… And down comes the rain

After being pummeled by relentless raindrops a couple weeks ago, and as the rain becomes more intermittent, I’ve grown to focus more on embracing Seattle’s warmer temperatures. Luckily, our home was impervious to the floods that left much of Seattle and Southwestern Washington residents feeling like drowned rats. Much of our office, like many, was forced to remain home to cope with the raging floods by siphoning sewage and filthy waters from their soaked basements. And although our townhome (with no basement) escaped the treacherous floods unscathed, the excess water and the damage it wreaked left me feeling rueful for others in our neighborhood who weren’t so fortunate. But in spite of the crippling floods, I must say Seattle’s weather (replete with ample sun breaks) overall is a cakewalk compared with the winter storms that wallop the Midwest.

As I experience my first holiday season in Seattle and with Thanksgiving behind us, I can finally empathize with others who do not have their families nearby during the most cherished of seasons. My Thanksgiving holiday was stung by vapidity, though I cannot say it never has been before, since I have predominantly worked several past turkey days. Though I did take comfort that with my family sprinkled throughout the United States, it was not as if they were hovered around lush, porous cranberries flanked by dark meat poking fun at my absence. However, I am heading back to Chicago (a.k.a. the frozen tundra) for the holidays on Thursday, so although it will be cumbersome dealing with the bitter cold, I am extremely excited to see friends and family that I haven’t seen in some time. Much of the past month my focus has been confined to work and wrapping projects for my class at Seattle University, so it will be invigorating to enjoy a respite from the daily grind, to spend time in the Midwest again, and see so many people I care about again.

Despite the distance from so many loved ones, I am enjoying Seattle and the eye-opening culture that comes with it. Interestingly enough, my roommate said how markedly different I am than I first arrived. My foot-on-the-pedal, fast paced tendencies that I toted with me seem to have abated and it seems my former scales of distress and anxiety have been shed, likely because I have somewhat adapted to the more laid back environment on the West Coast and I’m not tangled in a daily routine I’ve known for too long. Even I have noticed the changes within myself, and I’m not sure if it is just the change of scenery or Seattle, but I am much less prone to panic attacks and much of my stiffness and anxiety has melted when dealing with rough patches lately.

But although I am enjoying my new home, nothing will ever beat going home to Chicago for the holidays!

Kirkland Extreme Makeover – Tonight at 8

[photopress:070926_kirkand_emhe.jpg,thumb,alignright]I call this “The Little Yellow House That Couldn’t”.  It’s my understanding that the “Makeover” turned into a “Teardown”. 

The show airs tonight, and I will be watching it at The Kirkland Performance Center with a start time of 7:45 P.M. to make sure everyone is in their seats before the show starts.  Sure, I could sit at home and watch it for free instead of $15 (with proceeds to Hopelink), but I want to get a centrally located seat so I can hear the audience reaction.

Will be interesting to see how the show justifies the Teardown vs. Makeover, and hear people’s reaction to what was done over there at The Little Yellow House in Kirkland.  I don’t watch the show, so maybe they always tear them down in order to “make them over”.  Any insight on that from RCG readers would be appreciated.

Should You Buy a Short Sale Property?

The current market is making me feel older than dirt.  Mostly because there are fewer and fewer agents around who have sold real estate in a previous bad market.  I find myself explaining what is going to happen next, to many who have never been through a short sale from beginning to end.  Even if you take classes about what may happen, it doesn’t replace the experience of living through what actually does happen.

Everyone wants a bargain, especially in this market.  But the truth is that many bargains go to investors and people inside the industry, because they can handle all the hiccups better than owners who plan to occupy the property.  Whether it’s a short sale, a foreclosure, an estate sale or other “discounted” property, often it’s like buying yesterday’s donut.  You can expect something to go sideways in a short sale, and often you can’t get it to go perfectly straight.

short sale1) The closing date may be delayed. In fact you can pretty much count on it.  For someone who is trying to coordinate a move, this can wreak havoc on their life.  If you are trying to link together the sale of your house with the purchase of a short sale, well good luck with that one.  If you are trying to give notice to your landlord and be able to move into the short sale property on a firm given date, not always a reasonable expectation.  Most often short sales involve a series of extentions strung together until it closes. If someone is not planning to live in the house, such as an investor, not a huge big deal.  But for someone trying to move into it, it can be a nightmare of uncertainties.

2) The bank does not approve the sale price. One of the hardest things to understand about a short sale is that the buyer and seller agree to a price, but the bank is the one calling the shots.  Even when you get the HOORAY OK from the bank, the road can be very bumpy to the end.

Say you are buying a house for $820,000 and the payoffs on the seller side are $860,000 including a first and second mortgage and seller’s closing costs including exise taxes.  The 1st mortgage is going to be paid in full, so it is the second mortgage lender who is agreeing to whatever is left after other costs are paid. You send them an estimate that they are going to get $60,000 of the $120,000 owed to them.  They say OK.  Now during the time you waited for them to say OK, guess what happened.  Yup.  ALL THE COSTS INCREASED!  The first mortgage payoff got a lot higher than expected.  The utility bills went into arrears and the utilities may even have been shut off.  The arrearages grew and grew and now the 2nd lender who agreed to take $60,000 is only getting $50,000.

You can see how this can turn into a big yo-yo affect with the buyer feeling like someone is not telling the truth.  Yes the 2nd approved the short sale.  No the 2nd isn’t letting it close now.  You must remember that the 2nd mortgage never approves the sale price of $820,000 in the example above. They approve the amount that they are going to be “short” on their payoff.

The buyer thinks the bank approved the sale price of $820,000 when we got the first Hooray OK, when in fact what they approved was receiving $60,000.  Now when you do the final closing statement and the payoff is $50,000…you are back to square 3.  You are not back to square 1.  You have made progress.  But not as much as you thought and the closing date is again delayed and the sale, again, may not happen at all.

3) Now you get to the final stage.  The bank approves the $50,000 or the buyer agrees to come up with an additional $10,000.  Somehow the gap between the $60,000 approved and the $50,000 left to pay the 2nd mortgage has to be bridged.  Possibly with a little give and take on everyone’s part, including the agents.  The buyer who is now being asked to give a bit more than agreed to at a sale price of $820,000 doesn’t understand why.  “I thought the bank agreed to the price of $820,000?”  Remember, the “shorted” lien holder never approves a sale price.  They approve the “short payoff” which is a moving target! It can get very frustrating and difficult to comprehend and follow.

4) Now the buyer wants to walk through the property the day of signing.  Uh-oh…the utilities are shut off.  Anyone who can’t make their mortgage payment and who is not living in the house, is not likely to keep the utility bills current during this long approval process. Yes it is reasonable for a buyer…normally…to want the utilities on for the final walk through or for the inspection.  But getting them turned on is easier said than done.  Whose name do they get turned on in?  If it is closing in the buyer’s name in 3 days, they likely don’t want the utilities in their name yet.  In fact the utility companies may not even let a non owner/non-tenant put the utilities in their name.  It clearly is not something a lawyer would advise a buyer to do prior to closing.

The seller isn’t forking out any money to get the utilities turned on, they have no proceeds and are not putting any money into the house.  Same goes for repairs.  You walk through and see something wrong with the house and want the seller to get it fixed.  No way Jose.  Seller is walking off with his tail between his legs licking his wounds.  He’s often depressed and disgusted and beat up by life.  He’s not coming over with a licensed contractor to make repairs.

5) The Buyer Agent often agrees to a short commission.  So if you have arranged with your Buyer Agent to recieve a portion of the commission, don’t be surprised if that amount changes at the end.

Lots of headaches.  Lots of uncertainties.  The truth is that investors foresee most of this.  They don’t care as much about the mundane things like what date it will close or making repairs.  They are going to gut it anyway.

So the next time you wonder why investors and insiders always seem to get the best deals, ask yourself this.  Who else would put up with all of this nonsense?  Looking for a bargain?  Great.  Just remember this.  It’s often like buying yesterday’s donut instead of a warm Krispy Kreme straight from the oven.  The taste left in your mouth after all’s said and done…may be a little stale.

Major Proposed Changes for Residential Closings in 2008

Alternative sexier titles to this post are: “Your Escrow Officer is a NARC” or “No More Quicky Closings” or how about “The Escrow Hills have [photopress:detctive_1.jpg,thumb,alignright]Eyes”. There are some major changes brewing with how escrow will be practicing their business in 2008. Escrow companies may become “undercover

Fed Funds Rate now at 4.25%

The FOMC announced that the Fed Funds Rate and Fed Discount Rate are both being reduced by 0.25%.   Remember (I can never say this enough) this has no direct impact on your mortgage interest rate EXCEPT for home equity lines of credit which are based on Prime Rate.  If you have a HELOC, your rate will decrease by 0.25%.  Lucky you!

Mortgage rates are based on mortgage backed securities (bonds) and will adjust based on how the markets react to this adjustment.  The 0.25% drop is pretty much what was being anticipated by the markets and has been priced into mortgage rates.   This is why I’ve been urging borrowers to lock in before today and last Friday’s Jobs Report since mortgage rates (bonds) tend to react negatively to inflation.

What will happen now is everyone will be interpreting what the future may hold based on the Fed’s Statement.   Although this cut is what they expected, many are disappointed with the statement:

“Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending…. core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.”

The closing comment suggests they are prepared to cut again or do what ever they feel is needed:

“The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.”

The Fed has now cut rates a full point since September.  Currently the stock market is reacting negatively.  I will update this post should we see dramatic changes to mortgage rates following this action by the FOMC.   

Adventures In Articulated Transportation

[Editor’s note: Today, I’m excited to introduce Mike Schwagler as the newest contributor to Rain City Guide. Mike currently wears two hats in that he is an agent for John L. Scott in Redmond and also the founder of Write For Sales Copywriting. I’ve had an email dialog with Mike for a while now and I’m confident he’ll be a great contributor to the site! Mike can be reached at 425-861-1588 or writeforsales@comcast.net]

My wife, Diane, and I have lived on the Eastside for over 20 years and never tire of going to Seattle. Well, perhaps the verb going is misleading. We like being in Seattle…at least once we get there! The hubbub, the energy, the cultural activities, the people on the street, everything about it is wonderful. Seattle truly is a great city!

Going there, however, has always been the issue. In fact, I’d bet there were 10 years when we only got downtown once a year. Driving in, along with the issues of parking and navigating the downtown streets had been enough of a hassle to discourage a lot of our visits.

About a year ago Diane took a position with Virginia Mason, working downtown, and discovered something quite remarkable – our public transportation system. At first we were a little bit hesitant about this whole bus thing, so on the Saturday morning before she started her new job, we took the bus downtown. It was a dry run to figure out the best stops for her to get off and the best routes for her to walk to her new offices. Once we were comfortable with all of that, we walked a few blocks to the shopping district and ended up hanging out in downtown Seattle all day. It was a blast!

When we were done, we hopped onto the “545” (one of those long, articulated express buses) at Westlake Center and 23 minutes later we got off at the Redmond park and ride. Who needs a car?

Diane takes the bus to work every day and with the exception of a storm-related adventure last winter (which could’ve had serious consequences had she been driving a car), she has been having a great experience. She’s developed a group of bus-buddies and always has an interesting story about someone new she met on the bus. That doesn’t happen in your car unless you crash into someone.

As for me, I’ve used Metro and Sound Transit to get downtown at least fifteen times, for seminars, shopping and just for fun. I hop onto the “545” right outside my office here in Redmond (how convenient is that?), do what I have to do downtown, and then meet Diane after work for a bite to eat or to just stroll around with my gal in the Emerald City.

The Baby or the Bathwater

 

[photopress:babybath_1.jpg,thumb,alignright]

Are we throwing out a program that works, the FHA Down Payment Assistance Program, in this case the baby, while trying to fix the sub prime mess, the bathwater? I guess it all boils down to how valuable home ownership is and how well it helps drive a healthy economy.

A lot of realtors, including myself, have used an FHA non profit down payment assistance program (NDPA) with borrowers that want to own a home but can’t save a down payment fast enough to keep up with rising home prices. FHA programs, like Nehemiah or AmeriDream,  allow more options for buyers, including the gifted down payment portion, and now that zero down payments are hard to find, this program is needed even more. 

The non profit down payment assistance programs are going to be stopped in February unless Congress votes to extend the program.  In the HUD Appropriations bill, congressional members are being influenced by a study done by HUD that shows that the default rate from the non profit down payment programs is 1% higher than other down payment assisted loan programs. 

However, there is a further study by George Mason University that contradicts the HUD study and calls into question the validity of that statistics.  For instance, the HUD sampling was limited to four  US cities that had a higher than normal use of the programs and decreasing home values. Because of this study, the bill extending the programs may not pass.

The George Mason University study as well as the HUD bill is available by emailing me.  It is long and takes time to get through, but here are the key findings, extremely edited!
1.  627,000 NDPA loans in 5 years.
2.  National economic benefits as a result of these loans in the same time period is 4 times the estimated costs.
3.  Those using this program had total wealth growth of 9.6 billion of this period.
4.  NDPA homeowners contributed 228 million in property taxes in that time period.
5.  NDPA homeowners generated 7293 jobs just in using more utilities due to their home ownership
6.  Spending on household items created 60794 jobs, 1.8 billion in personal income, and 5.8 billion in total economic output.
Senator Patty Murray has voted against this bill possibly because of the influence of the HUD study.  I hope she changes her mind. Since over 95% of all homebuyers using this program have not defaulted, we would be punishing those hopeful buyers and throwing out a wonderful and productive program.
 

Wow! What a ride!

About an hour ago I walked out of Move’s offices for the last time as an employee. For those of you who’ve been around RCG for a while, you’ll remember that I took a position as Director of Consumer Innovations at Move with great enthusiasm back in April of 2006. Taking the position was a huge deal for me and my family and now that I’ve decided to leave,

The amount I learned working with the people at Move was incredible. I enjoyed learning a tremendous amount about product development, marketing, PR, corporate development and much more in little over a year-and-a-half. I was laughing with another employee earlier today because we both felt we had gotten an MBA’s worth of education in an incredible short-time period.

Interestingly, I’m actually more bullish on Move now then at any time since I started getting my hands dirty at the company. The new members of the executive team are bringing on top-notch talent and starting to make some hard, but necessarily, decisions around product development and business models. My decision to leave had very little to do with the long-term prospects of the company and much more to do with the role that I would be able to play in these changes. (Plus, it didn’t hurt that some opportunities opened up in the world of consulting that were just too good to pass up.) 🙂

Talking of outside opportunities… Now that I’m no longer affiliated with Move, I plan to talk (a lot) more about ways that real estate professionals can engage consumers using online technologies. But rather than clutter up this perfectly good blog about Seattle real estate with my industry rambles, I’ve decided to focus those conversations on 4realz.net.

Please consider joining me on 4realz.net. I promise to be interesting enough that it will become a must-read (and a must-feed) for anyone interested in the future fringes of the real estate industry.

Four plus inches of rain

It was a wet day yesterday, what with landslides and 4+ inches of rain (7+ near Bremerton). Four inches is a little over 11% of Seattle’s annual 36 inches of rainfall. I know of at least a couple of people who were pulling soggy belongings out of their basements last night. My stuff: not on the floor of my basement. I learned that one early on. If you’re collecting your damp belongings from your basement, you can count your blessings that you can still get into your home and there is still stuff there – some people aren’t so lucky.

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"Hope Now" program to curb delinquency/foreclosures fraught with problems

The Hope Now program currently being proposed in the other Washington is designed to assist current homeowners with Adjustable Rate Mortgages (ARM’s) in which their ARM’s may adjust upward causing financial hardship. An issue of immense concern is how do you sift through the thousands of homeowners and qualify those who’s mortgages are about to recast to some ugly interest rate? Further, how do all the stakeholders and investors of these mortgages see this playing out—that’s the part Attorneys will have to fight about (what say you Attorneys?).

If the Government players in this program, including one of the lead Conductor’s in this orchestra, Treasury Secretary Paulson, have their way, the investors of these loans will have to be a good sport and play along, never mind losing copious amounts of money, nor the other legal implications.

‘The modification of existing contracts, without the full and willing agreement of all parties to these contracts, risks significant erosion of 200 years of contract law,’ said Joshua Rosner, managing director at an independent research firm in New York.