Simply Junior

WARNING! If you are serious about buying a home in 2010, you might not have much time left! With recession of 2007-2009 fading into history, buyers are returning to the real estate market in droves. However, what most of the buyers don’t realize is that there are many forces working against them that might make it difficult to find real bargains comes spring and summer. Here are five main forces shaping up the market early this year, and you better pay attention to them:

1. Under the provisions of the massive stimulus package designed to support the housing market, the Fed has been buying mortgage securities for over a year in order to maintain liquidity in the housing market, which also artificially supported the rates at sub-5% level. However, this part of the stimulus ER is winding down by March, and it’s already driving the rates higher in anticipation of the program grand finale. What does it mean for the mortgage market? It means that comes March or April, you will not find rates in low or mid-5% any more. The consensus of most economists and finance journalists is that we will have 6% mortgages by the summer time. What it means for you? Have your loan approved and lock the rate no later than Mid-February!

2. With “normal market” demand for mortgage backed securities still very low, the lenders will tighten their underwriting guidelines even more. The preview of this was demonstrated in December of 2009, when following FNMA and Freddy all lenders increased credit score requirements for prime mortgages by 20 to 40 points, FHA followed them with the increase of the minimum score from 595 to 620, and some lenders made 640 as a minimum score for FHA or any other government-backed loans. Comes summer, the credit system most probably will tighten even more, as the banks will have a much smaller market to sell their loans to, which will force them to pick only cream of the crop borrowers to bet on. If you are not one of them, you might need to have at least 25-30% down, ratios below 30% and 750 score in order to have any chance for a home loan.

3. Unnoticed to the buyers, the Government passed a number of new laws in the last two years, of course all of them were done under highly publicized slogans of helping Joe the Consumer. In reality, these new laws practically eliminated a mortgage broker as a viable player in the market place. The government blamed the brokers for pushing “creative” mortgage products onto uneducated consumers who couldn’t afford to pay for them, however the reality is that the brokers were only selling products pushed to the public by BANKS! Truth is that the brokers don’t offer their own products, brokers don’t participate in the meetings of the banks’ boards of directors who decide which financial products to offer to the public, brokers only sell what the banks offer if the public demands it. In 2006 the brokers were responsible for 60% of all loans originated in this country, by the first quarter of 2010 – less than 5%! Why should you be concerned about it? Very simple: while enjoying practically unlimited access to billions and trillions of your taxpayer dollars, the banks succeeded in eliminating the only serious market force that kept their mortgage rates competitive in the last decade. With brokers gone, all loan origination now goes to retail banks with their “friendly and knowledgeable” staff who doesn’t give a rat if you buy their mortgage today at 7% or not, because they are on salary paid for by your savings deposits and unfair bank fees, and because your only alternative is to go to a retail branch of another bank, where you will face just as much competence and desire to lower rates as at the first branch. Consider this: The banks quietly managed to monopolize a market worth $10-15 TRILLION DOLLARS, and their profits (spread between your mortgage rate and the current Fed Rate, which is a 0%) per loan are the highest they’ve been in history! Now, did you get a thank you postcard from your bank’s CEO last year for helping the banks out with some free money?

4. Home buyer tax credit program winds down in April too. You must be in escrow by April 30th and close the escrow no later than June, which means that in March/April we will see crowds of late-comers last-minute shoppers trying to take advantage of the program and the inventory of homes, especially in 200-400K price range will be under serious pressure from the buyers, just like we saw in October and November of 2009, before it became known that the tax credit program will be extended. This time it is different – there will be no more extensions. This was the final extension, and those who missed an opportunity to take advantage of this program because there was no inventory on the market, will try to buy something this time around.

5. Traditionally, March is the first month of the official buying season in San Diego. In my 10-year spreadsheet, March sales represent an average of 30-50% increase in the number of closed sales over February of the same year! Believe me that this year will be no different. However, those who wake up late and start shopping for a house in March will face a much tougher competition and will be forced to bid up on properties beyond what they will reasonably appraise for, which will force the buyers to increase their downpayment or get discouraged and end up on the sidelines again.

Housing market has been battered enough to the point where even the bitter pessimists started talking about a turnaround. Some are still talking about some massive “shadow inventory” of homes that the banks are supposedly holding back to avoid the market collapse and that when it finally comes, the market will tank, however, this talk has been perpetuated since late 2008 and nobody knows when and if this inventory will ever enter the market. Today the banks can dump four or five-times more inventory on the market, where home attract 10-30 offers in the first week, and the buyers will just swallow them and move on.

So, what should you do now in order to take advantage of the situation in what’s left of the true bargain hunting season?

1. Get your loan pre-qualified right now, don’t wait for that tax refund to hit your bank account. If you need to borrow money from the relatives for the downpayment, do it, you can pay it back with the tax credit money, with your tax refund, or do their laundry for the next 30 years, but get your loan fully approved at the highest possible amount and have it available when you are making offers. Nobody seriously looks at your offers today unless you can attach a solid loan approval together with a proof of funds for downpayment.

2. Make sure you have a clear idea what you are looking for and make sure it’s realistic. Don’t ask your agent to send you everything from Bonsal to San Ysidro in 100K to 800K range and expect to work with that agent. Sit down with your agent, outline the areas, types of properties you will target, maximum monthly payments including HOA, Mello Roos, property taxes, home insurance, utility bills and anything else that will become your monthly responsibility. Knowing what you want helps you achieve just that four-times faster!

3. Use technology to your advantage. There are many real estate websites that allow you to set up an automated search page and to receive listings that match your criteria the minute the listings hit the market, or with any other regularity of your choice. Such automated tools allow you to gain an “unfair advantage” over majority of other non-technically savvy buyers and realtors: if you are the first one to know about the listings, you have the advantage of making your offers before everybody else.

4. Make offers, more offers and some more offers! In sub-$300,000 price range in most areas of San Diego it takes now 20-30 offers before you get one accepted, so be patient, but also smart about it. Make offers on realistic listings, where you have a better chance of getting your offer accepted. If you have an FHA loan, don’t go after “investor flip” listings, FHA won’t allow it for 90 days after their original purchase date. Don’t make offers on short sale listings, where the listing agent sends ALL offers to the lender and waits for six months for the lender to accept one offer, which turns the process into a prolonged auction. Don’t subject yourself to some REO listings if the REO listing broker insists on seeing my buyers’ first-borne child, DNA tests and pre-approval by the lender of the listing broker’s choice BEFORE they will even look at your offer. (By the way, whenever the REO agent is asking for the pre-approval by their lender, understand that it’s done solely to facilitate a sales pitch by that lender, so complain about it to California Department of Real Estate, tell them that in your opinion it is against the spirit of California AB957 “Buyer’s Choice Act” of 2009, especially if you already have your pre-approval from another lender in place! If you end up putting 20 offers on REO listings, does it mean that you have to get pre-approved by 20 lenders BEFORE you even know if your offer is going to be accepted? Sounds ridiculous, doesn’t it?)

5. Be creative! If you can’t get what you want directly, look for other ways of achieving the same results. Consider buying a fixer upper and using a rehab loan to do the repairs, consider buying a smaller house and they adding square footage to your desired size of home, consider new construction, lease-options, seller carry-backs or other creative ways of getting in the house. Become familiar with these creative strategies, they may be your ticket to homeownership today.

This is not the time to procrastinate and wait for your April tax refund before you start shopping for a house. Act now, and take advantage of the last several months of the BEST time to buy a house in the last several decades!

Every passing day brings us one step closer to retirement. When economic conditions or personal finances are unclear, the road to retirement seems much longer, and the road on retirement seems to be a rocky and perilous one. Don’t panic, it’s time to plan.

Begin with the Serenity Prayer

“God, grant me the serenity to accept the things that I cannot change, the courage to change the things that I can, and the wisdom to know the difference.”

Regardless of personal faith or religious affiliation, nearly everyone can relate to that simple prayer. The wisdom is particularly relevant during challenging economic times. Headlines broadcast rising concerns regarding the price of gasoline, airlines eliminating routes and raising prices, and the HP lay-off 24,600 employees. The financial world is rocked by announcements regarding AIG, Merrill Lynch, and Lehman Brothers. Stocks, housing prices, and consumer confidence have tumbled faster than a Cirque du Soleil troupe on a double shot of espresso. With so many financial pillars falling, it is difficult, if not impossible, to avoid reeling from the pressures of the collateral damage. A person does not need to lose a job to feel the pinch when others do, and the number of people looking for new opportunities is steadily rising.

You may have some power over your travel arrangements, but limited personal power over the price of fuel. You may have power over the stock or retirement funds that you have selected, but limited personal power over Wall Street. You have some power over the decision to buy or sell your home, but limited personal power over the housing market values. You have some power over the money that you spend, but may have limited personal power to quickly impact the amount of money that you owe. Do you have the courage to change what you can, the serenity to accept what you cannot change, and the wisdom to remind yourself of the difference?

Don’t waste your time to panic over the things that you cannot change. Rather, spend your time to evaluate and adjust your plans for those areas that you can impact.

Stocks

Did you invest in stocks when the market was rising? Did you enjoy watching your money grow while you casually read the morning paper and sipped on a cup of coffee? Did you pat yourself on the back for having the wisdom to select the right stocks, and to have the patience to watch them grow and increase in value? If so, what active role did you play in contributing to the continuous growth of those stocks? More than likely, you watched them grow, and you watched them decline. If you do not immediately need the liquid assets for some other emergency, then please return to your coffee and morning paper to await the passing of this season. As with nature, autumn and winter are a necessary preparation for spring and summer. If you missed cashing out your investments at the peak, then it may be in your best interest to wait for thaw of the financial market, and look forward to watching the renewed growth.

In the meantime, keep an eye on any stocks with high risk, just to make sure that you do not experience the frost bite and icy cold finger of fate that touched such giants as AIG and Merrill Lynch. It is unwise to move stocks to get away from an investment, but a very wise move to transfer in the direction of a good investment. In other words, do not run hastily from a dangerous position, but rather move intelligently to a good one.

Mutual Funds

Hold on for the recovery. If you move when things are down, then you experienced the decline without giving yourself the chance to experience the rebound. As always, if you are not a professional financial advisor, then find one that you can trust to give you the guidance that you need. You would not even think about doing brain surgery on yourself, so why would you perform surgery on your own financial future?

Bonds

Treasury Bonds and Government Bonds do not offer fast moving overnight success or excitement. Treasury Bonds, unlike James Bond, are not sexy, and do not provide the exhilarating adrenaline rush of extreme risk with potential for flashy rewards. What you do have is a little more safety, a little more security, and a little more confidence that your investment will not be traded, bought out, or suddenly bankrupt. There are times that the tortoise may not keep pace with the hare, but when it comes to your retirement, you really do have the option to place your bets on both the tortoise and the hare. Put some of your money on the tortoise to finish, and the hare to place, and you have more than doubled your odds of winning.

Real Estate

If you can pay your mortgage and are happy in your home, then why are you worried if the housing prices decline? If you lived in your abode and experienced the unruly and exorbitant increases of housing prices for the last decade, did it really change your standard of living? If you did not already sell your home, was your lifestyle raised at the same rate and pace of the housing market? If the rising prices in housing did not improve your lifestyle, then the adjusted balancing of the market is not going to harm you either, so chill out.

On the other hand, if you accidentally bought into the housing market when it was at the peak, then you may have to wait a little while for the rebound to come back and exceed the levels of a year ago. Reassure yourself that real estate can sometimes be a long term investment. Land is the one thing that nobody can make any more of, so there will eventually be demand for it.

Mortgage

If your lender fails, you still need to pay your mortgage to the company that takes over ownership of the mortgage. If you receive an unexpected notice that your mortgage has been transferred, be cautious and investigate to confirm the transfer of ownership. Don’t let a scam artist take advantage of you during a period of uncertainty, but always make sure that you know where your money is going.

If your financial situation appears unstable or threatening due to the terms of your loan, then this is a very good time to address your concerns and evaluate your mortgage with the lender. While some banks and financial institutions allowed greater risk in recent years, the current concerns have placed a mutual concentrated commitment to secure profitable loans on good credit, and assure that mortgages can be paid. If you are concerned, then schedule a meeting to discuss options with your lender and express your interest in refinancing at lower rates. The lender wants your money, not your home, so you are already starting your conversation with common objectives.

Retirement Accounts

Retirement plan assets are protected, even if the plan sponsor fails. The good news is that your plan is probably not going away, although it is possible that the value of your plan may be doing a disappearing act. This disappearing act is far from magic, and not nearly as entertaining. The risk and reward of many 401K accounts is intertwined with stock market performance, so you may be in for a bumpy ride. Furthermore, like social security, there are peaks and valleys of generations contributing to funds and withdrawing funds. Your crystal ball has as much chance of being correct as the magic eight ball. Don’t put all of your eggs in one basket, because although the basket may not go anywhere, there is no guarantee as to how many eggs will be left in it. Keep a few of your eggs in other safe places, just in case.

Savings Accounts

If your savings account is in an FDIC insured bank, your funds are protected up to $100,000. If the fund that insures the accounts fails, the government covers the balance up to $100,000. If you have more than the maximum insured amount in your savings, perhaps you should consider keeping funds in several different FDIC insured banks. It may be a good idea to use more than one bank or credit union to hold enough funds to pay the bills for a short period of time, in the unlikely and unfortunate event that your primary bank temporarily suspends access to funds for some reason. FDIC protection does not cover money market mutual funds.

Insurance

AIG received much attention and immediate government intervention when it made headline news. In the event that an insurer does go bankrupt, the state regulator takes over to make sure that policies are honored. In fact, the consumer insurance subsidiary of AIG was never in trouble, so consumer insurance plans were not as risk.

Credit Cards

Now this is an area that you should really pay attention to, and plan accordingly. Banks will issue more credit cards in an effort to increase profits. These credit cards are targeted at people with good credit records, but they will come with much higher penalties and increased fees. In a weaker economy, as personal finances are impacted by job transitions, reduced access to loans, or if your profession relies on transactions (sales, real estate, construction, entertainment, etc), it may become increasingly difficult to pay down credit card debt due to reduced income.

Review your bills each month to determine if there are some monthly recurring charges to your credit card that can be cancelled or reduced. If you are carrying a balance forward, make a plan for the amount you will reduce your balance each month. Set a date to pay off your credit card completely, and hold yourself accountable to that date. Start paying with cash, when appropriate, and make a journal of your transactions. Reduce your reliance on the convenience of credit cards for personal use until the economic storm has passed.

Remember that your Credit Card payments impact your overall credit score. As the economy tightens, it is incumbent upon lenders to act responsibly and to limit the access for loans and mortgages to individuals with good credit scores. Lower scores mean higher down payment or rates. Don’t let a lack of attention to Credit Cards become a costly impediment to other important purchases or transitions that you make want or have to make in the future. Moving, selling, or buying a home may be in your future, so don’t let the Credit Cards slip beyond your control now. Even if your Credit Card Company fails, your history and debt remain, and are transferred to another company.

Borrowing Money

To put it simply, this is not a good time to borrow money. Banks will be eager to lend, but only if the bank believes that you have good credit and that the bank has the ability to profit from your loan. If the bank is assured of making profit, it is money coming from your loan, and out of your pocket. If you are considering borrowing money as a way to get out of a hole, like paying off credit cards, then have a plan on how to get out of the hole that is created when you take out a loan. Digging a hole to use the dirt to fill another hole is only a temporary solution, and may have unpleasant strings attached.

Recession

The threat of recession is the constant beating of a drum. Although we may not always see it, we hear it all around us. There are many contributing factors to this economic illness, so there is no single medicine to cure it. As an individual, it is not something that you can change, so it takes serenity to accept it. Be prepared for the ways that it can impact you personally and professionally. Professions that rely on transactions may slow as liquid assets dry up. Real Estate, construction, travel, and entertainment have already been visibly affected, and this trend will continue at least into the first half year of 2009. Professionals that rely on these transactions will have to adjust, and so will all of the businesses that rely on these individuals as consumers. You cannot change that either. However, you can make personal decisions and plans that will impact your immediate financial security, and your long term investments.

Conversely, during times of recession and economic turmoil, individuals often turn to low cost alternatives to boost morale and self-esteem. While housing sales are in a slump and investors are rattling sabers on Wall Street, the lesser luxury items are in higher demand. Make-up, lipstick, diet foods, and small personal luxury items sales are still strong. Cell phones, iPods, and low cost consumer electronics help us forget about the incessant beating of the recession drums, at least for a little while. There is nothing wrong with feeling good about yourself as the world around you screams of panic. You can be serene, because you know what is within your control, and you are making plans for it.

It is highly recommended to seek the recommendations of licensed financial advisors. Do not make decisions based on haste, remorse, or fear. Make your decisions based on an educated balance of immediate needs and long term security. Like the seasons, real estate, the stock market, and the economy will return and flourish in due time. Your goal is to weather the winter storm and be ready for the next summer.

This article is not intended to render legal or financial advice. If you require legal advice, you should seek the services of an attorney. If you require financial advice, you should seek the services of an accountant or licensed financial advisor.

Words of Wisdom

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
- Warren Buffet

“We have seen a significant increase in demand from senior executives across the USA and in Europe who wish to leave the corporate world and become independent small business owners, franchise owners or equity partners. While stockholders are pushing hard for corporate re-engineering, executives are facing a job market where it takes on average 1-year to find a new executive job that may last at best, for only 2-years.”
- Richard P. Driscoll, Jr. Chairman & CEO, The Executive Connection LLC

“While the Internet is becoming cluttered with volumes of meaningless data, it has become essential to deliver clear crisp communications in a matter of seconds.With the objective of presenting the alternative of independent business ownership to corporate senior executives who are considering a career change, we have worked diligently to both educate and inform.”
- Warren Denby, Chief Marketing Officer, The Executive Connection LLC

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
- Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin, 1802

- John Mehrmann, Author of The Trusted Advocate: Accelerate Success with Authenticity and Integrity