I guess I don’t have the mind of a criminal because I’m always fascinated by how people arrive at in-depth schemes to commit fraud or outrageous cons!! In my simple mind, I’ve often wondered what these particular people could actually accomplish should they have directed this energy towards some legal entrepreneurial endeavor instead of illegal behavior.  But, what do I know?  Well, I do know that our real estate market, mortgage markets and the economy in general has suffered due to unscrupulous schemes that continued unchecked.  Now even the innocent must suffer the after-effects with the pendulum swinging intensely to the opposite side and the appraisal process over-reacting, mortgage loans much more difficult to obtain and the real estate market stagnating.  I recently read this very interesting article on how real estate fraud happens from a RisMedia e-zine written by Howell Haunson, a Real Estate Lawyer: 

Do You Know the Red Flags of Mortgage Fraud?
By Howell Haunson

RISMEDIA, August 18, 2010–Mortgage fraud is not going away any time soon. The FBI has been working with bureaus of investigation in states that recently passed residential mortgage fraud acts to stay abreast of the latest fraud tactics.

The FBI has found that fraudsters are evolving new ways to take advantage of others and hide their intent. For this reason, anyone involved in the mortgage industry needs to be educated on the red flags of possible mortgage fraud, such as those outlined below:

Flipping vs. Serial Flipping                                                                                                                                                                    A fraudulent flip is one that erroneously increases the value of the property by using an inflated appraised value. If a property was purchased for $175,000 and soon thereafter was sold for $500,000, most professionals would notice. However, serial flipping is trickier. Say a house sold for $175,000, soon after sold for $250,000, then $325,000, then $400,000 and then $500,000. Fewer professionals would even raise an eyebrow. This scheme takes more time, but the end result is the same: fraud.

Multiple Contracts & HUD-1 Settlement Statements
In this scheme, unbeknownst to the seller, the contract and settlement statement that is sent to lender shows inflated sales price. This enables the buyer to obtain a higher mortgage. In the end, the seller believes the property was sold for $300,000, but lender, agent and buyer believe the sales price was $500,000 (the amount on which the agent’s commission is calculated).

Fraudulent Qualification Documents
In this scenario, the borrower’s ability to qualify for a loan is misrepresented by fabricated employment history, income, credit records, and bank statement balances. FBI calls this is an “emerging issue” and a result of sophisticated Photoshop and editing software.

Bogus Assignment Fees
Buyer #1 enters into an assignable contract with the seller at an inflated price. Buyer #1 locates Buyer #2 who may be a co-conspirator or a naïve investor. Buyer #2 takes an assignment of the contract at the inflated price and agrees to pay Buyer #1 an assignment fee. Inflated appraisal is used and Buyer #2’s application may contain misrepresentations.

Bogus Liens or Invoices
A buyer contracts with a seller at an inflated price. At closing, the difference between the true sales price and the inflated contract piece is paid to a bogus shell company of the buyer or individuals affiliated with the buyer.

Chunking
Chunking transactions are similar to flipping, but instead of multiple sales of the same property, it involves multiple loans to the same borrower. In this situation, a borrower purchases more properties than underwriting guidelines would allow or obtains multiple refinance loans secured by the same property.

Chunking usually begins with an unsophisticated borrower attending a “how to get rich quick” seminar. At or following the seminar, a third party contacts the unsuspecting borrower to encourage investment in a specific property with no money down. The third party acts as an agent for the borrower and simultaneously submits loan applications on the borrower’s behalf to multiple financial institutions for the various properties. The borrower may not be aware of this.

The third party acts as agent for the borrower during the closing, and often, unbeknownst to the borrower, pockets the loan proceeds. The “unsophisticated” borrower is left with numerous loans from various financial institutions and usually has insufficient cash flow to repay the debt.

Builder Bailouts
These bailouts often occur when a builder is highly motivated to move inventory that has been sitting in a declining or depressed market. According to the FBI, condominium conversions are particularly vulnerable to this type of fraud.

In a builder bailout, the builder may use a variety of ways to quickly dispose of the property. Some of the methods are:

•Aiding in fraudulent borrower qualification.
•Offering excessive incentives not disclosed to the buyer’s lender.
•Offering no down payment by inflating the sales price by the buyer’s down payment and forgiving the buyer of that amount.
•Inflating the sales prices and using bogus liens or invoices.

Straw Borrowers
This type of fraud intentionally disguises the true beneficiary of the loan proceeds.
It may be used to:

•Conceal questionable transactions;
•Replace a legitimate borrower who may not qualify for the mortgage or intend to occupy the property
•Circumvent applicable lending limit regulations by applying for and receiving credit on behalf of a third party who may not qualify or want to be contractually obligated for the debt. The straw borrower may be a friend or relative of the true beneficiary, or merely a paid participant.

Mortgage Elimination
Mortgage elimination is an attack on an existing mortgage through forced cancellations and unusual cancellations (usually called a “declaration of avoidance”).

Purchase Disguised as Refinance
In this scenario, the buyer executes a contract for purchase and convinces seller to quitclaim the title to buyer prior to closing. This is done with or without a security deed from buyer to seller and is done without the payment of the sales price to seller. At this point, the buyer then applies for a refinance of the property instead of a property purchase.

Reverse Mortgage Fraud
The FBI calls reverse mortgage fraud an emerging type of scheme that takes years to identify. In this scenario, fraudsters identify foreclosed, distressed or abandoned properties and use straw buyers to commit occupancy fraud. Seniors are recruited to purchase the property from the straw buyers without the exchange of money. After living in the property for 60 days, the seniors obtain a reverse mortgage. A fraudulently inflated appraisal is used as justification, possibly based on repairs or renovations that may not have been performed. At this point, a lump sum disbursement of the equity is requested, which the fraudsters abscond with at closing. Unfortunately, this type of fraud usually is not discovered until after the death of the borrower.

Short Sales
Many argue that residential mortgage fraud cannot be involved in a short sale transaction. The misstatement, misrepresentation or omission of fact to the seller’s existing lender would not be in the mortgage loan process. Nevertheless, mortgage fraud is often involved! Not against the seller’s lender (although other crimes may be involved), but usually against the buyer’s lender. Sellers, agents, buyers, and others involved in the process find a way for the buyer to pay some money to the seller for the purchase of personal property or as rent for the buyer taking possession prior to closing.

The issue is whether the buyer made a misstatement, misrepresentation or omission of fact in the mortgage loan process for the new loan being obtained. If the buyer is paying $2,000 to the seller for personal property or rent that expenditure would have to appear on the Loan Application Form or itemized on the HUD-1 Settlement Statement. Otherwise, the buyer is misstating assets. The lender believes the buyer has $2,000 more in liquid assets than the buyer actually has. If the buyer became committed to pay $2,000 for a car or furniture prior to closing, this would have to be disclosed to the lender. That requirement is not changed merely because the payment is to the seller. Even if the seller has not committed residential mortgage fraud against the existing lender by receiving the undisclosed funds, the existing lender could refuse to accept the negotiated payoff.

Howell Haunson, partner in charge of education at Morris|Hardwick|Schneider, has been practicing real estate law for more than 25 years.

I’m sure we’re all tired of hearing about “Short-Sales” (attempting to negotiate with the existing lender to accept less than is owed on the property) and “Foreclosures” (the bank has taken ownership of the property) and we’d like to escape the reality of this present real estate market.  However, short sales and foreclosures are heavily impacting values of Portland real estate (and across the country) and they surface in almost every real estate search at all price points! So, unfortunately we can’t ignore them. There is always some fact and some fiction that emanates from these unfortunate situations.  My personal experience with short sales is that the banks are getting more difficult with which to negotiate in the SS process and foreclosures are typically very competitive situations, but if your offer prevails…it’s an easy close!

This is one of the better articles I’ve read of late from a client, lawyer and real estate professional.  She now resides in Florida, the “eye of the storm” for short-sales and foreclosures, some might say!  So, if you think you might be interested in pursuing purchasing either a short-sale or foreclosure OR you might be considering attempting a short-sale, this would be a very interesting, timely and informative article.

Cheryl Reynolds Linck is Vice President of Business Development/Corporate Counsel at Illustrated Properties Real Estate, Inc. and Broker at South Shore Properties where she oversees the Distressed Properties Sales department.
Rumor vs. Reality

EDUCATING BUYERS OF DISTRESSED PROPERTIES
By Cheryl Reynolds Linck, JD, GRI, CRS

There is no doubt that buyers are coming back into the marketplace in Florida in light of lower interest rates, reduced prices, and a large inventory of distressed properties (bank-owned or pre-foreclosure short sales). But, these buyers often have unrealistic expectations about purchasing distressed properties. It’s imperative that buyers and agents educate themselves about the reality of these transactions and dispel the rumors that could undermine the deal and even jeopardize the buyer-agent relationship.

RUMOR: Buyers are attracted to short sales (pre-foreclosure) and bank-owned (REO) properties because they believe they can “steal” them.

REALITY: A buyer can indeed purchase a distressed property for a great price today, but there are often hidden costs in time and money that go along with it. Prior to submitting an offer for a distressed property, the buyer should be given a disclosure that outlines exactly what is involved to complete the transaction. In addition, the agent needs to search the tax records and discuss the seller’s situation with the listing agent of a short sale to determine chances for success. If the listing agent is not forthcoming or is not experienced in selling distressed properties; or if there are multiple liens on the property and just one lender or lien holder refuses to negotiate or can’t be found; or the seller is not cooperative or just disappears, the chances of the deal closing are slim to none. The buyer needs to be told that these are the risks of making an offer on a distressed property.

RUMOR: Buyers (and their agents) think that the lenders and lien holders who encumber the property are parties to a Contract for Sale and Purchase of a short sale property.

REALITY: Only the buyer and seller are parties to the contract. Approval of the contract and purchase price by ALL of the lenders and lien holders is a contingency to the contract because their agreement to reduce, remove, transfer and/or forgive their liens on the property or against the seller are necessary to close the transaction and transfer clear title to the buyer.

Most buyers are impatient and have a hard time waiting for approval of their contract from the lenders and lien holders, which can sometimes take months. To speed things up, buyers often ask their agents to negotiate directly with the lenders and lien holders, or the buyer even tries to contact them directly. The agent must make it clear to the buyer that only the seller and his/her representative has the authority to negotiate with the lenders and lien holders.

RUMOR: It’s a good idea to submit a low-ball offer to the seller of a short sale property just “to get the ball rolling.”

REALITY: Banks and their asset managers are starting to wise up to this practice by delaying or refusing to approve a contract when the offered purchase price is less than 85-90% of the current market value as determined by recent comparable sales and appraisals. Agents on both sides of the transaction should advise their clients the same as if the transaction didn’t involve a distressed property: The Contract of Sale and Purchase should be between a bona fide qualified buyer who offers close to market value and deposits sufficient monies to show good faith, and a seller willing and able to accept such an offer and transfer good title subject to approval (not acceptance) by the seller’s lenders and lien holders. Anything less is a waste of everyone’s time and sets up unrealistic expectations.

RUMOR: There is no need for the seller of a short sale property to sign a Contract for Sale and Purchase in order to submit it to the lender and lien holders for approval.

REALITY: In order for a Contract for Sale and Purchase to be enforceable in Florida, it must be in writing and signed by all parties. Submitting a contract that is unsigned by the seller to the lenders and lien holders is pointless as they have no authority to sign the contract on behalf of the seller without the seller’s consent, and most lenders and lien holders won’t even look at an unsigned contract.

RUMOR: No earnest money deposit is required with an offer to purchase a property, and in a short sale, it’s OK for the deposit to be due after lender and lien holder approval.

REALITY: The buyer should deposit a sum substantial enough to prevent him/her from walking away from the contract, especially in a short sale situation where it could be months before the contract is approved. Collecting a deposit from the buyer is sound business practice in order to bind the buyer to the promises made in the Contract for Sale and Purchase, impress the seller, lender and lien holders that the offer is genuine and made in good faith and increase the chances of the agent earning a commission.

RUMOR: The seller is obligated to give the buyer of a primary Contract for Sale and Purchase (first buyer) notice and opportunity to renegotiate when a back-up contract is signed by the seller for a higher price.

REALITY: If there is no language in the primary contract that obligates the seller to give the first buyer an opportunity to negotiate better terms when a back-up contract is signed by the seller, then the seller can sign back-up contracts with other buyers and submit them all to the lenders and lien holders for approval without the first buyer knowing about it. This can cause a lot of problems with buyers so make sure the buyer will be notified if the seller signs a back-up contract. The IPRE Addendum gives the buyer the right to be notified in the event the seller signs a back-up contract for a higher price.

RUMOR: Buyers can make offers on multiple properties and cancel the ones they decide not to buy or are taking too long for approval.

REALITY: Buyers with substantial means can sign contracts to buy as many properties as they are willing and able to fund and close. Buyers can only cancel contracts when a contingency stated in the contract is not satisfied within the time period allowed. When an agent writes a contract, the time allowed for lender and lien holder approval should be no longer than the amount of time the buyer is willing to have their deposit tied up. This may conflict with the seller’s position to allow as much time for approval as possible.

RUMOR: Buyers should wait until after ALL lenders and lien holders have approved the contract before doing inspections or obtaining financing so they don’t incur any unnecessary expenses.

REALITY: While it seems reasonable from the buyer’s perspective to delay an inspection and applying for a mortgage, sellers who have good representation and lenders and lien holders who have their act together seldom approve a contract with contingencies that remain unsatisfied after lender and lien holder approval. When a buyer has the right to cancel a contract after lender and lien holder approval and actually does so, the seller has lost precious months to sell the property and avoid foreclosure. Plus, the lenders, lien holders and seller suffer from the probability that the value of the property has depreciated further during the time the buyer tied up the property. Lastly, many lenders are now charging the buyer a per diem charge until closing, which is an added expense to the buyer.

RUMOR: Bank owned properties (REO’s) are much easier to close than short sales transactions.

REALITY: Since the bank is actually the seller, it’s easier to negotiate a Contract for Sale and Purchase with the bank or its asset manager since market value has already been determined by an appraisal or broker’s price opinion. But, buyers of REO’s should be advised that they should make their very best offer up front as there are often multiple bids on these properties. Buyers should also obtain legal representation as agents are not licensed to 1) review and interpret the many documents that the bank/asset manager requires the buyer to sign, 2) require the asset manager to prove through a Power of Attorney that it has the right to sell the property for the title owner bank, or 3) give an opinion regarding possible title defects excepted in the title policy prior to closing.

RUMOR: Once the seller of a short sale signs a Contract for Sale and Purchase, and the buyer satisfies all contingencies, all the buyer has to do is wait for approval from the lenders and lien holders to close.

REALITY: The buyer needs to understand that the closing of a short sale is a moving target and the outcome is uncertain. The seller may decide to modify his/her loan and the deal will die from lack of lender and lien holder approval. If one or more lenders or lien holders doesn’t approve the contract, it may not close unless the buyer contributes additional money. A back-up contract may be signed by the seller and approved by the lender and lien holders without the buyer’s knowledge. The buyer may need to pay for utilities to be turned back on to preserve the property. If the contract price and lender’s appraisal or BPO are miles apart, the buyer may have to hire an appraiser to show that the contract price is appropriate. Sometimes the seller strips the property of fixtures, cabinets, and anything else of value or won’t move out. (Hint: the buyer should take photos of the interior and exterior of the property at time of contract to get the benefit of his/her bargain at closing.)

In conclusion, since sales of distressed properties are the “new normal,” every agent working with buyers of these properties should educate themselves and their buyers about the realities of completing these transactions. When it comes time to make an offer, the key to success is determining in advance the probable outcome of that specific transaction based on the agent’s research, and then disclosing it to the buyer so an informed decision whether or not to proceed can be made. Buyers will appreciate an agent who is thorough, keeps them informed at all times and discloses the reality of the situation up front. Then, if the deal doesn’t close, those buyers will remain loyal to that agent and another property can be found.

I am happy to report that I have no sordid tales of murder or general mayhem visited on any IKEA employees or patrons but you may have heard some loud “wailing and gnashing of teeth” at the end of last week as my partner and I continued our quest to finish yet another duplex remodel.  The kitchens had been completed “gutted”  and one side of the duplex has (after enlisting the help of my partner’s 20-year old son) a brand new kitchen.

kitchen #1 almost complete in N Mississippi area duplex remodel

this goes where?

new duplex kitchen starts as a million puzzle pieces

So, after visiting IKEA and ordering our 2nd kitchen (this should be easy right???  We’ve already completed one?).  We quickly have our helper work his magic and somehow unravel the amazing number of parts and once again construct cabinets out of the rubble.  Anyway, as the myriad of tiny parts became recognizable shapes, we realized that for some reason this particular configuration did not fit the 2nd kitchen.  HELP!!!

It’s these type set-backs that “try mens’/womens’ souls”.  But, what are you going to do?  On our last summer’s duplex remodel, it was a “tagging” that set us back.  So, we proceeded to deconstruct the kitchen, box it up and head back to IKEA.  I have to say the helpful kitchen designers were very patient and assured us they had no knowledge of anyone ever dying (or killing each other) while trying to put together an IKEA kitchen.  I do believe we will eventually have that 2nd kitchen….really, I do!  Our goal is to have the first unit ready to show by the end of this week (I believe I said that a week ago??).  Oh well, at least there’s progress!!! 

Major FHA mortgage loan changes that were slated to go into effect on 09/07/2010 are now delayed till 10/04/2010.  Sighhhhhhhhh!  It’s definitely hard to keep up with the mortgage industry these days with almost daily modifications, corrections and reformations being launched.  Some good, some bad in my humble opinion.

What is an FHA loan?  FHA stand for Federal Housing Administration and is a federal agency in the Department of Housing and Urban Development.  FHA has been in existence since 1934, however FHA does not actually lend money.  They simply insure 100% of a loan amount that a lender funds, assuming the the loan conforms to FHA guidelines.

• FHA offers low down payments
• FHA offers loan programs to purchase and refinance
• FHA allows all of your down payment to be a gift from a family member, relative or non-profit organization
• FHA allows up to 6% of your closing costs to be paid by a home seller
• FHA does not require credit scores which are mandatory for Fannie Mae conventional loans
• FHA will lend on most property types, such as single family, duplex, triplex or fourplex

Effective October 4rth, the new maximum loan-to-value’s allowed for FHA financing are:

• 96.50% – new purchase
• 97.75% – refinance, no cash out
• 85.00% – refinance, cash out
• 125% – Streamline FHA to FHA refinances
• 115% – new program to refi upside-down clients

HUD also released the following statement:  “It is our intention that effective on September 7, 2010, FHA’s upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortization terms greater than 15 years”. (The FHA can go as high as 1.5%, basically tripling it if they wish, from 0.55 currently).

Assume a $150,000 home purchase:

BEFORE September 7, 2010

Upfront premium (2.25%):  $3,256.88

Monthly payment including mortgage insurance:  $793.93

ON OR AFTER September 7, 2010

Upfront premium (1.00%):  $1,447.50

Monthly payment including mortgage insurance:  $826.93

NET CHANGES

Upfront cost:  Decreased by $1,809.38

Monthly cost:  Increased by $33.00

Streamline refinances are a great option (no appraisal) for those with current FHA loans at 5% or more.

AUGUST 2010 PORTLAND METRO REAL ESTATE UPDATE!

Well, it was a late summer to arrive but it’s definitely here!!!  August can traditionally be a slow real estate month in the Portland Metro market due to last minute summer vacations while the weather holds and prior to school starting!  However, the slowdown started earlier than usual this year and our market activity has been trending down.  When comparing sales activity in the Portland metro area in July 2010 to the same time last year, July 2009, closed sales declined 29%.  Pending sales also decreased 24.9% and new listings rose 3.1%.  Our average total market time has decreased from an average of 143 days on market in July ’09 to 121 DOM July ’10.  I believe that part of what is influencing DOM is that some sellers are finally seeing that this IS the new market and the new normal and getting their properties priced aggressively!  To date in 2010, according to the Realtor’s Multiple Listing Site, there have been 30,051 new listings, 12,733 pending sales and only 11,717 sales that actually closed.  It doesn’t take a math wizard to analyze these numbers.  We are currently back up to 10.8 months of available inventory (we started the year at 12.6 months, dropped to 7 months in May…probably mostly due to the tax credits).  It doesn’t matter what business you’re in, supply affects demand and demand affects pricing!!

Now, let’s talk about short-sales (attempting to negotiate with the bank to accept less than what is owed on the property) and foreclosures (already bank-owned properties).  In “short”… my most recent experience with short-sales is that many banks are not being cooperative.  They have always been and continue to be very time-consuming.  But, now it seems harder to get the SS negotiated and closed.  I have experienced ridiculous BPO’s (Broker Price Opinions) that have squelched deals and/or banks demanding that strapped sellers bring money to the table.  However, bank-owned homes where the lender has foreclosed and wants that real estate “off the books” tends to be a better buy and in my experience, an easier closing!  SS’s and foreclosures have definitely impacted the value and pricing of homes.  Unfortunately, none of us are immune to the ramifications simply because we don’t fall into either category. 

So, what does this mean to sellers?  It means you can’t price your home based on what you have invested in improvements.  It means you can’t price your home based on how much you need to get out of the sale.  It means you can’t price your home for what your neighbor’s sold (unless it just sold).  It means you can price your home to undercut the competition.  It means you can price your home to entice the reluctant buyer to take a chance.  Remember, there is a smaller pool of willing buyers (willing to venture out in a challenged market) and able buyers (able to secure necessary financing).  So, you must be at the top of your game.  If your home needs staging, do your best to get the proper advice.  If you home needs “reconstructive surgery”, do your best to price to reflect the work needed.  If your home is on the market and not getting shown, you are most likely overpriced.  If your home is on the market and getting lots of showings and no offers, you are most likely overpriced!!  The biggest challenge to homes that ARE priced correctly is that potential buyers must often sell another home in order to complete a transaction.  So, I’m seeing contingent offers (contingent upon the sell of another property), which sets up a whole other set of challenges!!  Contingent offers, of course, don’t affect homes that could meet the first-time buyer price point.

So, what does this mean to buyers?  It means you must get your finances in order.  It means you must get a pre-approval from the lender of your choice.  It means you must try not to get overwhelmed.  It means you must try not be too overly analytical (and I understand how hard this is).  It means you have historically low interest rates and interest rates often trump price!  It means you have lots of inventory from which to choose and choice is a good thing!  The challenge here is to use the present market conditions to your advantage without getting greedy and losing what you want (balance).  I’ve always believed a successful real estate transaction is when you get what you want!

So, what does this mean to the current property owner?  I guess we all just have to “breathe”!  Real estate is a long-term investment and one that can afford financial gain, tax advantages as well as personal satisfaction.  I, personally, appreciate having investment real estate to round out a financial portfolio.  It is work and not for everyone but offers financial rewards. 

Basically, this is “survival real estate”!  As someone recently stated:  “it takes a village to sell a house”.  Trust in your professional team of advisors is a must.  We are all in this together!  Sellers must embrace reality, buyers must “step up to the plate”, Real Estate Brokers must do what the situation demands, Mortgage Brokers must struggle with daily changes to their industry, Title & Escrow companies must “bite the bullet” and other subsidiary service industries must “feel the pinch”.  So, don’t feel alone in your struggle.  I’ve seen multiple markets “come and go” over my 25 years tenure and “this too will pass”!

Okay, so they definitely have the cutest kitchens at reasonable prices at IKEA.  However, I had no idea what a kitchen might look like in boxes.  I met with a great designer at IKEA and she helped me design and decide what elements to order.  My partner picked up the MULTIPLE boxes and brought them to the duplex and I/we experienced a “little moment of Hell”.  You know, that Christmas Eve after dinner and wine and the children have gone to bed?  And, you get out those boxes to put together “Santa’s gifts”???  Yeah, it was just like that!!  Luckily, my partner has an available 20-year old son who rode in with a red cape and “saved the day”.  Somehow he was able to walk into the duplex and look at all those incredible number of pieces and make sense out of the “fray”.  It’s a jig-saw puzzle!  This goes with this…like that, etc!!  It’s something you see…or you don’t.  However, from that disarray it is actually starting to look like a kitchen! 

Pieces of a "jigsaw puzzle", the kitchen is pieces "before"

new tub surround in bath

the kitchen is now almost complete!

The bathroom has a new, sparkling surround over the original cast-iron tub and just needs a new vanity and toilet and a splash of paint.  We are hoping to start advertising for renters by the end of the week!

Altos Research indicates that we are dealing with a “bear real estate market” since the end of the home-buyer tax credits.  Of course, all they would have had to do is ask existing home-sellers or real estate agents to confirm this information!  Buyers are out there but are waiting for “bargains only” and sellers must acknowledge this reality.  Raw inventory in Altos’ 20-city composite, which includes the same 20 cities in the Case-Shiller Home Price Index, was rising past 575,000 units at the end of July — a figure not seen since January 2009 (when inventory was at a high of 19.2 months of homes, we are now at 7.3 months of inventory). At the same time, median home prices peaked under $380,000 and were down to about $369,000 at the end of last month.  At the end of July, 38 percent of homes in the 20-city composite had seen their prices reduced, indicating what Scott Sambucci, Altos Vice-President of Data Analytics, called a “moderately weak” market.  Sambucci called the interaction between prices and inventory the “supply effect.”  “More supply means lower prices. With the initial stimulus, sellers started to see higher demand, and less of a need to drop prices, but (now there is a higher share of price reductions) in consequence of higher inventory counts,” he said.  This is going to be a long, steep, up-hill climb, I say!  We have a “new normal“.  However, this is more normal than the frenzy of 2005-07.  The market “is what it is”….”love it or leave it”!!!

The top 10 metro areas with the highest share of price-reduced listings (percentage of discounted listings; median discount among 26 study markets):

1. Jacksonville: 54 percent share of price-reduced listings; $19,000 median discount

2. Phoenix: 52.7 percent; $16,000

3. Minneapolis-St. Paul: 51.1 percent; $17,000

4. Orlando: 50.7 percent; $20,100

5. Austin: 50.3 percent; $13,000

6. Chicago: 50.2 percent; $20,000

7. Tucson: 49.1 percent; $16,760

8. Salt Lake City: 48.8 percent; $15,000

9. Baltimore: 48.7 percent; $18,000

10. Seattle: 47.6 percent; $23,900

The top 10 metro areas with the lowest share of price-reduced listings

1. Denver: 32.5 percent; $13,100

2. Los Angeles: 39.4 percent; $28,764

3. San Francisco: 40.9 percent; $38,000

4. Miami-Ft. Lauderdale-Palm Beach: 41.2 percent; $27,100

5. Richmond, Va.: 43 percent; $12,050

6. San Diego: 43.4 percent; $31,000

7. Las Vegas: 44 percent; $15,000

8. Norfolk-Virginia Beach: 44 percent; $15,000

9. Houston: 44.3 percent; $10,000

10. Charlotte: 44.4 percent; $13,000

(Source: ZipRealty)

The new 2,000-page financial reform bill has now been signed into law.  What does this mean to the average consumer?  I think only time will tell.  Something has to be done but I wonder if anyone actually truly understands the ramifications?  But, here are some of the immediate changes to personal finances:

1. FDIC insurance increase. The law makes the increase in the FDIC insurance limit to $250,000 permanent. The Dodd-Frank Act also provides unlimited FDIC insurance for noninterest-bearing transaction accounts in all banks effective on Dec. 31, 2010, and continuing through Dec. 31, 2012.
2. New consumer watchdog. The new Consumer Financial Protection Bureau (CFPB) will supersede all current regulatory authority for banks with assets over $10 billion, primarily for businesses that engage in mortgage origination, payday lending, debt collection, student lending and credit cards. Pinnacle will continue to be overseen by its current regulators.
3. More mortgage protections. The law requires lenders to verify borrowers’ income and assets. Interim home-appraisal rules will ensure appraiser independence.
4. Free credit score. Everyone is entitled to one free credit report a year from each of the three big credit bureaus, but now consumers also can see their credit score for free if it negatively affects them in a financial transaction or hiring decision.
5. Minimum/maximum credit charges. Merchants will be allowed to insist on a minimum purchase for any payment by credit card. Colleges and federal agencies will be allowed to set maximums for credit-card charges.

Diversify, diversify, diversify!!  It’s always been the “battle cry” of financial planners.  “Don’t put all your eggs in one basket”, my mother used to say.  I was always a little confused as we didn’t have any chickens nor did we grocery shop with baskets?  Nonetheless, with the wild ride the stock market is taking I’m very happy that not all my “eggs” are in my mutual funds and stock portfolio!  My investment real estate feels very good to me.  I can drive by, touch it, weed the flower beds.  And while someone else pays off my mortgage, I can reap the benefits of an immediate cash flow and tax write-offs!  Those are all good reasons to purchase an investment.  But, okay, so being a landlord is not your thing!??  Have you considered a vacation or 2nd home?  If you can afford the two payments, you might at least get some enjoyment out of your money.  Interest rates continue to hover at all-time lows (I just got a 30-yr fixed rate on my investment duplex mortgage at 5.125%.  Rates are even lower for owner-occupied).  Simply amazing!  Market conditions make it particularly attractive to be a buyer (as long as you do your homework).  Now the mortgage process may make you temporarily crazy, but if you have a good down-payment and good credit you can reap the benefits of  the declined property prices and low interest rates!

The “Oregon Legal Journal” just recently published two articles (July 29, 2010) regarding “Home Buying Applications Sink to 13-Year Low” and “Portland Rental Market Thriving as Home Prices Continue to Decline”.  This points to an obvious need for available properties to rent.  Just sayin….that I believe in diversity!

I’m thinking I will start passing out t-shirts to all my clients that have bought or sold houses in 2010 or attempted loan modifications or short-sales or had to succumb to foreclosure:  “I Survived Real Estate 2010″!!  Welcome to the “New Normal” of real estate.  “Survival Real Estate” impacts buyers, sellers, homeowners in general, Real Estate Brokers, Mortgage Brokers as well as title and escrow companies.  We all have to compromise and partner for success. 

Sellers face a challenging market to sell with a smaller pool of buyers looking for extremely competitively priced properties.  Don’t go into “denial” on this front.  If you’re not “price to sell“, you will simply be “listed” not “sold”!  Buyers face a tightened mortgage market demanding higher credit scores and more compliance restrictions. 

Don’t despair!  there are well-priced properties and there are well-qualified purchasers.  How do we “connect the dots”?  Sellers have to look at recent solds and “read the writing on the wall” with the house staged to highlight its maximum potential and priced to REALLY reflect the market condtions and the property condition and location.  The buyers must get a mortgage pre-approval and not make any “sudden $$$ moves” during the mortgage underwriting process.

The entire process takes a new level of self-reflection, honesty, commitment, focus, patience and a little faith.