Santa Clarita Real Estate Blog

Banks Post Record-Breaking Profits for 2010

lslocum — Sat, 22 Jan 2011 21:37:55 +0000

This week’s real estate headlines included record-breaking profits from some key banks.

This week’s news is really no surprise, we all knew that the banks weren’t really losing money hand-over-fist, despite the amount of short sales and foreclosures they’ve been processing.

The banks reporting record-breaking 2010 profits:

JPMorgan Chase Posts $17.4B Profit for 2010: An increase of 48 percent compared with $11.7 billion for the prior year.

Citi Reports Profit of $10.6B in 2010: That compares to a loss of $1.6 billion for the 2009 fiscal year. During the last three months of 2010, Citi posted net income of $1.3 billion.

Wells Fargo Reports Record Quarterly and Full Year Profit: Wells Fargo reported net income of $3.4 billion in Q4, up 21 percent from the same period a year earlier. For all of 2010, they earned $12.4 billion, compared to $12.3 billion in 2009.

And, the only bank reporting negative results thus far:

Bank of America Loses $2.2B in 2010: BofA has reported that it lost $2.2 billion in 2010. During the fourth-quarter period, BofA posted a net loss of $1.2 billion, which included a goodwill impairment charge of $2.0 billion in its home loans and insurance division. Had it not been for this charge, Bank of America says it would have earned $756 million in Q4. So, let’s see… a total loss for the year of $2.2 billion and $2.0 billion of it was a paper loss in the form of goodwill!

Alrighty then… does that really mean that some banks are making killer profits while others are eating dirt, or is this all just a bunch of meaningless paper-shuffling? Well… likely a bit of both… read on…

The most conservative accounting guidelines, the ones that banks and other companies have to follow for their financial reporting, state that the full value of an asset should be written off as soon as it is known to be a non-performing asset. So, all those loans that were in default in 2009 were written off in 2009. Thus the recovery of those loans, either through short sales or foreclosures, were pure profit in 2010. Same with the goodwill write-off of $2 billion for BofA during 2010, that is purely a paper transaction, not a cash-in-the-bank transaction.

Why do they do this? Who knows… a bunch of suits in some windowless conference room in an accounting office decided that these were the rules to follow, and so the banks must do so. HOW they follow them, as in how aggressively they write off non-performing loans, is another question, but the WHY is because of the accounting rules and so-called conservatism.

Do you think it’s an accident that the banks can have an awful year, both because of poor performance and aggressive write-offs, followed by a stellar year with record-breaking profits? Nope. It’s purely in the planning. It’s less painful to make a bad year worse than it is to have one bad year followed by another, so they push all of the write-offs into the bad year so the recoveries can show as pure profit in the following year.

So, what do you believe? Well, certainly not the headlines or the summary financial statements, because all of the gory details will be hidden.

Ahhhhh… the sweet smell of money… let’s just say that the banks are basking in it again, and lots of it!

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) and Certified Residential Specialist (CRS) specializing in Santa Clarita residential real estate, foreclosures and short sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. To search for Santa Clarita homes, use our neighborhood search tools or visit HoneyStartPacking.com.

What is a Qualified Home Buyer?

lslocum — Sat, 22 Jan 2011 18:06:49 +0000

Buyers should pre-qualify for a home loan as the first step of their home search.

As Realtors, we’ve often heard potential home buyers say that our ‘job’ is to show them homes, regardless of whether they are qualified to actually buy the home or not.

This is counterproductive for a variety of reasons, for both the potential home buyer and the Realtor, as well as the seller.

Here’s why:

Sellers put their homes up for sale so they can actually SELL their home, not to open it up to anyone who wants to get in to see it. Buyers who are pre-qualified to buy a home are the only ones who should be granted access, both to minimize inconvenience to the seller and to reduce the risks involved with strangers entering their home.
As a home buyer, you should be focusing your efforts on homes that you’re qualified to buy. The only way to know this is to get a loan pre-qualification letter from a lender of your choice (preferably a direct lender). This way, you’ll not be falling in love with a home you can’t afford, and you’ll not be wasting your time looking at homes that are out of your price range.
The assumption that a Realtor is a free home-tour provider is incorrect – Realtors aren’t paid an hourly rate to show homes, they are paid when a home sells. Therefore, their time is best spent with home buyers who are qualified to buy, rather than looky-loos who want to look at homes without taking the steps to get pre-qualified for a loan.

Home buyers should work closely with their lender and their Realtor to find the best home that they can reasonably afford. This means getting a loan pre-qualification first, and then narrowing the home search to only those homes that are at (or near) that price range. Searching for homes slightly above the pre-qualification amount is advisable, since their could be some price negotiations with the seller that would bring the price down a bit. Searching for homes well above the pre-qualification amount is, quite simply, a waste of time.

Wells Fargo to Halt Extensions on Short Sale Deals

lslocum — Mon, 04 Oct 2010 17:05:55 +0000

Buyers need to close on time, or the short sale transaction may be canceled.

Wells Fargo has announced that its investors, including government-sponsored entities (GSE’s), have requested that they halt extensions on short sale transactions.

Short sales that close by the date on the approval letter are safe from further action it appears. However, if a buyer cannot close on time, the possibility of getting an extension is greatly reduced.

Wells Fargo says that it may grant extensions for in-house loans, including loans acquired from the Wachovia merger, and in cases where the investor allows it. Even so, there will be only one extension granted. This new policy allows one foreclosure postponement, provided these conditions are met:

a short sale has been approved by Wells Fargo, by junior lienholders and by mortgage insurers;
the buyer has proof of funds or approved financing;
and the short sale can close within 30 days of the scheduled foreclosure sale.

Fannie Mae recently told its servicers to stop unnecessarily delaying foreclosures. They intend to hold servicers responsible for unexplained delays to foreclosures, and that they may assess fines and on-site reviews.

It is unclear how this affects transactions that are hung up indefinitely in the short sale approval process. Often foreclosure auctions need to be delayed at least once while the short sale approval is processed, and while the property is in escrow after approval.

Typically short sale approval letters are extended when there are troubles with the buyer, either because the buyer’s financial situation has changed, the loan requirements have changed, or the buyer just became impatient with the short sale process. This allows either 1.) the current buyer to correct the situation and close the transaction, or 2.) another buyer to step in with the same price and terms as the original buyer.

Although some banks do recognize that they’ll typically get more from a short sale than they would for a foreclosure, the length of time for a short sale transaction to close has become a concern. In areas where market values are still rapidly declining, Fannie Mae has indicated that they would rather foreclose and dispose of the property sooner, rather than waiting for a short sale transaction to close.

What does this mean to short sale buyers and sellers? It seems that more diligence is needed in making sure that the buyer is fully qualified for the loan, has adequate funds for closing, and is aware of all extra costs involved with the home (HOA dues, Mello Roos assessments, etc). The listing agent should also keep constant communication with the buyer’s agent, to assure them that the short sale approval process is still moving along as it should.

Antonovich Calls for No More Pork in State Budget

Linda Slocum — Thu, 14 Jan 2010 17:53:46 +0000

California’s state payroll soars as other areas receive massive budget cuts.

Supervisor Antonovich has declared war on the California budget system, stating that it is “a mix of tax schemes and band aids that only delay the inevitable”.

Antonovich’s recommendations include:

The elimination of state agencies with duplicative responsibilities
A two-year budget to prevent the annual budget negotiations crisis and interrupted revenues to local government and schools
A part-time legislature like 46 other states that enables citizen lawmakers to bring valuable professional experience to the legislative process
An end to term limits that restricts the will of the voter and has produced a “musical chairs” system of inexperienced legislators controlled by consultants and lobbyists
We need to bring our civil service system into the 21st Century.

Those who live in California, especially in Los Angeles County, know that we have some of the highest nuisance tax rates in the country, including sales tax, gasoline tax and business tax. With the recent boom years in real estate, property tax revenues jumped significantly as well, going from $6.4 billion in 1981 to a whopping $43 billion in 2007.

So where does all this money go? In a 10-year period (1997-2007) the California state payroll grew by 24%, from 719,000 to 895,000 employees. Fat paychecks are in abundance as well, with over 15,000 taking home salaries in excess of $100,000 per year, and over 1,000 employees take home over $200,000 per year. As of November 2003 there were only 8 state employees making over $200,000. Talk about a huge cost of living increase!

Antonovich also recommends copying Nevada’s successful methods to encourage business to stay or relocate to California with business-friendly incentives. Proposed incentives would include reduced taxes and regulation as well as an innovative marketing campaign.

I’m not normally an Antonovich fan, since it seems he’s often ignoring the issues we see here in Santa Clarita, but this message from him does make sense. I agree that the Governor’s office and the State Legislature should be contacted to let them know that having the state go into bankruptcy as a result of this blatant overspending is not an option.

Sneak Preview: Dink’s New York Deli at The Patios in Valencia

Linda Slocum — Thu, 14 Jan 2010 14:31:59 +0000

Dink’s New York Deli at The Patios Valencia is scheduled to open on January 25.

Here’s a sneak peak inside the almost-open Dink’s New York Deli in The Patios at Valencia Town Center Mall. Shhhhh… don’t let them know that I leaked this out!

The newest Dink’s location is definitely more upscale, with etched glass above the booths and custom artwork throughout, all designed to give it a New York-ish feel.

Menu items are much different than at their other locations, with a massive 9-page menu featuring everything from breakfast fare (check out their $3.95 weekday special) to deli sandwiches (including triple-deckers), appetizers (noshes), chicken, steak, fish, burgers, and kiddie meals. You can even watch them make fresh bagels through the front window.

This is deli-style dining and then some… even including the traditional chopped liver and liver and onions (sorry, Dink’s, not even a whole bottle of ketchup could make liver taste good) and fresh-made potato latkes with apple sauce and sour cream (yum!).

Chefs for this new location have been lured from some of the top Los Angeles restaurants (including Wolfgang Puck’s), so this promises to be a great addition to the Santa Clarita restaurant scene!

Watch for the Dink’s New York Deli grand opening on January 25!

California Foreclosures Show Sharp Decline in December

lslocum — Thu, 14 Jan 2010 03:00:42 +0000

Experts say that decline in California foreclosure activity is not just a seasonal decline.

New foreclosure filings, including Notice of Default (NOD) and Notice of Trustee Sale, declined significantly in December 2009 as compared to the prior month.

While Notices of Default dropped a significant 17.5% during December 2009, they actually dropped 32.5% on a daily average basis. This is due to the fact that December had 22 days on which documents were recorded, vs. 18 days in November.

According to ForeclosureRadar, we have not seen a similar December drop in recent years, so this is not simply a regular seasonal decline. The graph below shows the Notice of Default and Notice of Trustee Sale trends from July 2008 through December 2009.

Sales to third parties, or investors on the courthouse steps, are also declining, with December sales 28.89% less than in November. Experts say that this is due to a significant decrease in foreclosure discounting by lenders, rather than a lack of interest by the investors. Again, remember that the number of working days in December was less than November, so these percentages are actually higher when calculated on a daily average basis.

On the downside, it seems the promises of the Obama administration are failing, as pre-foreclosures continue to rise instead of being eliminated by workout programs like the Making Home Affordable Program. No shocker here, as most of the Federal programs to date have fallen way short of their stated goals in helping homeowners in distress.

The foreclosure inventories show mixed results, with estimated preforeclosure inventories remaining relatively stable at a 0.4% increase over November, bank owned (REO’s) showing a modest decline of 2.64%, and homes scheduled for auction showing a modest increase of 3.41%.

Los Angeles County remains the highest area in the state for foreclosures, but then it’s one of the most populated counties as well. Notices of Default (NOD’s) declined sigificantly, with new NOD’s filed at the rate of 5,495 in December 2009 as compared to 8,622 in December 2008. Notices of Trustee’s Sale went in the opposite direction, with 6,071 in December 2009 and 5,155 in December 2008. Other California counties with significant foreclosure activity include San Bernardino, San Diego, Riverside and Orange.

HR 3706 to Make it Harder for Homebuyers to Obtain FHA Loans

Linda Slocum — Sun, 06 Dec 2009 19:00:28 +0000

Proposed changes in FHA loan rules will increase downpayment amounts and loan fees, and decrease closing cost allowances.

H.R. 3706, the so-called FHA Taxpayer Protection Act of 2009, is expected to raise the minimum downpayment amount for FHA homebuyers from 3.5% to 5% and reduce the amount of closing costs that can be financed into the mortgage. Although the bill as written completely eliminates the option to finance closing costs, it is expected to be modified before final approval to allow up to 3% in closing costs to be financed. Currently FHA homebuyers can finance up to 6% of the purchase price in closing costs, which typically include initial loan service charges, appraisal fees, title and escrow fees, and prorations of property taxes and HOA dues.

Expected changes to FHA lending rules also include higher minimum FICO scores and higher up-front FHA mortgage insurance premiums. With higher downpayments and higher up-front mortgage insurance premiums, that would be a double-whammy to potential homebuyers who don’t have the cash reserves to cover these additional costs.

First-time homebuyers will be the hardest hit by these changes, since about 80% of FHA loans are issued to first-time homebuyers. Ethnic groups will also be hard-hit, with reports that 50% of Hispanic homebuyers and 60% of black homebuyers used financing insured or guaranteed by either the FHA or the VA this year.

The National Association of Realtors (NAR) strongly opposes H.R. 3706, stating that it “would not add anything to FHA reserves but would put homeownership out of reach for many creditworthy borrowers”.

Fact is, cash-poor does not always mean credit-poor, as many FHA buyers have high FICO scores combined with low cash reserves. The requirement for an additional 1.5% downpayment may put homebuying out of reach for many of these borrowers. Closing costs are also an important factor, although the reduction 6% to 3% should still be manageable for many homebuyers. In fact, in the case of bank-owned (REO) homes and short sales, closing costs in excess of 3% are often not approved even now.

Sprouts Farmers Market Store Coming to Santa Clarita

Linda Slocum — Thu, 03 Dec 2009 21:53:03 +0000

Sprouts will bring more healthy food choices (and hopefully lower prices) for Santa Clarita residents.

Sprouts Farmers Market has a new location coming soon to the Valencia area, apparently to take up residence in the old Mervyn’s store location in the River Oaks Shopping Center across from the Valencia Town Center Mall sometime in 2010.

Sprouts carries a product line similar to Whole Foods, with locally-grown produce, vitamins and supplements, bakery, deli, meat, poultry, seafood, dairy and bulk foods. While this new store is not bringing a completely new concept to the Santa Clarita area, hopefully we will have a better selection and more price competition amongst the local competitors such as Whole Foods, Bristol Farms and Trader Joe’s.

The Sprouts motto is ‘Helping America eat healthier, live longer and spend less.’ Their current Orange County, CA ad shows some promise, with 5.6oz of blackberries for $0.77, oranges for $0.50/pound, avocados $0.50 each, shrimp and baby back ribs for $2.99/pound, and wild caught fish for $7.99/pound (salmon, ahi, swordfish, cod). Sprouts has announced that it will be opening six new stores in California, including Valencia (Santa Clarita), Huntington Beach, Culver City, San Diego, Sunnyvale and Thousand Oaks.

Some store facts: Sprouts was founded in 2002 in Arizona, with 42 stores in 4 states and plans to add 15 more stores in 2010. Existing store sizes range from 23,000 to 37,000 square feet. You can check out their bulk products and nutrition facts online.

How to Spiff Up Your Home Without Breaking the Bank

Linda Slocum — Wed, 02 Dec 2009 13:09:20 +0000

Low-cost fix-up and staging strategies for sellers who are on a budget.

Let’s face it, Santa Clarita homebuyers are getting spoiled these days with model homes and professionally staged homes to view, so often they’re expecting every home they look at to be close to model-perfect before they’ll consider buying.

What’s a seller to do to respond to this buyer need with limited funds to spare? There’s really quite a bit you can do without spending much (if any) to give your home a bit of a face-lift.

Step 1: Declutter and Depersonalize

Buyers want to be able to see themselves living in your home before they’ll consider writing an offer, so be sure that it’s an inviting place for them. Remove all random clutter, box up the majority of your collections (stuffed animals, figurines, etc), take the drawings and coupons off the fridge, and put away most of the family photos. Items that remain on kitchen and bathroom countertops should be there because they look nice, not because you use them all the time. Put away most countertop kitchen appliances and cosmetics in the bathrooms, and be sure you check for overcrowding of items on top of your cabinets as well. If you want to have small toys available for your kids or dogs, place them in a wicker basket so they’re handy but not a distraction. Clean out all closets so they appear neat and organized. You can box up seasonal clothing that you won’t be using for a while and store it in the garage. Items that you have not used for a long time should either be boxed up or donated.

Step 2: Move the Furniture Around

The way you live in a home is not always the best way to present a home for sale. Take a step back after your decluttering and see if there is still too little open space in each room, and consider moving or removing some furniture as well. It’s ok to store excess furniture in the garage, as long as it’s in there fairly neatly. There should be easily recognizable traffic flow patterns in each room, allowing a visitor to move from one room to the next without maneuvering around furniture or other items. Often the entire look and feel of a room can be changed by just altering the positions of the existing furniture, and don’t be afraid to swap furniture from one room to another to give each room a more balanced presentation.

Step 3: Clean!

A clean home can overcome many other imperfections in a home’s design or layout. So clean, clean, clean! Walls and baseboards should be clean, as well as countertops, flooring, grout, windows, closets, blinds, ceiling fans and showers. And don’t forget the front door – that’s the first thing buyer’s will see, so wipe it down with a wet rag to remove all dust and debris.

Here are a few cleaning tips to make the job easier:

Use a damp microfiber cloth for doors, walls, baseboards, cabinets, stair rails, etc. These work wonders and you can wash (or rinse) and reuse over and over again. For dirty walls from kids and dogs, these truly work wonders.
For grout, you can use a bleach-based cleaner for white grout, and the hand-held steamers with small brush attachments work wonders as well. Or, you can just use a small brush with your favorite cleaning product, but that’s much more labor-intensive.
For spotted shower glass, conventional cleaners may work fine if it’s not too spotted. Or try ‘BAM’ from Easy Off for showers - it seems to cut through the build-up better than most other shower products. Keep the shower glass clean by using a squeegee every time you shower.
For woodwork (cabinets and furniture), use a good-quality furniture oil to make them shine after you’ve cleaned off all dust and debris.
Avoid using heavily-scented cleaning products whenever possible. Some buyers are sensitive to heavy perfumes, and you don’t want them sneezing their way through your home.

Step 4: Touch Up

After you’re done cleaning and decluttering, check to see if there are any areas that need to be touched up. Often baseboards could use a bit of touch-up paint, as well as walls in high-traffic areas. Also check to see if there is cracked grout or caulking around the sinks, showers and tubs. You can also fix minor items at this point, such as broken switchplate covers, that are inexpensive and easy to replace.

Step 5: Fine Tuning

After you’ve completed your decluttering, cleaning and touchup as well as testing out different furniture configurations, take a step back and see if there’s anything you may have missed. Add little touches of color where you can, whether it’s a small potted plant on a table, a few pillar candles on the mantle, or even a colorful pillow on the couch. Less is more when it comes to showing your home for sale, so you don’t want to overdo, but you also don’t want your home to look bland and uninviting either.

Step 6: Exterior

The exterior of your home may need a bit of decluttering as well. Remove all debris and dead plants from your front porch and replace with a fresh potted plant or two. Trim bushes, especially near the front entry, to allow for easy access and an appealing approach to your home. Do the same for the back yard, removing broken items and dead plants and arranging patio furniture in an attractive manner.

Step 7: Maintenance

Keep your home clean by keeping up with messes as they happen. All you should need to do when a buyer wants to see your home is take a few swipes with a duster or a damp microfiber cloth, fluff the pillows, put unwashed dishes in the dishwasher, and put away a few personal items.

Final Thoughts

Remember that buyers tend to overprice anything that needs to be corrected, so if they think something needs to be cleaned or replaced they’ll reduce their offer price by substantially more than what it would actually cost to correct the item. If something doesn’t look right to you, it won’t look right to the buyers either. Fix, clean or replace whatever you can within your budget limitations so your home will sell faster and for the highest price possible.

FHA Getting Tough on Non-Compliant Lenders

Linda Slocum — Tue, 01 Dec 2009 16:14:30 +0000

Violations of FHA origination and underwriting requirements may lead to lenders losing their ability to issue FHA loans.

Both FHA and Ginnie Mae have withdrawn their approvals for Lend America (also known as Lending Key and Ideal) based on numerous violations of FHA origination and underwriting requirements. The U.S. Department of Housing and Urban Development’s Mortgagee Review Board (MRB) took the action based upon two notices of violation issued to Lend America last month.

Lend America has been accused of failing to document borrowers’ income and creditworthiness and for submitting false certifications to HUD. Says FHA Commissioner David Stevens, “We have no tolerance for lenders who abuse their FHA approval. The evidence in this case points to a disturbing pattern of senior officials and underwriters, either not knowing what they were doing, or not caring. Therefore, Ideal has been immediately withdrawn from participating in the FHA-insured mortgage program.”

HUD issued a laundry list of violations for Lend America, including approving loans that did not meet minimum credit requirements, failing to document the source of funds needed to close loans, charging excessive mortgage broker fees, and submitting false certifications to HUD in its Yearly Verification Report.

Important to note is the requirement to document the funds needed to close. For those who are receiving money from friends or relatives to apply towards their closing costs or down payment, you need to be careful that there is an adequate paper trail. According to local lenders, the best way to do this is to get a personal check for the amount of the gift, and provide a copy of the cleared check to your lender. This means that you’ll need to think ahead a bit, since the check will need to clear your bank before you can have your deposit check delivered to escrow. A cashiers check or wire transfer doesn’t create an adequate paper trail, so avoid these if at all possible.