Real Estate Information

Utah s real estate market has slowed considerably and foreclosures are starting to rise. According to RealtyTrac, foreclosures in Utah increased by 4.99% in January compared to the previous year. This was a 16.49% increase over December, 2007.

Compared with the rest of the nation, Utah is firmly in the middle, ranking #22. Historically, Utah has ranked very poorly in financial metrics including bankruptcies, foreclosures and mortgage fraud. 200 homes began the foreclosure process in Utah last month and nearly a 1000 are bank owned or REO.

Besides new homes, foreclosures can present some opportunities for real estate investors, but they also present pitfalls. I was looking at an REO the other day in Sugarhouse. It was obviously a failed flip as this two unit home had the

upstairs in working order, but the main floor had been stripped. The condition of the home makes it unlikely to obtain bank financing. Only a private lender or someone with cash could buy it.

About five years ago I was very into looking at foreclosed properties and HUD homes. I saw quite a few of them, but very few would fail bank financing because of property condition. What I m seeing on the MLS now suggests foreclosed homes in Utah are in much worse condition due to eager rehabbers failing to complete their work. Some even had the windows and doors boarded up, a condition that was rare in Salt Lake.

There is money to be made in foreclosed real estate investing, but you have to be very careful when doing it. As foreclosures in Utah continue to rise there will be plenty of opportunities for real estate investors.

They say that all real estate is local. Of course right now the underlying credit process has problems nationally, but for Salt Lake real estate the market is better. One indicator that demonstrates this is rents. In the most bubblicious parts of the country rents have declined as unsold homes flood the rental market and condo towers are converted to apartments.

Despite a rise in the number of new homes for sale in Salt Lake, rents in 2007 increased 8.8%. Vacancy rates declined significantly as well, meaning real estate investors in Utah should be doing quite well. Rents are expected to rise again this year.

Vacancies in Salt Lake County fell from a high of 10.9 percent in December 2002 to 4.5 percent at the end of last year, the lowest in more than 10 years.

The apartment market is considered fully rented when the vacancy rate is 5 percent.

Higher rents are good for investors and they can also push home buying fence sitters into making a purchase. Lower interest rates and a softer housing market will help as well despite the stricter credit requirements.

Even though the situation looks solid now, I suspect the rental landscape may shift this year, particularly if we see a rise in foreclosures. So far, Utah has seen a significant decline over the past two years, but high levels of inventory in Utah County could change that.

Let s consider real briefly another rental market in bubblicious California. I got an email yesterday from someone seeking advice on two properties that were being used as rentals. The owner was behind one payment and wanted to do a deed in lieu of foreclosure to get rid of the properties. Both units are currently rented, with one tenant set to move out in a week, while the other wanted to stay until the end of the year. The owner wanted to know how much time the tenants had and suggested keeping the rents without paying the mortgage.

This owner had some other tax questions as well and my advice was to consult an attorney in California. In response to the rental questions I replied that collecting rent with no intent to pay the mortgage is illegal and shouldn t be considered. Secondly, renters have no rights when a lender repossesses and typically have 30 days to move out, usually losing deposits to their now insolvent landlord.

However, the question from this reader has me thinking about renters and lease option purchasers of potentially distressed properties here in Utah. As more inventory comes on the market here, it would be wise for renters to run a credit check on their landlords when renting a private home. This advice does not apply to corporate owned apartment buildings. Renters should screen their landlords as much as landlords screen renters. This is also true of those considering lease option deals. You don t want to lose your deposits because your landlord is under water on their mortgage. Proof of on time payment of the last six mortgage bills should also be requested.

The rental landscape in troubled areas of the country is far different than it is in Utah, which indicates to me we re still in pretty good shape. The mortgage crisis is far from being resolved, so I expect to see more problems surface in the Utah real estate market. For now, it s a good time to be a landlord.

An article about new homes in Utah states the number of permits taken out in January are at a 17 year low and 74% below last year. On top of that, the number of unsold new homes is also at a record high.

Even with the drop in new-home construction, though, Newreach is estimating that it will take 10 months to sell the county s inventory of new, unoccupied homes - even if no new homes were constructed during that time period.

Enter Daybreak, the master planned community on the West Bench that is owned by Kennecott Land. This is a popular community with a number of contributing builders offering a wide range of housing from condos to large homes. All the builders, save one, are offering price guarantees in a promotion that started in January.

Many builders,

struggling to cope with the downturn, continue to offer incentives to lure buyers. At the Daybreak residential development in South Jordan, all but one builder - Richmond American - has agreed to participate in a Smart Buy program, designed to create interest among prospective buyers.

The program, which debuted in January and runs through April, offers buyers a price guarantee. If anytime between signing their contract to a buy a home and closing the base price on the model goes down, the buyer will be refunded the difference at closing.

Jennifer Hurst, director of marketing for Kennecott Land, said the program is designed in great part to address the issue buyers who are worried about falling home prices.

The funny part is last year I had a conversation with Ms. Hurst about builder prices. She was explaining how builders construct in phases and raise prices with each completed phase. She stated, “Prices of new homes always go up.” I responded, “No they don t.” Here we are eight months later discussing a promotion, that she probably came up with, addressing the falling prices of new homes.

To be fair, builder discounting and incentives, coupled with lower interest rates are stoking interest in new homes a little. February s builders report indicated more traffic through model homes on a national basis as well as a slight up tick in builder confidence. Locally, this trend is holding true as well.

“I m already getting anecdotal evidence from builders that there s more traffic in model homes, compared with the third and fourth quarters of 07,” Dowdle said.

My friends in that side of the business confirm this as well.

Unless prices start coming down in existing home inventory, new homes in Utah are going to look particularly attractive.

You can t open a newspaper or watch TV without hearing something about the credit crisis, the housing crisis or the mortgage crisis. Once thought to be contained to only people with bad credit or subprime loans, it s become clear that it s not.

In England an online credit card provider just yanked thousands of credit accounts from high risk borrowers. The risk? These borrowers paid off their accounts each month and didn t pay interest.

Over here Bank of America (BAC) and Washington Mutual (WM) are raising interest rates on customers who pay their bills on time.

CNN reported yesterday -

Consumers have racked up more than $2.2 trillion in purchases and cash advances on major credit cards in just the last year. And it s become a habit for them to spend

more than they have. The overall credit card debt grew by 315 percent from 1989 to 2006, according to public policy research firm Demos.

To compound the problem, fewer people are paying their credit cards bills on time. The percentage of people delinquent on their credit cards is the highest it s been in three years, according to CardTrack.com.

With banks tightening their standards and the drumbeat of recession getting louder, there s no better time to grab control of your debt now.Mike Shedlock writes on his blog Congress is investigating some of the horrible practices by credit card companies.

Rep. Carolyn Maloney (D-NY), would change the way most credit card companies do business and provide significant consumer protection for every cardholder.

"In recent years the playing field between credit card companies and credit cardholders has become very one-sided," Maloney said. "A credit card agreement is supposed to be a contract, but what good is a contract when only one party has the power to make decisions?"

The Credit Cardholders' Bill of Rights Act of 2008, known as H.R. 5244, would protect cardholders from arbitrary interest rate increases and unfair fees.

I understand that even if you pay it off every month, having a credit card is just part of 21st century living. From buying airline tickets to online purchases, electronic money is a requirement. Renting a car without a credit card is nearly impossible. We don t have to be slaves to big lenders though.

Think about it this way, most credit card providers have other financial services they want you to become a customer for. Credit cards are the entry level to signing you up for a checking account, or an auto loan, even a mortgage down the line. These big lenders are cutting off their nose to spite their face by raising rates or closing accounts for their most responsible customers.

Consider my friend I told you about last week who had WaMu raise his interest rate. Guess where he has his checking and savings account? WaMu. Guess what he did after getting the rate increase? You got it. He closed all three accounts.

I found myself in a similar situation earlier this week. I ve kind of ignored my credit cards for a while, but I made it a goal to pay them off this month and I did. During this process, I looked at what my interest rates were. They were shocking. So I called one company, Capital One (COF) and asked them to lower the interest rate. They complied and lowered it 6%. It s fixed for two months and then goes adjustable with the index being LIBOR. Good! Short term rates are going down.

My other credit card company wasn t so accommodating. First of all HSBC s (HBC) customer service is in India and as nice as their people are, sometimes the communication just isn t there. I asked them to lower the interest rate as well on my two accounts. They did not comply and I closed the accounts.

CNN noted -

If you ve been a good customer and you have good credit, now is a good time to negotiate for a higher credit limit or to knock some points off your interest rate, says John Ulzheimer of Credit.com.

Also, don t close old credit cards accounts. Even if you don t use them frequently, it looks better for your credit score if you can show a long credit history, said Ulzheimer.

Theoretically, I should have kept those HSBC accounts open, but they have a hefty annual fee on each one and it s really annoying having to call India twice a year to beg for them to be taken off. I m not even sure if they ll do that anymore and I didn t want the hassle. Besides, the credit lines were small and I ll find another account to replace it.

This leads me to my point. If you re trying to pay off debt, eliminate credit or just restore your financial health, here are three things to remember to make sure you don t make mistakes that could cost you higher mortgage rates should you buy a home or refinance.

1. Don t close revolving accounts unless there is a compelling reason to do so. Your credit score is partially calculated by how long you ve had the account. Old accounts with no balance and no maintenance fees are an asset for your credit.

2. You only need three credit accounts to be considered for a mortgage. Of course, if you ve got a mortgage already, that counts. Avoid opening new accounts, especially if you re trying to buy a house. If you need/want to close excess accounts, close the newest ones you have.

3. Pay your bills on time. This is perhaps the easiest and most beneficial step to maintaining a good credit score. I know it sounds easy, yet millions of people pay at least one credit impacting bill late each month. The experts advise you to automate payments so you don t forget to pay.

The credit crunch is making a lot of people think about their finances. Hopefully this new awareness will get people to pay down debt and save more.

The mortgage markets are quite volatile right now with rates ebbing and flowing up and down. To get the best deals, one has to be prepared and be prepared to act quickly.

Two things any borrower must factor in are personal preparation and rate locks. Reader Kirsten writes: Nigel, when you refer to organizing your personal paperwork and having a “clean file,” what does that mean? If I plan on making the mortgage app leap at some point, is that something I should know about?

Good question. The amount and type of paperwork you ll need depend on whether you are self-employed, commissioned or a regular W-2 employee. Regular employees have it the easiest as they need only bring in two years of tax returns, the last two pay stubs, financial information substantiating assets like bank statements, 401k statements and the homeowners insurance agent information.

Commissioned, overtime and other W-2 employees who have been on the job for less than two years can only have their base income considered, unless they use a stated income loan one of the legitimate uses for them.

Self-employed borrowers need to have their last two years of tax returns to verify income. Let s remember that only net self-employed income is considered. Some lenders will allow depreciation to be factored back in, but many self-employed workers write off every thing they can on their taxes, thus lowering their income.

When I say organize your paperwork, it means having two years of tax returns, most recent pay stubs if W-2, all proof of assets and insurance information. Why is this important? Because a loan application can t be fully processed, or approved without it. RESPA asserts that gathering certain basic information constitutes and application and therefore deserves disclosure, but in real life to get a final approval, one needs to have the paperwork.

More importantly, a loan rate cannot be locked in without a complete application. We hear day in and day out about mortgage rates. The media typically reports on rates in a weekly article. However, rates are constantly changing and often change multiple times throughout the day. Sometimes those swings are minimal, sometimes significant. To take full advantage of your mortgage loan or refinance, you ll want to lock into the best rate you can. That can t be done without an approved application and once a lock is set, the clock starts ticking to close the loan.

Rate locks come in three different time periods depending on the lender - 15, 30, 45 days. The shorter the lock is the better the rate for both the borrower and the broker. Rate locks cost money to the broker and the lender and cannot be done without an approved, complete application. We are in a time period where short term rates (ARMs) are trending down, while fixed rates are much more volatile, moving in both directions.

When a borrower applies for a mortgage, they are actually doing two things; applying for a loan approval and applying for a rate lock. Remember this when shopping around for mortgage rates.

A new plan to help struggling mortgage lenders was released today. The plan calls for homeowners that would be forced into foreclosure or a short sale to issue an IOU for the difference between what they owe and what their home is currently valued. In turn the lender would reduce the loan amount and loan payments. Should home values rise again, the IOU would be exercised by the lender.

But instead of having lenders forgive the difference between the old mortgage and a house s current resale value, called a short sale, the OTS advises that lenders issue a warrant or “negative amortization certificate” for the difference. If a home regains its market value and is then sold, lenders have first claims to the profits.

Like the super SIV plan that failed in December, I think

this plan demonstrates exactly how desperate many mortgage lenders are. This is a one sided plan allowing accounting chicanery to take losses off the books without the lender having to suffer a loss.

The hope is that this plan will help prevent foreclosures while minimizing the hit that lenders will take, all without putting any burden on the taxpayers.

This mortgage plan will count the negative amortization certificate as an asset thus freeing lenders to make more loans. Further, it won t require legislation as it can be adopted by lenders on a voluntary basis.

Pending legislation that calls for similar measures, but favor the borrower, are drawing complaints from the lending industry. The Emergency Home Ownership and Mortgage Equity Protection Act of 2007 and the Foreclosure Prevention Act of 2008 call for bankruptcy judges to lower loan balances for underwater homeowners. The difference being there is no IOU to the lender for the difference. Industry insiders claim this legislation would raise interest rates. Quite frankly, either plan will raise interest rates. It s just a matter of where and how much.

Both of these Acts could be voted on as soon as next week.

The difference between the legislation and the industry plan is quite telling. It seems lenders want a free pass for their mistakes, but won t allow homeowners the same privilege. Lenders had the opportunity to look at every deal, in detail, before they wrote the funding check. Instead they relied on computer models, rising home values and the mortgage backed securities system to ignore their due diligence responsibility.

Since the industry plan doesn t require any legislation, participating lenders could adopt the policy without any oversight. Passage of The Emergency Home Ownership and Mortgage Equity Protection Act of 2007 and the Foreclosure Prevention Act of 2008 would stymie the industry plan. Maybe more homeowners would avoid bankruptcy if their mortgage balances and payments were lowered before having to take that drastic step?

Sometimes a picture is worth a thousand words. I saw this sign in Orem, Ut yesterday while I was down there on business. The times sure have changed.

It s funny they would take this approach as Utah s foreclosure rate has dropped over the past two years. Maybe it s a marketing tactic given all the bad news in real estate?

So I was driving in Provo yesterday and stumbled across this real estate sign. It belongs to none other than Ron Clarke. You know, the Ron Clarke facing a federal indictment for mortgage fraud by manipulating prices on the MLS.

I love the Constitution and believe very much in due process of law. Innocent until proven guilty. However real estate licensing and civil proceedings fall outside of that realm a bit. Surely the Division of Real Estate should be investigating Mr. Clarke as well?

We already know Bradley Kitchen is still trying to scam people. It appears the DRS is allowing Ron Clarke to continue as well. What I d like to know is who are the people continuing to do business with him? How does he explain away a Federal indictment to potential clients? Why would you

buy a property listed from Ron Clarke when he s accuse of causing overvaluation in excess of $1,000,000 per home? Why would you even want a single cent in commission to end up in his pocket?

It s interesting the Division of Real Estate would investigate a guy like Richard Culbertson and then turn the evidence over to law enforcement. In the case of Ron Clarke, DRS is turning a blind eye and letting him continue to operate despite a Federal indictment.

DRS should at least suspend Clarke s license pending the outcome of the trial which begins next month. Any further disciplinary action should be withheld until the verdict is reached. As it stands Ron Clarke is facing a 20 year prison sentence, $250,000 fine and an additional $7.5 million asset forfeiture.

Many people want to invest in real estate but have one small problem – they have a full-time job. While they may prefer to be a full-time real estate investor, they need the income from a job to survive. While real estate investing may provide a great income, it is difficult to make enough to live on right away. The obvious solution is to start part-time while continuing to work.

It should be noted that part-time does not mean spare time. Who among us has any spare time? Our free time always seems to be consumed by this, that and the other thing. Investing part-time requires that we set aside specific hours to pursue our real estate ambitions. If you took a second job working somewhere a few hours a week you would be expected to be there at specified times. Part-time investing is no different. Set specific hours that will be devoted to your investment business.

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If you re in the senior management of one of these big mortgage lending banks that s had to write down billions of dollars of losses due to the declining real estate market, where should you look to create a turnaround? Somehow, Citibank (C), Bank of America (BAC) and Washington Mutual (WM) think alienating their good customers makes sound financial sense.

Consider that Citibank decided to cancel 161,000 Egg branded credit cards in England after a risk review. It makes sense that customers whose risk profile has changed could be subject to this type of behavior. In the instance of Egg, the customers being cut off are those who pay their entire balances on a monthly basis! Theoretically, these are the best customers with the least amount of risk. The problem? Citibank wasn t making enough money through fees. Rather than keeping them for goodwill, they ve created a public relations calamity that can t be good for business.

CREDIT card customers who pay off their balance each month are as much risk from being cut off by their lender as those that have lost control of their spiraling debts. Credit checking agencies say banks are beginning to weed out customers with faultless borrowing histories because they can make little profit on them.

I was hardly surprised when I got a call from a friend complaining about Washington Mutual. They had reason to call the credit card provider of a bill dispute and found out their interest rate had been raised from 8.9% to 28.9%. Why? My friend carries a balance, but always pays all their accounts on time. They were told it was because their FICO score dropped 10 points in the course of the year. Because he didn t read the opt out notice on his January statement, his balance has converted to the new interest rate, doubling the monthly minimum due.

Washington Mutual is a large lender, especially in the home mortgage business. They have a lot of credit card business as well, especially since they purchased Providian a few years ago. This kind of behavior is going to decrease the purchase power and refinance power of a lot of Americans who believe paying their credit cards on time is the only thing they need to do to keep their terms in place.

Mike Shedlock pointed out Bank of America is doing the same thing -

Credit-card issuers have drawn fire for jacking up interest rates on cardholders who aren t behind on payments, but whose credit score has fallen for another reason. Now, some consumers complain, Bank of America (BAC) is hiking rates based on no apparent deterioration in their credit scores at all.

The major credit-card lender in mid-January sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving an explanation for the increase, according to copies of five letters obtained by BusinessWeek.

Mike s commentary -

Just as mortgages were bundled up in packages and securitized, so is credit card debt. Who wants to hold that paper when defaults are rising? Capital impaired banks don t want that risk sitting on their balance sheets, nor does anyone else at existing prices.

To find buyers for the debt, lenders are jacking up interest rates and fees. But when they do this to perfectly good customers (suckers), especially suckers with good FICO scores and/or suckers for whom they recently upped credit lines, it smacks of arrogance. BAC will come to regret that arrogance.

Besides affecting homeowners who want to buy or refinance, this new behavior by credit card companies will provide some serious consequences to troubled homeowners who think they can walk away from their mortgages. These people are paying their auto payments and credit card payments, but not their mortgages. Imagine their shock when that foreclosure, which could have been avoided, suddenly results in higher credit card payments or forced account closure. Further, auto and other insurance payments can go up or be more difficult to get. Finally, tarnished credit can result in being declined for jobs or promotions.

I find the FICO based interest rate adjustments to be patently unfair. A lot of different variables make up a FICO score, some of it we can t control. What we can control is how much we pay to creditors, when we pay them and how much we borrow. With the new attitudes of lenders now forming, the best way to protect yourself is to pay off your consumer debt. In this increasingly volatile economic time perhaps saving money is the best investment strategy.