While it seems that you profit when you ultimately sell your home, the real work in profiting from home ownership comes from choosing wisely. The area, size, features, quality and more all play major roles on the future ability of a home to appreciate in value. Once you own, aside from proper care and maintenance [...]
Whether you’re looking for a home in Roseville or a home in Elk Grove, schools are important. But how do you really evaluate schools? Here are some suggestions to get you started.
Demonstrating a home buyers financial strength to a prospective sellers will make that buyer more desirable. Sellers want to accept the best offer from the strongest buyer. In any home buyer’s search for home, the smartest strategy to negotiate the best terms is to prepare to demonstrate financial strength and loan stability. This will help [...]
There is no disputing the price and convenience advantages of the big chain businesses in America. From Walmart to Safeway to Wells Fargo to Amazon. But is their success based entirely on their value proposition or has their might created policy advantages that have unfairly facilitated their dominance? And perhaps more importantly, is their dominance better in total for the sustainability, success and happiness of our society?
Arguing the virtues of capitalism is one breath then ‘too big to fail’ in the next makes for inconsistent and dangerous government policy. Failure is intended in capitalism to thin the heard of its weaker, less productive members. Further to sustain the weak and reward poor corporate conduct at the expense of the people is some strange form of corporate socialism. How is this sensible? Perhaps it’s time to re-evaluate the policy decisions made in Washington that create unfair advantages for the largest corporations with money, power and influence. The ties between Washington and Wall St. are incestuous at best and yet we seem powerless to do much more than complain.
The Boston Tea Party in 1773, a famous demonstration of early American independence, was really a demonstration against an unfair tax policy by the British Government favoring one of the worlds largest corporations of the day, the East India Company. Our current circumstances may not really be all that new… they are just new for us.
In this video, Stacy Mitchell of the Institute for Local Self-Reliance (ILSR), a national nonprofit organization that challenges corporate consolidation of the economy and champions policies to nurture community-scaled enterprise, provides a bit of history and shares some insight on American policy and dangerous reliance on the overly large corporations with whom we choose to spend our money.
Short sales have been around for a while and are becoming part of the normal language used by regular folk. And while it shouldn’t oughta be that way, it is. So in a new video series from SurvivingTheAmericanDream on youtube I work on laying out the common terms, process, issues and obstacles faced by the underwater owner. So, for anyone worried about the home, their future and foreclosure… this will be a good sources of knowledge and insight.
CBS 60 Minutes interviews the bank examiner assigned by the bankruptcy court to report on the worlds largest bankruptcy. The failing of Lehmann Brothers was larger than the bankruptcy’s of Enron, Worldcom, General Motors and Washington Mutual combined and, according to many in financial circles, nearly brought down the global economy on its own. The 2200 page report concluded there was enough evidence to bring a case against Lehman officials and their accounting firm Ernst & Young.
When a former Lehman executive (who raised questions of improper practices to senior management and was subsequently “Downsized) was asked “Do you believe the balance sheets of big Walls St. firms?” his response was simply…
The numbers are so big and the financial instruments are so complex, nobody stands a chance of understanding them.
Apparently not, as SEC oversight worked routinely at Lehman’s offices during the years leading up to the 2008 collapse off the world’s 4th largest investment bank.
What does this have to do with Sacramento Real Estate? Investment banks like Lehman Brothers were selling bad mortgage debt to investors around the world and pumping money into the housing market. We all bought our homes competing with buyers that would never last more than a year or two. If there is no penalty for abusing markets or any assumed integrity within that market, it will happen again and we will pay the price. It could be housing again or maybe next time it will be healthcare or pensions or retirement accounts… or food or energy.
We don’t need more regulation, the laws we have are sufficient. We need prosecutors to act and prosecute criminal conduct.
Eric Holder, The US Attorney General and America’s Lead Prosecutor Let’s Goldman Sachs Off The Hook!
Eric Holder, The US Attorney General and America’s Lead prosecutor Let’s Goldman Sachs Off The Hook!
Like the bad dream your brain fabricates to frustrate you (running through quicksand to escape…something), American justice seems to be in the mood to antagonize regular people. OK, that’s a bit arrogant in that I’m assuming that justice or regular people are even a consideration. The reality (at least as I see it) is that leadership isn’t terribly concerned with either.
Eric Holder, the US attorney General, and America’s top prosecutor announced earlier this month that they will not prosecute Goldman Sachs or any employees for any misconduct related to the mortgage and housing crisis. This follows the SEC announcement that it was dropping it’s investigation of the Fremont Home Loan Trust 2006-E CDO.
Despite the earlier conclusions by a senate subcommittee that Goldman Sachs…
“designed, marketed, and sold CDOs in ways that created conflicts of interest with the firm’s clients and at times led to the bank’s profiting from the same products that caused substantial losses for its clients.”
Politely sounding like fraud.
How is that possible? Millions of homeowners have been so financially devastated they will spend years recovering. No one is being held responsible and no one has gone to prison.
OH, I think we’ll see more of this! If there was a crime you could commit that you could make billions without fear of danger, harm or prosecution… it’s likely to draw criminals and encourage criminal conduct.
I recognize a prosecutor needs to be very strong to go after the wealthiest and most powerful people in America. But that’s who should get that job.
Like “too big to fail” we have now have “to powerful to prosecute”
I never agreed with the “Occupy Wall Street” effort vilifying the wealthy. I think unlimited opportunity is one of our country’s greatest qualities. But great wealth can’t exempt anyone from the law or escaping responsibility for their actions.
I’m convinced we have what we have, because we let it happen (you and me). We like to blame Wall St. and Washington (and I do), but the founding fathers didn’t design a system intending for the American people to assign the burden to others and go off and party.
We have money and we have a vote…eventually enough of us will start to get angry and fix things. Until that time, I think it’s going to feel like running through quicksand.
The debate about the long term viability of Social Security has continued for as long as I can remember. I opened my first IRA within two years of college and have tried to make contributions each year…admittedly missing a few. I have been aware of the possibility of Social Security not being there to help me in retirement…in fact, I have really never expected it to provide any retirement income for me.
As such, I have made what I believe to be a disciplined effort to save for my own retirement. And I was feeling pretty good about the plan for the first twenty years. Over the past 10 years, with the tech bubble, housing bubble and the mutual fund roller coaster, I have grown both older and less financially confident.
Paper assets (stocks, bonds, mutual funds) are an investment requiring implicit faith in America’s financial services system and a complex world economy. Who would have thought Greece’s poor money management could have any effect on your ability to retire. In fact, Government spending, sub-prime fraud, runaway CEO compensation and more will all affect your income at a time when you will have a hard time re-entering the job market.
I’m still not counting on Social Security, but I think a lot of people have been put in greater need of a functioning Social Security system.
Maybe, as a real estate Broker, I’m a little too close to the pain of families struggling financially. In Sacramento many have lost their homes after desperate attempts to ‘hang in there’ have wiped out what savings they may have had.
There will obviously need to be changes to the Social Security system to keep it viable. I feel confident, that like so many things that need changing in Washington, people will fight the changes and politicians will avoid career suicide by attempting to make the changes.
In the meantime, I would encourage everyone to seriously consider where their income will come from in retirement. I think there is an opportunity in Sacramento Residential Investment Property that is worth looking into. Owning income producing real estate is something that everyone can understand and manage. Imagine having at least a portion of your retirement in an asset you can see and touch. Something everyone needs.
And the best part, income property grows in value as you use it.
Is it OK to deliberately default on an underwater home without a financial hardship? This isn’t a new debate. One side argues that the homeowner needs to accept responsibility for their actions while the other argues that foreclosure is the intended consequence of an unprofitable business decision.
While it is a good debate, in my opinion, it is the wrong debate. The focus has been whether it is legal, moral or ethical for a homeowner to walk away from their commitment to a lender. However, it’s time to focus on whether the circumstances of the current mortgage crisis were legal, moral or ethical to begin with. I have come to the conclusion that qualified borrowers that purchased during the boom were victims of massive abuses by investment banks in the mortgage markets.
Modern Day Alchemy
Wall St. had discovered a modern alchemy by putting a veil around sub-prime loans and getting them rated Triple A. Money was lent to unqualified borrowers then packaged and sold as a triple A security to investors worldwide. The reason lending standards were lowered to the ‘fog a mirror’ threshold was to create more debt. It didn’t have to be repaid, just last long enough so it could be quickly packaged and sold to unsuspecting investors. In fact, some of these same investment banks would then purchase Credit Default Swaps from AIG FP and profit again upon the failure of the security they had just sold as the ultimate in safety. Pension and retirement funds, as well as private investors around the world, having faith in the US ratings agencies and stability of the US mortgage and housing markets, purchased trillions of dollars in sub-prime Mortgage Backed Securities and Collateralized Debt Obligations (CDO’s). With T-Bills paying 1%, investors were desperately searching for investments with higher yields that could outpace inflation.
With trillions being lent to anyone wanting a nice home, genuine, qualified borrowers were forced to compete with borrowers that would never be able to repay loans. With an abundance of money in the mortgage market and a mushrooming population of artificial homebuyers, prices naturally skyrocketed. It was a false and unsustainable housing economy.
The more conservative among us would argue that Federal policies on affordable housing pressured banks into making bad loans as the source of the problem. In my opinion, while this compounded the problem, it was more of a plausible distraction to the greater abuse by investment banks. However, the government’s involvement made the increased availability of mortgage credit less suspicious and the rapid expansion of the housing market a credible event.
Regardless of whether you prefer to blame Wall St. or Washington for lending to people that could never repay, the housing collapse was not a result of responsible borrowers that simply bought a home at the wrong time. It was deliberate fraud and reckless abuse of a treasured American institution. The SEC complaint for Fraud against former Fannie Mae and Freddie Mac executives is hopefully just the beginning. I believe there should and will be more civil complaints as well as criminal indictments.
Sacramento has thousands of families still trying to do the ‘right thing’ in homes that are $100k to $200k underwater. In my opinion, these owners need to do the math and really understand the financial impact of their decision to stay or leave. It is a decision with serious consequences… a choice between bad and worse.
Who is the Victim and who is the Villain
Those with equity in their homes are indignant about others walking away. But, how much remorse and contrition should we expect from a distressed homeowner that has been robbed because they had faith in the American Dream of home ownership and the financial and government institutions that make it possible? In my opinion, this wasn’t done by the homeowner; this was done TO the homeowner… and the taxpayer, and millions of investors all of whom simply had too much faith in the system.
I would say any homeowner that has stuck it out this long, overpaying for housing this many years, has demonstrated a more than reasonable commitment to honor the debt. In the final analysis, it’s time for us all to look deeper into the root cause and hold the real culprits accountable.
Occupy Sacramento – The right sentiment, but will it help?
I dropped by Cesar Chavez park in downtown Sacramento this morning to see for myself what was happening. I almost drove past as it appeared to be just a handful of people and a few tents. But, I wanted to know more about the view and plan for Occupy Sacramento and decided to stop and check it out with whoever might be available. I’m glad I did, the protest isn’t over, they just have to leave the park every night and repopulate each morning.
I visited with several demonstrators who did a good job of articulating their frustration over the the control and flagrant abuses of financial services firms as well as an undue influence over politics and our own lives. This is a view and a frustration I share. I believe the current housing crisis is the result of investment banks bilking investors out of trillions on junk CDO’s they sold as AAA securities.
Where I question where this will go is in its organization and its goals. There is clearly a worldwide angst on the subject for something so fundamentally ‘grass roots’ as this to organically grow world wide in a month or so. But, in my opinion, if they don’t evolve quickly into a movement with a plan and a purpose it will fizzle. I don’t think they can simply be angry and want to talk about it. I think they need some specific goals to rally support behind. There is a lot to be unhappy about, but if everyone has something different to gripe about it will just sound like complaining rather than a plan to pursue and implement real change.
One possible flaw is that the tactics of Occupy Wall St. does not appeal to what I believe is a silent majority of frustrated middle aged, middle class, middle Americans that don’t protest. They have jobs, sometimes two. They go to work everyday. They raise their kids. And when times get tough, they try to do the right thing and do what it takes to survive. They don’t go to rally’s and complain. I think this is the population that needs to better understand what happened, and be provided ways they can participate in helping to solve the problem. And, sadly, I don’t think occupying the park is something this silent majority will do.
I would hate to see the ‘Occupy Wall St.’ movement die a premature death, because there is such need for awareness and change in the financial world and in Washington. If these issues are not tackled, it will have enormous impact on the quality of our lives for generations to come.
The banks were not forced to make trillions in bad loans, they chose to because they could sell subprime loans to investors as a AAA security. Blaming Washington’s efforts at affordable housing is simply a plausible excuse. Lending money to people without the means to pay it back does not make housing more affordable. Washington never forced any lending institution to lend to a buyer without the means to pay it back. Lenders were eager to make these loans, there was no prodding required. The fraud was packaging subprime loans and knowingly selling it as the ultimate in safety to investors. Calling it ‘ingenious’ to deceptively sell risky loans as a safe investment seems misguided.
And while I too question the integrity of people walking away from their obligations, the abuse from financial institutions was so outrageous that qualified borrowers, who did nothing wrong beyond buy a home at the wrong time, are being held responsible for a lifelong financial burden. Grossly underwater home owners should take a look at the 20 year financial difference between staying and walking and prepare themselves for some tough choices…or tough times. I’m not saying walking is the right thing, but people need to take responsibility for their own futures. And in my opinion, walking away may well be the lesser evil…and certainly less evil than what was done to them.
It is not the job of the borrower to self qualify and turn themself down for a loan. That is the job of the lending institution. And while I don’t feel any sympathy for the borrower that should have known better, I am sympathetic to the good borrower in an underwater home because of lenders making bad loans to unqualified borrowers. The financial institutions have some responsibility for the damage that poor lending practices have caused responsible borrowers. Good borrowers were competing for homes with borrowers who banks should have known (and probably did) could never repay. Loans likely to fail, but made so they could ‘ingeniously package up and sell to investors (as AAA) and absolve themselves of the risk’.
‘Honoring’ an agreement with the same lender responsible for contributing to an abused market and unsustainable pricing is not the solution. It’s time to renegotiate the principal balance of the note. If the lender won’t renegotiate the balance, give it back. Be honest, be decent, take care of the property, but take responsibility for your own financial future… because no one else will.
Email response to a client asking “why aren’t banks negotiating more short sales?”
Hi Shawn & Jeff,
I wanted to comment on an email of Shawn’s regarding short sales. Essentially the message is ‘why aren’t banks doing the smart thing and negotiating the sale of a vacant short sale’. At least that’s how I read it.
At best, we are seeing 1 in 4 short sale properties listed in the MLS sell as short sales. This is a vast improvement over the 10% or less from a year or two ago. The short sales that do not close are typically foreclosed upon and ultimately marketed as REO’s.
So, while an empty property is an obvious waste of money…the formula for how banks make money (or avoid loss) is very complicated.
Short sales usually have a number of parties involved. First there is “the bank” which is often just servicing the loan for some unidentified investor(s). I have come to believe the servicing bank actually makes money by calling and mailing delinquent homeowners. I can not imagine they are sending ALL THAT MAIL and making ALL THOSE PHONE CALLS at their own expense. I think the primary point of contact (the servicing bank) makes money by not solving the problem.
Then, if you do get a genuine negotiation underway, there are commonly two underlying lenders, investors and typically mortgage insurance that all have the ability to make demands and veto the transaction. The Mortgage Insurer (MI) will have to pay some portion of the insured loan once loss is known. They will commonly ask the home owner to offer cash at close and sign a note for a portion of the loss. This is often rejected by the owner because they either don’t have the ability to pay, or they would rather take their chances on whether the lender will really attempt to collect.
Which raises the question of recourse…the ability of the lender to pursue the defaulting borrower for the loss. While California is a non-recourse state, 2nd loans and refinanced loans (non purchase money) are exempt from this protection. So 2nd lenders are offered $2500 on an $80,000 debt and asked to release the borrower from future recourse. If I were the lender I wouldn’t do that. In fact, I’m surprised as many short sales close as they do for this reason alone.
For a short sale to close successfully, all these parties need to agree on who will lose how much. The cost in manpower alone makes this of questionable value and benefit to the lender. I think you could make the argument that the holder of the first loan might be better served by foreclosing (relatively simple in California ) eliminating all the other parties and selling the property at a full market value.
We spend a lot of time telling our clients about short sales and their complexities. But nothing beats personal experience for getting the real scoop.
Elk Grove Home Search
I spent the afternoon in Elk Grove with a new client searching for her family. I arrived on time at our first home on Red Fox Ct in Elk Grove with a flat tire. Our buyer was gracious enough to drive us around to see the homes and drop me off back at my car.
There are some good buys, and more than a few trashed homes in Elk Grove. There is one above Bilby that looks like a gem.