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Mortgage & Finance Category

Do You Pay Taxes?

Taxes

Today is the deadline for filing your 2010 income taxes. I read an article on CNN.com that I found interesting.  The title of the article is “45% don’t owe Income Tax“. As an American, I believe that we should be paying our fair share of taxes.  But (and you knew this was coming), I feel that government should be better at managing the money we pay.

Tax Myths

Below is a video from CNN that explains some of the tax myths that abound…

Do you think you are taxed too much?  Too little?  I’d love to hear your thoughts. Leave me a comment…

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Are You Ready For Retirement?

NewspaperI subscribe to a weekly financial newsletter put out by Halbert Wealth Management Co. I enjoy reading the thoughts of someone in the financial trenches in a format and writing style that I can understand.

Baby Boomers Not Ready For Retirement

This week’s newsletter focused on an AP survey about how baby boomers (of which I am one) may not have enough money to retire.  This isn’t new information to me, especially in light of the recent downturn in the economy. Check it out HERE.

How are you doing in this economy? Are you in the 11% that feels good about your retirement savings? I’d love to hear your thoughts…

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Foreclosure sales account for 26% of sales in 2010

Realtytrac, the leading online marketplace for foreclosure properties just released statistics for the fourth quarter, 2010.

Foreclosures are down

Sounds promising until you read deeper into the report. Foreclosures accounted for 26% of the overall market nationwide, down from a record high of 29% in 2009.  It’s great to see the decrease, but that is still a staggering percentage of the overall market!

Overall home prices get dragged down also…

When bank owned properties were just a small portion of the market (less than 10%), their sales prices were viewed as an aberration. One bank sale didn’t really affect the values of other homes in the neighborhood. But, when the percentage of REOs increased, it started to negatively affect the values of other homes (see my previous post: What is lurking in the shadows). In the report by Realtytrac, Washington foreclosures sold for an average of 30% less than their Fair Market counterparts.

Lower Prices = More Investors

As the sales price ratio of REO : FMV sales increases, so does the investor activity. That’s when the smart money begins to show up. To put it into perspective, if you could buy something for 70 cents on the dollar, wouldn’t you be interested too? Read the rest of this entry »

How to solve the housing finance market in 2 easy steps.

A recent report authored by The American Enterprise Institute for Public Policy Research revealed  that the US government should not be in the business of guaranteeing loans.

It supports the elimination of Fannie Mae and Freddie Mac as GSE (Government-Sponsored Enterprises) and suggested that over time, they be privatized. To the extent that government is involved in the financial market, they also concluded that their focus be on ensuring mortgage credit quality, not guaranteeing the quality of mortgages or MBS to potential investors.

Those against the removal of government intervention and guarantees argued that by doing so, investor confidence in the financial securities market would be further eroded, and that the housing recovery would be near impossible.

It reminded me of a funny discussion I overheard recently that went like this:

Broker: “Who has some good news they’d like to share?”
Agent: “I do. I just wrote an offer for some clients on a home I showed them.”
Broker: “That’s great news!”
Agent: “What’s even better is that they qualified for a loan, and neither of them have a job!”

Wait a minute! Isn’t this what got us into the problem in the first place? What happened to all of the mortgage reform policies that lenders were going to put in place? Seems like Deja Vu all over again.
You can download the report here.

What are your thoughts? Should the government continue to guarantee bad loans?

To Rent or to Buy, that is the question…

A recent press release put out by Trulia, a real estate site, detailed where it was more beneficial to buy a home rather than renting. I found the results to be very interesting, and while I do question the accuracy and/or the methodology of the report, it does get me (and I’m sure many other readers as well) thinking about it, given the current economy.

I decided to replicate their analysis, but scale down the area to my specific city of Woodinville. I know that the smaller the sample size, the greater the margin of error (I remember a little from my college days and statistics courses). But, what I’m going for here, is a broad overview to see if the data from Trulia could be used to measure the affordability index in Woodinville. Here are my findings, based on their methodology:

There are 6 homes (condos) for sale in Woodinville, with a median price of $88,200. These condos are 2 bedroom, 1 bath units. The median rent for a similar apartment unit is $1,022/mo (which I think is a bit high, but that’s what I got off the Trulia site.

Using their calculations ((median price / (median rent*12)) = 7.19

So, going by their calculations in their report, it would be better to BUY in Woodinville, than to rent.

There are many flaws in my research data to be sure, but remember that this is a “Broad Overview”. Interested? Drop me a line…

Strategic Mortgage Defaults… For or against?

There has been quite a bit of controversy lately on the topic of strategic mortgage defaults. If this phrase is unfamiliar to you, it can be summed up like this:

A strategic mortgage default is when you have sufficient funds to continue making mortgage payments on your residence, but choose NOT to make them because your home value is less than your mortgage balance.

It is happening all over the country by homeowners like yourself. Large corporations have done it too! What is ironic about this, is that while the banks frown upon homeowners who default on their mortgage, the Mortgage Bankers Association (MBA) strategically defaulted on a building they owned!

In a study by Brent White at the University of Arizona (where the housing market has been hit worse than other areas), he posited that strategically defaulting on a mortgage is not immoral, nor is it necessarily wrong. In fact, he believes that it should be based purely on sound financial logic, something that large corporations have done for years. Think of it this way: Why should you continue paying money towards a home that has little or no chance of regaining value in the foreseeable future? Wouldn’t it make more sense financially to just rent instead?

I’m not sure where I stand on this topic. As someone who was raised to be a good citizen, taught to obey the rules, pay my bills, etc, my conscience tells me that it is wrong! However, the left side of my brain tells me that it makes absolute financial sense in certain situations. Additionally, as someone who makes a living selling real estate, how can I support such an idea when my financial livelihood relies upon a strong housing market?

I read a story a few years ago where homes in a particular neighborhood saw their values drop by 50% or more. The story chronicled one particular homeowner who purchased a home a few doors down that was identical to his for half the price he paid. He then defaulted on his original home. The bottom line was that he reduced his mortgage by half for the same home! He said in the interview that he tried to work with his bank to reduce his mortgage payment, but they wouldn’t even talk to him unless he was in arrears by several months.

Fast forward to 2011 in Lynnwood WA. There is a condo complex that I’ve been showing to potential investors. There are 19 units for sale in this complex (out of nearly 200 units). ALL are either Short Sales or Bank Owned (REO), and all are selling for about 50-70% of their original sale prices. I also happen to have a friend who owns a unit here. I explained the concept of Strategic Defaults to her and she mentioned that she would feel too guilty to try it. The Seattle Times recapped Mr. White’s article just this weekend. Here is a link to it.

And that, is what the book that Mr. White wrote, focused on. He wrote that we shouldn’t feel guilty about defaulting if the numbers don’t pencil out. Do you think that the Mortgage Bankers Association felt guilty when they defaulted on their building loan? How about Morgan Stanley when they defaulted on a $2 Billion loan in 2009?

His position on the subject is that a loan is just a business contract. You pay your mortgage off, and you get to keep the house. If you don’t the bank gets to take it back.  If you’re willing to give the house back to the bank, why should you feel guilty? You’ve lived up to the agreement stated in the contract, didn’t you?

What are your thoughts on the matter? I’ve got additional thoughts that I’ll save for tomorrow…

Zillowed!

This past week I was contacted by a friend/client to whom I had helped buy a house several years ago. He was interested in selling and wanted to know how much his home was worth in today’s market. It had been awhile since I visited his home, so I asked the standard questions such as what improvements he had made to the home, maintenance issues, etc. I then proceeded to do a CMA (Comparative Market Analysis) to determine a ballpark valuation.

When I gave him my results, he was a bit disappointed to say the least. He then proceeded to scour the web for his own comparables and sent me a long email with a list of addresses, sales dates, and Zesstimates from Zillow.com from which he used to create his own list price. That’s when the real fun began!

He mistook the Zesstimates as “actual” sales prices instead of what they really are, which are estimates of value based on tax data and other area factors. So, a home he thought had sold for $681,000 in reality had only sold for $635,000. In another example, he compared the $/sqft of his home with homes on Zillow only to later find out that the data on those homes listed on Zillow.com was off by several hundred square feet, which gave him erroneous results.

What’s my point in highlighting this situation? My client isn’t to blame for his assumptions (however wrong they were). He saw something on a website that he believed to be correct and relied on the data. Unfortunately, it is hard for the average consumer to know what is accurate and what isn’t. There is so much incorrect information available on the internet that even a very smart person (which he is) can be easily confused. Zillow.com, like other data analysis sites on the internet do the best they can to provide reliable information, but their computer modeling is only a small part of the equation when it comes to selling real estate.

My client then jokingly suggested that in order to “earn my commission”, I should be able to sell his home for what he thinks it is worth, not what I told him it is worth. My response was that I earn my commission by providing accurate and reliable data (and subsequent analysis) to my clients so that they can make educated and informed decisions instead of relying on Zesstimates.

What are your thoughts?

A brief history on the Mortgage Interest deduction

I remember when I was looking to buy my first home, I searched for reasons to justify the higher monthly payment as compared to paying the rent on my apartment. One of the justifications that I heard from my friends had to do with the mortgage interest that I would pay along with the principal each month. It is part of an acronym called PITI which stands for Principal, Interest, Taxes, Insurance.

Just recently, I came across an interesting article on the mortgage interest deduction, and I thought others might enjoy learning how it came to be.

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