our perspective, and that's okay. It's just our opinion.

1. Myth:     My loss is only on paper.

Fact:      Negative equity is REAL. You are weighed down by a debt that may take 15 - 20 years to recoup. Your mortgage payments may be double that of your neighbor for 30 more years.

2. Myth:     I have a moral obligation to repay my entire loan.

Fact:    You entered into a business arrangement with your lender. You have already lost 100% of your investment - your down payment. A lender charges interest because they know their investment is at risk. You have paid that interest. A short sale is there to protect you and allow you to get a fresh start. A short sale legally allows you to share the loss with your business partner - the lender. 

3.  Myth:     The most important thing is to save my house.  

Fact:    The most important thing is to save your family's financial future. Your home is wherever you build it. The happiest home is one you can afford, without burden.

4.  Myth:     If a loan modification does not work for me, I should just let the bank take it.

Fact:    A foreclosure is the worst solution. You may have to pay taxes. You may still have the lender come after you for their loss. You may not be able to lease a new home or get a new job. No matter what - allow us to help you with a better solution.

5.  Myth:     People will think less of me.

Fact:    No way. So many people, including ourselves, are in the same boat. The economy is tough and a growing majority of homeowners are faced with mortgages they can't afford and are drowning in debt. The fact is that people will think MORE of you when you make a short term sacrifice that allows you to rebuild your dream in just a few years.

Fast forward two or three years ...

You could either owe more than your home is worth, barely making the payments OR

            You could be shopping for a new house at half the price with comfortable payments.

Please contact me to privately discuss your situation:

Nancy Moeller, CPA, Real Estate Broker Associate, DRE #01727426

714 276-7006

According to the Santa Ana-based property research firm CoreLogic, 31.8 percent of California homeowners with a loan are "under water" or "upside down."

CoreLogic chief economist Mark Fleming says, "Negative equity holds millions of borrowers captive in their homes, unable to move or sell their properties.  Until the high level of negative equity begins to recede, the housing and mortgage finance markets will remain very sluggish."

The fact is that homeowners do have options to sell and extinguish their negative equity. A successful short sale can extinguish the negative equity and allow a homeowner to buy again in as few as 24 months.

In Warren Buffett's annual letter to the shareholders of Berkshire Hathaway, Buffett says, "A housing recovery will probably begin within a year or so. In any event, it is certain to occur at some point."

Certainly a safe statement as a recovery is inevitable.

Analysis by leading industry experts, taking shadow inventory and resetting loans into consideration, would suggest a recovery is 2 - 4 years away. However, when we factor low interest rates into the overall equation of affordability, Mr. Buffett's analysis seems more on the mark.

A one percent increase in interest rates is nearly equivalent to a 10% increase in prices when looking at mortgage payments and affordability of homeownership.

To discuss how market projections impact your housing goals, contact us at 714 276-7006 for a complimentary consultation.

Nancy Moeller, CPA, Real Estate Broker

Seven Gables Real Estate

License #01727426

Direct: 714 276-7006

As reported in DS News, a hearing was held today to determine the fate of four federal foreclosure mitigation programs, including HAMP and HUD's Neighborhood Stabilization Program.

The hearing, titled "Legislative Proposals to End Taxpayer Funding for Ineffective Foreclosure Mitigation Programs," had witnesses from several government agencies.

"We need to break down barriers that have delayed the housing recovery, including expensive and ineffective government programs that have failed to help homeowners. Unfortunately, these programs were set up in haste, executed poorly, and have done little to restore stability in the marketplace," said the Subcommittee Chairman Judy Biggert.

The Department of Treasury released reports on Wednesday highlighting the more than 500,000 permanent modifications completed under HAMP. Those in favor of the program's termination are quick to point out that number is significantly lower than the 3 or 4 million homeowners the program was projected to help.

During the hearing it was pointed out that HAMP has spent approximately $840 million to date.

In defense of the program, David Stevens said, "The FHA Short Refinance Option and the Emergency Homeowners Loan Program, in conjunction with HAMP and other modification efforts, are responsible efforts that have the potential to further stabilize the housing market and keep homeowners out of foreclosure."

Despite arguments in favor of continuing the programs, the house subcommittee did not seem convinced that the programs are up to par. The full Financial Services Committee will hear the arguments on Thursday, March 3.

"In an era of record-breaking deficits, it's time to pull the plug on these programs that are actually doing more harm than good for struggling homeowners," said Committee Chairman Spencer Bachus. "These programs may have been well-intentioned but they're not working and, in reality, are making things worse.

The counseling team with Re-Create The Dream consists of a bank negotiator and CPA available by appointment to review all possible options and help homeowners execute a strategy that leads them closer to their long term equity and investment goals. The one-hour consultation is free of charge. To schedule your appointment, contact Nancy Moeller at 714 276-7006.

According to a study by the senior research economist at the Federal Reserve Bank of Cleveland last week, homeownership is more sustainable for people with larger down payments.

Really? We had to pay for a study to learn this? A homeowner who puts 3.5% down has 16.5% less equity than a homeowner who put 20% down. Of course, they are more likely to default!

The study goes on to reveal that homeowners who supply down payments start out with equity.

Really? Wow.

Also, we learned that subsidizing the mortgage rate is not very beneficial either.

While this is also not a surprise, it does highlight an important point. If the homeowner falls on hard times, a slightly lower interest rate will NOT usually make the home affordable enough to keep.

It would seem the point of the study was to determine which was more effective, down payment assistance or interest rate subsidies. The winner of course was down payment assistance.

Call me old-fashioned, but what about renting until you save a down payment? What about evaluating the total cost of homeownership  to make sure you can afford to own a home?

I think people forget that there is nothing wrong with renting a house. You don't have to own a house to make it your home. In fact, homeowners who are upside down do not really own their home either. Homeownership requires equity. What many homeowners "own" today is debt.

Call it tough love, but sometimes its better to recreate a dream than to save yesterday's dream. When we faced tough times, we had to sell our dream home. We rented for several years before recreating our dream and buying another one. It's not easy. It's an emotional decision.

Today's homeowners did not anticipate the recession or crisis when they bought their home or refinanced it several years ago. Tough times happen. This purchase turned into something resembling a new car purchase. I bet all of us found ourselves buried in negative equity after a new car purchase and wished we would have leased instead!

The important thing to remember is that you have choices. There are programs and strategies available to allow homeowners to either save their dream or recreate their dream, depending on their individual situation and goals.

The counseling team with Re-Create The Dream consists of a bank negotiator and CPA available by appointment to review all possible options and help homeowners execute a strategy that leads them closer to their long-term equity and investment goals. The one-hour consultation is free of charge. For homeowners who are candidates for a loan modification, the bank negotiator will also handle the modification free of charge.

To schedule your appointment, contact Nancy Moeller at 714 276-7006.

The trouble with most loan modification companies is not their fees. In fact, since October 11, 2010 it has been illegal for any company or attorney to charge up-front fees for loan modifications. As such, fees are only charged when a result is achieved.

The problem with most modification companies is that they do not ask the more important question ... Is a loan modification RIGHT for this person or family?  Can the homeowners afford the new, modified payment? How long will it take for the homeowners to recoup their lost equity? Does it make sense to hold on this an asset that is underwater and may cost twice as much as comparable rents? Sometimes, the simplest question is - Would I pay $500,000 for this house today, knowing it's only worth $325,000 even if the interest rate was better?

The answer to these questions may lead the homeowner back to a successful loan modification. Of every 10 people with consult with, we find the following:

• 1 of 10 are good candidates for a loan modification and we help them get one
• 2 of 10 pursue a loan modification because they are emotionally attached to their home or feel the sense of "ownership" even though there is no equity in the property.
• 6 of 10 pursue a short sale because of the tax incentives, liability release options and credit benefits over a foreclosure, plus they may be able to buy in a few as 24 months.
• 1 of 10 are paralyzed, cancel our appointment, do nothing and allow their home to go to foreclosure. Don't let this happen to your family or friends.

When facing any real estate decision, you need a team of professionals. When facing negative equity, you need the advice of an experienced bank negotiator, real estate broker and CPA. For legal questions, you should consult a real estate and/or bankruptcy attorney.

Nancy Moeller, CPA, Real Estate Broker

License #01727426

www.RecreateTheDream.com

www.TheOCExperts.com

Direct: 714 276-7006

The counseling team with Re-Create The Dream consists of a bank negotiator, real estate broker and CPA available by appointment to review all possible work out options and help homeowners execute a strategy that leads them back to their dream of homeownership with equity. The one-hour consultation is free of charge. For homeowners who are candidates for a loan modification, the bank negotiator will also handle the modification free of charge.

To schedule your appointment, contact Nancy Moeller at 714 276-7006.

Okay, let's face it ... with the treat of the shadow inventory of homes hitting the market and experts stating that we may have a few more years of value declines, why is NOW a good time to buy real estate?

The biggest reason to buy now is the uncertainty of interest rates. Right now they are low. Experts expect them to go up in a few years. If interest rates go up just 2%, that's the equivalent of a 20% change in purchasing power. In other words, if you can afford a $500,000 mortgage today at 4.5%, you will only be able to afford a $400,000 mortgage at 6.5%.

          $500,000 Mortgage @ 4.5% = $2,533.

          $400,000 Mortgage @ 6.5% = $2,528.

And if that's not enough, here are six other good reasons to buy now:

1.      You can get a very, very good deal.

2.      There is a good supply of inventory to choose from.

3.      You will save on your income taxes.

4.      It provides protection from inflation.

5.      You will have forced monthly savings in the form of principal pay down.

6.      After this crisis, real estate will appreciate again.

It's time to start shopping ...

In this market, many equity sellers do not want to compete against the banks and short sale sellers who price their properties aggressively under market to secure a fast sale. Instead of selling their home to buy a home one, they decide to rent out their current home.

 Let's say a married couple purchased their home in 1995 for $300,000. Today's it's worth $500,000. Should they meet the tests, they may be eligible to exclude the entire $200,000 gain from their income. One requirement is that the house must be their primary residence for 2 of the last 5 years. By converting a primary residence into investment property for three years, this test is not met and the entire gain at the time of a subsequent sale will be subject to capital gains tax. Ouch!

The complete rules can be found at http://www.irs.gov/publications/p523/ar02.html

Further to this issue is the expectation that prices may continue to decline for the next three years as we work through the shadow inventory of distressed properties. In other words, homeowners thinking they can rent their home for a few years, will likely be in a worse position and forced to either sell for less than today's value or move back into their previous home. 

As such, homeowners sitting on a capital gain on their primary residence should consider the strategy of selling their main residence, excluding their gain, buying a new house at historically low interest rates and buying a different investment property for long term growth.

The counseling team with Re-Create The Dream consists of a bank negotiator and CPA available by appointment to review all possible options and help homeowners execute a strategy that leads them closer to their long term equity and investment goals. The one-hour consultation is free of charge. For homeowners who are candidates for a loan modification, the bank negotiator will also handle the modification free of charge.

To schedule your appointment, contact Nancy Moeller at 714 276-7006.

According to DS News today, three congressmen have proposed a bill to end the Home Affordable Modification  Program (HAMP) program. One of the congressmen, Darrell Issa is the chairman of the Oversight and Government Reform Committee. Rep. Jim Jordan says, "HAMP is a colossal failure. In many cases, it has hurt the very people it promised to help. It's one more example of why government interference in the private sector doesn't work and that's why it should be repealed."

Neil Barofsky, the special inspector general of TARP, recently released a report to Congress saying that the program "continues to fall dramatically short of any meaningful standard of success," calling the half million plus number of permanent modifications "anemic".

Rep. Patrick McHenry who cahirs the Oversight subcommittee on TARP says "The number of homeowners kicked out of HAMP - and arguably left worse off by participating in the program- exceeds the number actually helped by hundreds of thousands," he said. "Because the administration won't listen to bipartisan calls to fix this program, the only option left is to end it."  

The counseling team with Re-Create The Dream consists of a bank negotiator and CPA available by appointment to review all possible work out options and help homeowners execute a strategy that leads them back to their dream of homeownership with equity. The one-hour consultation is free of charge. For homeowners who are candidates for a loan modification, the bank negotiator will also handle the modification free of charge.

To schedule your appointment, contact Nancy Moeller at 714 276-7006.