Surviving The American Dream: Is it OK to ‘Walk Away’?

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.

So, what should we expect as legally, morally and ethically appropriate from a homeowner that purchased a home under legally, morally and ethically corrupt circumstances?

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?

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.

Sacramento Housing Crisis – Posts to the Sacramento Bee blog

Tips For Moving To Sacramento

Moving To Sacramento?

The thought of moving to Sacramento like any relocation is both exciting and nerve wracking.  You are probably looking forward to the day when you will finally settle into your new home. Only one last hurdle separates you from your dream home, and that is moving.  Ugh!

Moving is not an easy task and a lot of planning is required to make the relocation to Sacramento easy and stress-free. You also want to protect your property from damage during the move and wrap up any loose ends with your old house.

Here are some tips that will help make moving and settling down into your new home a bit easier.

1. Give out your new address

Make a list of all your work colleagues, family and friends who need to know about your plans to move to Sacramento and give them your new contact information.

2. Unpacking

Labeling boxes will help you when you are unpacking. Unpack what you need urgently first. The rest of your belongings can be unpacked over time as you settle down.

3. Notify your utility providers

Give notice to all your utility providers and let them know when they should terminate your services. Clear any outstanding bills and apply for new contracts for your new home well in advance.

4. Change your address

Change your mailing address with the post office to reflect your new address. Inform your bank, utility providers, your family and friends about your relocation to Sacramento and update any subscriptions you have.

5. Pack up

Pack all your belonging in protective moving boxes.  Clearly identify each box to so you know what’s in each when you need something

6.  Check for insurance

Check if the moving company or the insurance company you are using will insure your stuff. You may want insurance to cover any damage that can happen when you move.

7. Subscriptions

Cancel or uupdate your subscriptions to magazines or other services. This can include newspapers, magazines or regular home deliveries.

When moving to Sacramento is not well planned, it can lead to a lot of headaches and loss. These simple tips will help make your move to Sacramento just a bit easier.

New Home Builders in Sacramento

New Home Builders in Sacramento

If you are looking to explore both new construction and resale homes, we can help.  And we will help you negotiate a better price on a new home.  As the saying goes 'experience isn't expensive…it's priceless'.

If you would like more info on any of these developments, please call (916-206-7282) or email ( bill@sachome.us ) and we would be happy to help.

Light The Way To A Sacramento Home Sale

Light The Way To A Sacramento Home Sale
 

Proper home lighting is much more than just hanging a fixtures from the roof. Lighting, when creatively designed, will go a long way in creating a mood for a room and enhancing style and comfort and this will lead to a faster Sacramento home sale.

A home with poor lighting is much harder to sell. The feel of doom and gloom in a dark house will make it less appealing when compared to other homes that are bright and cheery. In fact, you can see how other home sellers treat light (both good and bad) when you search the Sacramento MLS.

When lighting your home, think in terms of layers to light your Sacramento home.

The first layer would have direct light that comes from an overhead bulb fixture, pendant lamps or windows.

The second layer is creative lighting that is meant to highlight decorative pieces in your home such as a carving or a wall hanging. Tracks and spotlights work well for this purpose. This light can also be targeted to light specific areas such as a reading desk or a cabinet. Use low wattage bulbs to highlight your decorative items and bring out their color.

For the third layer, the light itself as a decorative aspect of your Sacramento home. Free standing glass lamps, chandeliers or sconces are good for this purpose.

Here are some other useful tips on how to use light creatively for a Sacramento home sale .

Up lighting – When light is placed to face up, it can create a beautiful effect that is not overbearing. Light fixtures can be placed behind furniture items and faced upwards or in beautiful moldings to highlight a given area of the home.

Get Professional Help – If you have a large lighting project ahead of you, get professional help to give you sound advice and carry out the electrical work. Shops that sell light fixtures will give you these services for free if you buy from them.

Natural – Consider using natural light creatively as part of your lighting scheme. Use large window to allow natural light to come in.

Cost Effective Lighting – Use led light bulbs to conserve energy and save money. These bulbs last for many years before needing to be changed.  Although, don't sacrifice the quality and resulting mood for a small short term savings.

Outdoor Lighting – You can consider using recessed light that does not draw attention to itself outside. Spotlights also work well to provide lighting outside.

Dimmers switches – These switches are an inexpensive way of lighting that help to set the mood of a room. Less energy is required to power a dimmer switch and bulbs last longer.

Use Layered Lighting – Layered lighting is good for areas and rooms that are multi-functional. Different lighting can be used for different sections of the room and for different functions.

Go ahead and get creative and try different things in your home. If you’re involved in a Sacramento home sale, enhance the positive features of your home. If you’re buying a Sacramento home, look for good lighting practices that are already in place as you do your house shopping.

Sacramento Moving Tips–Protecting Your Furniture When Moving

Sacramento Moving Tips–Protecting Your Furniture When Moving

These blankets can provide comfortable bedding for pets. You can always machine wash these blankets to keep them clean. 

Use moving blankets as a cheap way to sound proof your Sacramento home. If you play loud music or instruments, these blankets can provide an easy solution for keeping the sound in. 

Child proof your home using these blankets to protect toddlers from sharp furniture corners that can cause serious injuries in case of an accident. 

You can protect your furniture and floors with these blankets when you are repairing and re-painting your home. 

These padded blankets can come in handy when you are going camping. They can be used as sleeping blankets or for cushioning your tent for extra comfort.

Model Homes in Roseville– Beware! The Allure Of Model Homes!

Model Homes in Roseville– Beware! The Allure Of Model Homes!

When you first walk into model homes in Roseville it is easy to fall in love with the home. Everything has been professionally decorated so that you see the home’s true potential and fall into the trap. You may decide to purchase a developer’s home based on a model that has upscale furniture and designs that you could never afford. Furthermore, after looking at some of the empty houses, you may decide to purchase the model itself. In many cases this is not a wise decision to make.

A model home is described as a deluxe home in a development. A deluxe home is first built by a developer to entice potential buyers to invest in other similar homes that are yet to be built. A deluxe home is supposed to showcase how the rest of the homes in that development will be when they are finished and fully furnished. This is often deceptive because your furniture will be completely different than those shown in the model and may actually clash with the design of the home and the colors.

The model home will smell good and look good and feel just great. You’ll think about purchasing one of these model homes in Roseville based on its newness. The thing that you may not completely realize is the home is essentially already used. Dozens of people have visited the home, walked around it, tried out different things like the heating and cooling system, the bathroom, opened all the cupboards numerous times and may have even scraped the walls by accident.

You are much better off looking at a variety of homes before choosing a developer’s home based on the model you see. When you walk into an owner occupied home you’ll see the house as it really is with realistic furniture and people that love their house and have invested some time and sweat into it. While model homes in Roseville may be quite tempting, it is always best to keep an open mind and look at all of the other real estate options in Roseville.

If you’re working with us at Better Home Less Money, tell us exactly what you’re looking for. You’ll be able to view plenty of homes from new construction to foreclosures.  Having had a chance to hit the streets and see a selection you will develop a more objective opinion based on what you see. Don’t fall too quickly for the model homes in Roseville without first looking at everything else available. You may just be missing the house of your dreams by making a rash decision based on showmanship to sell some property.

Email response to a client asking “why aren’t banks negotiating more short sales?”

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, 2^nd loans and refinanced loans (non purchase money) are exempt from this protection.  So 2^nd 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.

Bill