The Press-Enterprise

Eileen Capizzo gets teary eyed when she visits the "dream house" in Beaumont that she and her

husband, Joe, bought less than two years ago.

Soon after that, her husband died in a car accident and she was diagnosed with lung cancer. Now she

can't afford the house and has tried in vain to sell. Even though she paid a $100,000 down payment, she

has watched that equity evaporate as real estate prices tumble.

She can't work and has drained her savings to pay her mortgage.

She has followed the path of an increasing number of Inland homeowners and resorted to what's known

as a short sale, reducing the price on her house to where it will no longer cover the amount of the

mortgage.

"I am trying to keep my credit," Capizzo said. "The short sale will ding my credit but not as much as a

foreclosure."

Short sales must be approved by lenders, who traditionally have reserved them for mortgage holders like

Capizzo who are blindsided by an unavoidable, long-term hardship, such as a death, serious illness,

divorce or job loss.

Escaping Adjustables

Real estate agents say this year lenders are approving short sales as an escape route for borrowers whose

adjustable-rate mortgages have skyrocketed beyond their means.

"The old school mentality was the hardship had to be marital, medical or job related. But I have had

short sales approved and the hardship is that the loan is adjusting," said Jacob Swodeck, short sale

manager for ForecloseHelp.com, a company in Covina.

Mortgage industry officials say lenders do not wish to reward people who used poor judgment by

refinancing too often or using their house as an ATM machine to buy recreational vehicles and other

luxuries. Nor do lenders want to let customers sell homes short if they can afford higher mortgage

payments but desire to dump a property or mortgage they now perceive as a bad deal.

Taking a Beating

Real estate agents say lenders generally won't even consider a short sale offer unless a homeowner is

already at least one to three months behind on mortgage payments.

"If everyone comes out of the woodwork, even those able to pay, the next thing you know the bank is

being pummeled," said Chris Thornberg, a real estate economist. "The problem with a short sale or a

foreclosure is that the process forces the bank to have to acknowledge its losses."

Maureen Gagne, servicing manager for Guild Mortgage Co., a San Diego based mortgage banker with

branches serving Riverside and San Bernardino counties, said she is receiving more requests for short

sales but weeding out many that are "low ball" offers or where the homeowner has the ability to pay the

mortgage but is spending on something else.

Better Than Foreclosure

Lenders said they prefer a short sale to a foreclosure, which the Bank of America said is $30,000 to

$50,000 more costly because of the expenses of seizing a home and putting in on the market. Also,

delaying a sale until foreclosure may result in a lower price in neighborhoods where property values are

deteriorating.

"In a foreclosure nobody wins. The lender loses and the borrower loses," said Bank of America

spokesman Terry Francisco. He said the Bank of America is seeing an uptick in short sale requests in

areas like California where the housing market is in decline after a long run up.

Harder to Negotiate

It is uncertain how many short sales are being attempted and what portion succeed. The California

Association of Realtors, DataQuick Information Systems and RealtyTrac all follow real estate trends but

don't track short sales. The Multi-Regional Multiple Listing Service that serves the Inland Empire and

part of the San Gabriel Valley had 3,983 short sale listings about a week ago. It does not track them

month to month.

DataQuick analyst JohnKarevoll said short sales were significant during the 1990s, but he does not think

that is true now. He said today's delinquent borrowers are more likely to have multiple mortgages,

making it difficult to negotiate with several lenders on a sales price or split the deficient proceeds.

Lengthy Waits for Approval

Swodeck said only a small fraction of short sales succeed. He attributed the high failure rate to a

combination of factors, including the sluggish market, the time lenders take to approve an offer and the

stigma that short sales have among agents who represent buyers.

Nick Manfredie, chief executive of The Short Sale Processor, a new company in Corona, said a

homeowner wanting a short sale must submit a letter to lenders explaining the hardship and include

documentation, such as bank statements and tax returns, to prove he or she cannot afford the mortgage.

Of the 43 prospective short sales his firm is working with, Manfredie estimated that about half will get

an offer lenders will accept.

Lenders Overwhelmed

The biggest frustration, say agents, is that it can take months for a lender to decide whether to accept an

offer, in part because lenders' mitigation departments are being inundated with such requests.

"The loss mitigators in the loan servicing offices may have as many as 175 short sales each. They are so

overwhelmed that all they can do is just work on the ones close to being auctioned off," said Karen Beer,

Capizzo's home in Beaumont is reflected in a mirror,

shattered like her dreams after her husband died. She hopes to

sell the home for less than the mortgage amount of balance.

an agent with Coldwell Banker Associated Brokers Realty in Murrieta.

Capizzo had a short sale offer of $319,000 for her house but lost it when the prospective buyer decided

not to wait for a lender to decide and bought a new house nearby on which the builder offered $25,000

in incentives, said Wayne Kelley, Capizzo's real estate agent.

Richard Macias, 42, also has had no luck selling his house in Corona's Horsethief Canyon for $329,000,

which is $88,000 less than enough to repay his mortgage. Macias said he can't afford the adjustable

mortgage he got two years ago when he refinanced his house to raise funds to develop an invention.

Rising Adjustable Rates

Macias, a dock builder for the city of Los Angeles, said in the last year the interest rate on his mortgage

has steadily risen, pushing up his monthly payments from $2,200 to $3,600.

When he tried to refinance to a fixed rate, he said, he still could not get a payment he could afford

because late mortgage payments hurt his credit score.

Macias, who was also injured on the job and is on disability, said if he finds a buyer for his house, he

hopes that his lender, Chase, will accept a short sale. With a trustee sale scheduled next month, he

doesn't have much time left.

Consequences

John Merrill, president of One Source Data in Carlsbad, a credit reporting agency, said a short sale is

less damaging to credit scores than a foreclosure. He said his model shows that a short sale will lower a

credit score by 30 to 60 points while a foreclosure will lower it by more than 100.

How a short sale will affect the ability of a borrower to obtain another mortgage will vary from lender to

lender and depend on the borrower's current financial circumstances, said Dustin Hobbs, spokesman for

the California Association of Mortgage Bankers.

Hobbs said most lenders "regard a short sale and past hardship much better than a past foreclosure

because a short sale in most cases shows much more effort on the part of the homeowner to stave off

losses."

But Karen Hirsch, business administrator for Mountain West Financial, said underwriters for the

Redlands-based mortgage banker view short sales as negatively as foreclosures and it would take time

before a short seller would be considered a reasonable credit risk for another mortgage.

"If (borrowers put) themselves in a position where they were unable to make their house payment, it

tells you about their sense of responsibility," she said.

Taxed Like Income

Short sellers may also face tax consequences.

Paul Prescott, a tax principal with Deloitte & Touche in Costa Mesa, said the amount of debt that a

lender forgives on a mortgage by accepting a short sale can be taxed as regular income by the federal

government if the mortgage was a refinance or equity line of credit.

There are exceptions if the borrower was in bankruptcy or insolvent at the time of the short sale, Prescott

said. The amount by which the short seller's debts exceed his assets can be excluded from taxation.

Also, the debt forgiven on a mortgage used for the original purchase of a house is not taxable, Prescott

said.

President Bush has said he will work with Congress to try to eliminate the income tax involving short

sales.

Hardships force homeowners, mortgage holders to accept short sales | Business | PE.com |... Page 6 of 6

http://www.pe.com/business/local/stories/PE_Biz_D_short23.945b36.html 10/2/2007

October 2007 newsletter - individual

THE SUB-PRIME MELTDOWN CONTINUES TO HAUNT HOME SALES... Everyone has seen the headlines of the continuing woes for lending and subsequently, home sales.  The question is what does it all mean and how long will it continue?  Conservatively, the lending industry has lost 20,000 jobs and countless small mortgage companies and more than a few industry giants.  However, money itself is not the problem.  Kenneth Harney, a writer for the Washington Post Writers Group deftly noted that money is still plentiful.

                "The majority of mortgage products remain relatively unaffected by troubles in the sub-prime segment, and interest rates for 30 year fixed-rate loans remain in the low 6% range for people with reasonable good, not perfect, credit backgrounds."

                The article goes on to state that the only real change in money is that loan underwriting programs have regained a strictness that allows only borrowers who can truly afford a loan, to receive that loan.  The rash consumerism of both the borrowers of sub-prime and Wall Street who voraciously snapped up those loans is gone. 

HOME SALES is another matter.  Unfortunately the effects of those sub-prime loans are going to be felt for some time.  How long depends on where you live and how subject your city and even your neighborhood is to high numbers of those loans.  Simply put, once these loans adjust, we are left with high numbers of people who cannot afford the payments.  These problem loans become foreclosures.  Foreclosures drag down the home prices in their neighborhoods.  Buyers become aware that prices are sliding and they decline to enter the market until they feel satisfied that prices are as low as they are going to go.  You begin to see the cycle.

HOW DO WE BREAK THE CYCLE AND WHAT DOES IT MEAN... Sellers and buyers need to be aware during this market.  All real estate markets are cyclical and this one is no different.  The market may cycle for different reasons, but it does cycle.  First of all, sellers must be realistic about price and condition of their property.  They must understand that staging a property for sale and open house is crucial right now.  IF YOU DON'T ABSOLUTELY HAVE TO SELL RIGHT NOW, DON'T SELL, BECAUSE YOU WON'T LIKE THE PRICE YOU WILL HAVE TO SELL AT.  But if you do have to sell, getting it properly priced at the very beginning, staging the property so the buyer can easily see themselves in the property, will ensure you the very best offer usually in the quickest time.  BUYERS!  DON'T WAIT TOO LONG TO BUY.  INTEREST RATES MUST BE A PARAMOUNT CONSIDERATION.  UNLESS YOU ARE A SPECULATOR, YOU WILL BE IN YOUR HOME LONG ENOUGH THAT A FEW MONTHS WILL MAKE NO DIFFERENCE IN YOUR LONG TIME APPRECIATION.  BUT ONE HALF A PERCENTAGE POINT IN INTEREST WILL MAKE A HUGE DIFFERENCE IN YOUR PAYMENT. 

ALLEN GREENSPAN STATES IN HIS NEW BOOK THAT DOUBLE DIGIT INTEREST RATES WILL BE NEEDED TO CURB GLOBAL INFLATION... Is that true, or is he trying to sell books.  Who knows, but interest rates are pretty good right now.  Buyers must take this into consideration when contemplating when to buy a home.  There are more factors affecting interest rates than anything else in a transaction.

BUYERS MAY WANT TO BUY BEFORE THE INVESTOR/ SPECULATOR RETURNS TO THE MARKET... No one knows exactly when.  It could be as early as second quarter 2008 -- This projection is for Orange County.  Inland Empire will lag significantly due to the higher number of sub-prime loans - or it could be as late as first quarter 2009.  But the true homebuyer has a better shot prior to that.  Yes, speculators may initially bring prices lower still.  But once they have snapped them up, they will make improvements and place them back on the market for a higher price to make a quick profit.  Speculators are a prime reason prices went so high so fast, in the first place.

NOW MORE THAN EVER A REAL ESTATE PROFESSIONAL MAKES THE DIFFERENCE... Make no mistake; this market has hit many hard.  Standard Pacific Builder has halted dividends to save money.  The OC Register had an article which wondered what took the Fed so long to recognize the slump and lower rates.  Local job growth went from 2% to "virtually nil."  We are having our slowest sales since 1995.  The total number of sales the latest month available (August) is 2,285 for single-family and condo resale and new homes.  This number is 33.9% lower than a year ago and that  number was 33% lower than the year before that.

                I can help you with any real estate challenge you may have.  If you have questions on whether selling now is right for you, please call me.  If you wonder if now is the time to buy, there are many positives for you to consider such as interest rates, selection and seller concessions, namely loan buy downs that could make a huge difference for you.  Now is the time when we need to talk about real estate more than ever.  Also, the privilege of serving your family and friends is the life blood of my business.  I hope to hear from you.

September 2007 newsletter - individual

HOW TO STAY BALANCED IN A CRAZY REAL ESTATE MARKET... The sub-prime meltdown is definitely causing pain for many people in the housing sector.  Lenders have been wiped out overnight and Wall Street is reeling from greedily gobbling up all the sub-prime they could find.  Greed has played a role in every decade.  The 80's was the junk bond debacle.  The 90's brought the IPO and dot com fiasco.  And this decade is sub-prime.  Unfortunately, it's the consumers who bear the brunt of the burnout.  How to stay balanced?  If you look at the history of real estate, it has always been cyclical.  Now is no different.  Anyone who bought a property during the 90's and held it 10 years probably made more money that a stock would have brought.  We can't forget that real estate is inherently practical.  You must have a place to live.  You must pay for that place so why not build equity as opposed to throwing it away on rent.  The tax savings are great but the main component that separates real estate from stocks is leverage.  You get to use someone else's money and you get to keep the equity.  Staying balanced in this market is simple.  If you don't absolutely need to sell, you probably shouldn't unless you are realistic about price.  If you do need to sell, just reducing the price, at this juncture, probably won't be enough.  Everyone is lowering their price.  Now is the time to offer incentives on closing costs and loan buy-downs.  Even though buyers will tell you they are price sensitive, (no one wants to overpay for a house), they are really payment sensitive.  That monthly payment dictates how much house they can buy.  Obviously that's partly how we got into the mess we're in, people were unrealistic.  But you can safely buy down a 30 year fixed loan for 2 or 3 years and now your home has something that your competition doesn't have... an attractive payment. 

                If you are buying right now, don't try to steal properties.  It won't work and you'll possibly ruin the chance of having a home you'd really like to buy.  Prices are not going to collapse, so be realistic.  Rather use this market, which is to your advantage, to get concessions that really matter to you.  Remember, interest rates are still great on conforming loans, that is, loans that can be sold to FNMA or Freddie Mac.  But jumbo money will cost you and will continue to dry up.  All these things must be considered in your hunt for the perfect dwelling.

WHAT WERE THE ACTUAL NUMBERS... The total number of sales for Orange County for July (the latest month available) was 2,391 which was nearly 10% lower than the previous month and nearly 20% lower than July a year ago.  It can be argued that the papers are sensationalizing the news and spinning it for the worse.  Why?  When you consider the hundreds of lenders that closed their doors, the impasse right now on Wall Street, the fact that home sales only slowed 10% is significant of a still standing real estate market.  There were 1,560 single-family sales, 580 condos and 251 new homes.  The median price for all was $640,000.  No price range had more than 355 sales except the over $700,000 which had 906.  Notices of Default rose 5% from last month to 1,167 and actual foreclosures numbered 367 which was up a paltry 3%

WILL THERE BE A FED BAILOUT... There are some pretty heady names asking for one.  Bill Gross from Pimco is urging it and others are following.  The feds have indicated that they will not bail out lenders and investors, but it would seem to be a little early to tell.  The extent of the problem is not yet fully known and how resilient the market is, is not yet known.  Expect to see a return of creative financing with loan assumptions, seller carry backs, and other solutions.

ODDS AND ENDS... According to the Kiplinger Editors there are still land developers bullish on Orange County regardless of the housing slump.  "Investor-backed Forestar Land Partners will buy more than $250,000,000 worth of land in Southern California."  Also Irvine, Anaheim, Santa Ana, and Huntington Beach will account for nearly 49,000 new homes over the next 7 years.  Yes, you read that right.  If you missed the color coded map of Orange County foreclosures by city, call me and I will get it to you.  Most of Orange County is faring well even though there are hubs of sub-prime foreclosures starting to spring up. 

YOUR REAL ESTATE PROFESSIONAL MAKES A DIFFERENCE... It is my job to stay on top of legislature that may affect home ownership.  You may want to drop a line to your congressman about a "carbon tax" bill that proposes a cutoff of mortgage interest tax deductions based on the size of the house.  The cutoff is only 3,000 square feet.  The article was in the LA Times and I can get you a copy if you would like to see it.  Finally, a note to sellers: another great option to distinguish your home from the competition is to get your home inspection up front.  That way the buyer has a comfort level in knowing right away, the condition of the home they are thinking of buying.  That, along with some smartly played concessions could sell your home in no time.  I'm always here to serve you and answer any real estate questions.  Have a great month!

Why Buying a Home Is the Best Option
By Colleen DeBaise
April 4, 2007

 

A GOOD CHUNK OF the U.S. population refuses to give up renting. We're not sure how many renters are stubborn hold-outs (the U.S. census doesn't measure in terms of obstinacy, although we do know that the majority of Americans — about 69% — own their own home). For many, the American Dream is simply out of reach for financial reasons.

 

But, for others, it's not the money, it's the....well, we've come up with five reasons why people don't want to buy real estate. Perhaps you've used these excuses yourself — or know a colleague, a family member or a friend who has. We've enlisted the aid of experts — Stacy Francis and Nancy Flint-Budde, certified financial planners in New York City and Salem, N.Y., respectively, and Mark Schussel, a spokesman for Chubb Group Of Insurance Companies in Warren, N.J. — to counter these excuses and knock some sense into the real-estate challenged.

EXCUSE #1: "Everyone is way too insane about real estate."

Count this as the "protest" renter — the person who perpetually rents, who thinks they're too cool for school and doesn't want to be one of those people who talks about renovation projects at a cocktail party. (The true "protest" renter also protests cocktail parties.) These people might also fear growing up, becoming their parents, owning guest towels, etc.

 

Counter: Well, owning your own home IS a responsibility — and if you're not ready for it, then don't do it. Of course, you'll miss out on nice tax breaks for mortgage interest and property taxes, which make owning a compelling proposition for many. Not to mention, you're not exactly building equity when you split the rent with the roomies (but, hey, it does help with the cable bill).

"I look at renting as writing a check and throwing it out in the garbage," says Francis, who often advises clients on buying apartments in Manhattan. For many people, buying a home is their first crack at building their net worth over the long term, she says. The traditional way to ease into home ownership is to buy something like a condominium or townhouse, so your weekends aren't spent at the home-improvement store picking up weedwhackers. But be careful: You might feel like a real adult once you own. "You are no longer at the whims of your landlord to raise your rent, or sell your building," Francis says. "It really gives you stability."

EXCUSE #2: "Renting is a good deal."

Truth be told, there is some logic to that. After all, if something breaks in your rental apartment, you just call your landlord. You don't spend money on pricey renovations. Heck, you don't have to pay property taxes. And if you've got enough money for a down payment, why dump that cash into an expensive home, when you could use it to buy something like stocks instead?

 

Counter: Many people consider their home an investment. "We call it a 'use asset,'" says Flint-Budde. "It's an asset that you own, and you hope it will appreciate, but you are using it along the way." That means even if your home doesn't appreciate as much as your favorite stock or exchange-trade fund, you still gain because it doubles (hopefully) as a nice place to live. And homes historically appreciate over time — so if you are able to hold onto your abode for a minimum of five years, you'll likely see a significant increase in value, Flint-Budde says. In its latest report, the National Association of Realtors said typical sellers are still experiencing healthy gains on the value of their home over the last five years, even in areas where prices have fallen. The group estimates that the median five-year price gain is 41.8%.

Still rather build your securities portfolio than buy a house? "If you have to turn around and pay $1,000 a month to rent somewhere, you may have less available to put into stocks," Flint-Budde points out. "And at the end of the day, if you put some into stocks and some into real estate, you would have diversified your portfolio more."

Oh, and for those averse to paying taxes? Don't fool yourself. Even renters pay property taxes. That's often what most of your rent check goes to pay, and your landlord — not you — gets the tax deduction.

EXCUSE #3: "Buy a house on my own? Then I'll really never get married. What do I do next — buy a cat?"

 

OK, so we hear this one a lot from women. Well, interestingly enough, research has found that single women are leaping into real estate. In 2006, they accounted for 21% of home buyers, up from 14% in 1995, and well ahead of single men, who made up only 9%, according to NAR research. Yet, many women confess they are hesitant to buy a home on their home. Shouldn't they be waiting for Mr. Wonderful to come along and sweep them off their feet?

Counter: Tsk, tsk, says Francis, who hosts "Savvy Ladies" seminars to counsel women on personal-finance decisions. She's heard this excuse hundreds of times from female clients. "I call it the 'Prince Charming' syndrome," she says. "They put their life on hold until they find that Prince Charming. What it really comes down to is that women are just as capable as men at doing things on their own, and starting to live their life for now." One thing she reminds women — regardless of their marital status — is that they're more apt to live longer and need more money in retirement. A home is a perfect way to begin building wealth, she says. Women in general are hesitant when it comes to not only buying a home but investing, looking for a new job or asking for a raise. Accept that you are not going to be comfortable with the process, but do what you can to prepare for it, such as reading books on real estate, or doing research on the Internet, she says. Buying a home is a smart decision, in many ways. "Women who have actually purchased homes tend to have more equitable relationships," she says. "They are choosier and decide to be with men who they want to be with for emotional reasons, not financial reasons."

EXCUSE #4: "I'm afraid of commitment."

Funny, we hear this excuse more from men. But seriously, there are some meaty issues here. Many people aren't sure they want to commit to a certain city, especially if they are building a career and possibly switching jobs. And despite the fact that we're a nation of debtors, some people perish the thought of taking on an enormous mortgage. Others are worried about the possibility of outgrowing their home, perhaps because they're considering starting a family or having more children.

 

Counter: As excuses go, this one isn't bad. Most experts recommend that you stay in your house at least three to five years, to recoup costs associated with closing and to see an increase in the home's value. Plus, you need time to weather the ups and down, such as shifts in interest rates that can quickly turn a healthy seller's market into one where the buyer calls the shots. In addition, from a tax perspective, you need to own your home for at least one year to qualify for the 15% capital-gains tax rate on profits; own it for more than two years and there's no tax on the proceeds from a sale (up to $250,000 for singles, and $500,000 for married couples). Flint-Budde says she tells clients — especially first-time home buyers — to purchase a home only if they plan to live there at least five years.

Research has shown that home buyers put thousands of dollars on credit cards upon moving into a home "because they need so many things; they never needed a garden hose before," she says. "There are some real cost issues with moving into a house."

Francis says she tells clients to put buying on hold "if you've had some traumatic thing happen in your life — maybe it's the loss of a spouse, or a divorce, or a job change," she says. "Sometimes it's good to just sit for a few months so when you do go out there and purchase a home, it suits your needs." She also recommends that home buyers have enough for a 25% down payment, and a stable job. If you don't, then "it may not be the time," she says.

EXCUSE #5: "I'm worried about disaster striking."

No doubt about it — this is a valid concern. In recent years, a Category 5 hurricane, a terrorist attack and a documentary about the certainties of global warming have struck fear in the hearts of many potential home buyers. But should it stop you from buying a home?

 

Counter: Nope. Historically speaking, property values bounce back, especially if the disaster happens in a desirable area. Real estate in Manhattan, for instance, has soared in value since the 2001 attacks. And despite mudslides, earthquakes and even smog, property along the California coastline is still the most sought-after in the country. What to do if you're really worried? Before you buy, call in a loss-prevention specialist, who can analyze the individual home's design and construction to see how likely it could survive a catastrophe, says Chubb's Schussel. Then, if you really want a peace of mind, beef up your insurance. For starters, people who are investing in expensive homes (in vulnerable areas) should make sure their policies include guaranteed-replacement-cost coverage, which will protect you during rebuilding if the prices of labor and material surge, he says. Make sure your policy covers debris removal, rebuilding to code, and additional living expense coverage, in case it takes you months or even over a year to rebuild, he adds. There's a good chance you might not want to rebuild if disaster strikes, so check to see if your policy provides an optional cash settlement so you can decide, "I'm taking the money and running," he says.

In places where flooding is a concern, many homeowners get basic coverage through the National Flood Insurance Program. Upscale customers may want to buy excess flood coverage (offered by private insurers) to supplement that, he says.

CONCLUSION:

We like real estate. If you've got a down payment, a stable job and an area you're comfortable living in for years to come, we can't figure out why you don't.