Santa Fe Life Blog - Steve Hardy - Santa Fe Real Estate

Investors Not Happy With 4-Loan Limit

Many real estate investors, including myself, are not happy about the new Fannie Mae-Freddie Mac policy that limits to four the number of real estate loans that can be held by a single person.

The rule, which took effect Dec. 1, prohibits an investor from obtaining even a fifth mortgage no matter how much money is put down or how much income documentation is provided. It offers no exceptions for assets or history of success as a real estate investor.

My feeling is that the regulation pendulum has swung too far and that actions like this will only continue to put a damper on the economic recovery. I have never been a fan of policies that do not consider all factors.

As always, where there is a will, there is a way. Some investors are trying to work around the rule by partnering with other investors to either buy in cash or use their eligibility to borrow. Also, portfolio lenders who will ultimately hold the paper and not sell it on the secondary market will become increasingly important to the investor.

Labels: Finance, Mortgages, Real Estate Investing

Mortgage Applications Up as Interest Rates Drop

Lower mortgage rates encouraged more applications, pushing the Mortgage Bankers Association applications index up 11.9 percent on an adjusted basis from 379.9 the previous week to 425 last week.

On an unadjusted basis, the index increased 10.5 percent compared with the previous week and was down 40 percent compared with the same week a year ago.

Refinances increased 16.1 percent while conventional purchases rose 6.5 percent and purchases using government loans jumped 15.3 percent.According to the association, 30-year fixed-rate mortgages decreased to 6.24 percent from 6.47 percent; 15-year fixed-rate mortgages decreased to 5.90 percent from 6.14 percent; 1-year ARMs decreased to 6.18 percent from 6.86 percent.

Source: Mortgage Bankers Association (11/13/2008)

Labels: Finance, Mortgage Rates, Mortgages

Citigroup Plans to Rescue 500,000 Home Owners

Citigroup Inc. announced Monday that it is putting a moratorium on most foreclosures as it reaches out to 500,000 home owners who are not currently behind on their mortgages but who are deemed to be a potential risk.

The company will assign 600 salespeople to assist the targeted borrowers by adjusting their rates, reducing principal, or increasing the term of the loan.

Citigroup reported losses in the last four quarters. Monday’s action is designed to stem the flow of red ink.

"Typically the lender loses the most money when a house goes into foreclosure," says Barry Zigas, director of housing policy at the Consumer Federation of America.

Source: The Associated Press, Sara Lepro (11/10/08)

Labels: Finance, Lenders, Mortgages

A Commonly Missed Tax Break

Did you know that if you reside in a condominium or cooperative that upgrades to the common areas can affect the amount of tax you pay when the home is sold?

If the property is your principal residence and you have lived in it for two of the previous five years before the sale, you probably already know that a big chunk of the profit is already exempt from federal tax ($250,000 for a single person and $500,000 for a married couple.

If your gain has grown above that number, you will owe taxes on any profit beyond that. If the property is not your primary residence, you will owe taxes on the whole amount (Unless it's a income property and you perform a 1031 Exchange).

For those who reside in a condominium or cooperative, a proportional share of the amounts spent by the condo or cooperative association on improvements to the property (not maintenance) can be added back into the the basis price of the property. The basis is subtracted from the sales price to determine any taxable profit, so the higher the basis, the lower your potential tax.

As always, consult your tax adviser, as everyone has different scenarios.

Labels: Finance, Tax

Home-Value Web Sites Miss the Mark

Online home-value sites offer some useful tools, but their estimates are often wrong.

"The percentage of error on these estimates is still very large," says Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate. If there are not many comparable sales in one area, for example, she says, "the estimates will have huge errors in them."

Zillow.com and Cyberhomes.com rely on computer-generated automated models to estimate values. The models help compensate for the fact that many neighborhoods don’t have enough sales to generate accurate values based on experience.

But these computer models don’t reflect home condition, improvements and may not even accurately convey property descriptions.

Marty Frame, general manager of Cyberhomes.com, says the data on the site is best used as a way to form an overall impression of a neighborhood.

"Our goal is to provide you all this information and let you cherry-pick the things that are most interesting to you," Frame says. "You're going to look at an estimate and say, "that makes sense' or 'that doesn't make any sense."'

From my observation, the error in valuations seems to be especially high in New Mexico and particularly Santa Fe. I attribute this to two factors. First, New Mexico is a non-disclosure state. This means that the sales price of a property does not become a matter of public record. Secondly, in Santa Fe, the idea of a tract home is very rare. Most homes in Santa Fe are custom or semi-custom making a generalized appraisal by a computer subject to a high degree of error. If you would like an estimate of the value of your home, please feel free to call me at 505-670-5604. I'd be happy to provide this information to you free of charge.

The Associated Press (06/23/2008), contributed to this post.

Labels: Finance, Market Stats, Santa Fe

Going Beyond the Credit Score

Fair Isaac Corp. and the credit bureaus have rolled out numerous products to provide lenders and investors with alternatives to the FICO score in assessing borrowers' default risk.

The Credit Capacity Index from Fair Isaac gauges how well borrowers manage incremental debt, while Trend Data from TransUnion gauges the performance of loan portfolios when specific variables and regional economic indicators are factored in.

Steps also are being taken to improve the tools available to mortgage lenders to assess default risk, with industry experts pointing out that FICO scores were inadequate on their own because credit bureaus receive mortgage data without knowing the type of loan and are not given access to copious amounts of data on the performance of loans held in lenders' portfolios.

National Bank of Kansas, for instance, is going beyond the FICO score, also using a fraud score, risk profile, appraisal review and an expanded team of risk managers and underwriters to reduce default risk.

Source: American Banker, Kate Berry (06/18/08)

Labels: Finance

Update on Rates

Rates are pulled back by about 1/8 of a percent from last week, and the bond market seems to be settling down a bit with less volatility. The Federal Reserve meets Tuesday and Wednesday. The futures markets are indicating that the FED is not expected to raise short-term (Prime) rates. Although most analysts agree that they are collectively addressing inflation fears. My personal feeling is that rates might move slightly lower after the Fed meeting.

Labels: Finance, Mortgage Rates

NM defies U.S. numbers with decline in foreclosures

While foreclosure activity in the U.S. was up 75 percent in 2007, for a total of 2,202,295 foreclosure filings, from those of 2006, foreclosure filings in New Mexico were down 26 percent from 2006, with 3,893 filings.

The figures come from RealtyTrac's year-end data compiled in its 2007 U.S. Foreclosure Market Report. RealtyTrac provides a national database and reports of real estate statistics. It was founded in 1996.

The report defines foreclosure filings as default notices, auction sale notices and bank repossessions.

This latest report shows that the real estate market in New Mexico is strong, stable and growing.