Archives

August 2007

Get rid of the pile of crunchy bugs

The National Association of Exclusive Buyer Agents (NAEBA) recently conducted an online survey of its members to rate the items they found most annoying when searching for a new home with buyers. The results of the survey are revealing, surprising, and sometimes downright weird.

Here are the top five things exclusive buyer’s agents find most annoying when previewing a home:

1. Broken door locks preventing access to the house
2. Pet deposits in the backyard or dirty cat boxes
3. Missing light bulbs in the basement
4. Sellers that ask you to remove shoes and then have wet carpet or dirty floors
5. Having loose stairs on a stairway or missing banisters

Other reported annoyances include:

Low-hanging dining room light fixtures in a vacant home
Closet doors that fall off or are not adjusted properly
Going into a vacant home and hearing animals in the walls
Halloween decorations that are left out
Dangerous children’s toys left out
Dead cars in the driveway or yard
Homes on large lots without a survey or description of the  lot boundaries
Political signs
Graffiti on a home for sale
Dead birds or animals in or around the home

11:55 AM - Aug. 30, 2007 - comments {0} - post comment

Protect those data files

Take a second to think about all the information you store on your computer. Ok...it may take more than a second. In fact, it may take all day and even then you will not have a complete inventory. Office work, research, addresses of friends and family, schoolwork, financial information, thousands of irreplaceable family photos – they all go on your computer. Not to mention the expensive software that runs the entire system!

But what happens when your computer goes on strike...when it just stops working? Do you have a plan to recover the data you need to run your life? Better yet, do you have an up-to-date backup waiting in the wings for just such an emergency? Don't wait until it's too late. Put the following tips to work and you could save hundreds, even thousands of dollars...not to mention a major headache!

Hold On to Those Disks. You know those disks that come with your computer...the ones with all the software on them...the ones you throw in a drawer and forget about? Well – don't. Even though software often comes preloaded and ready to use, those disks and serial numbers are priceless. Keep them in a safe, memorable place and you'll be able to easily reload your software after a crash.

Rule of Thumb. Those little USB flash drives or "thumb drives" that you see everyone carrying around now are an ideal, inexpensive way to backup small files for short periods of time. Whether you're moving information from one computer to another or you want to make sure a critical company report doesn't get lost before the client presentation, these handy devices are well worth the small amount of money you'll spend for 4 GB of peace of mind.

Don't Get Burned...Do the Burning Instead. Most computers come standard with CD/DVD burners. Contrary to television commercials, you can burn more than just song compilations. Make the most of this device by backing up your important data regularly. Most DVDs can hold 4.7 GB, or you can double the data with double layer DVDs (known as DVD DL) that can hold up to 8.5 GB!

Take it Outside. To backup every last byte of data, add an external hard drive that operates independently of your computer. Products like Seagate's FreeAgent storage devices offer you a variety of options...as well as the ability to access your information even when you're not at home, so you can open a document or even view your family photos from out of town.

Leave Home Without It. For the best level of protection, move data out of the house altogether. Storing your IT off-site protects it from fire, theft, and flooding. And it's not as expensive as you might think. In fact, you can get a ton of space free from services like Yahoo! and AOL. At that price, the only thing you have to lose is your data if you don't back it up!

Once the Damage is Done. If you've already lost your data, you may actually be able to recover it...the cost, however, runs anywhere from the hundreds to the thousands. The best place to start may be the inexpensive options, such as SpinRite for Windows PCs and Alsoft's DiskWarrior for Macs--both of which retail for around $100 or less.

Don't wait until the worst-case scenario happens – act now to protect your important data files.

10:48 AM - Aug. 28, 2007 - comments {0} - post comment

Change your lights - save the energy

According to the US Dept of Energy web site, we can all save energy if we change the lighting we use in and around our homes.  This is from their website:

The quantity and quality of light around us determine how well we see, work, and play. Light affects our health, safety, morale, comfort, and productivity. In your home, you can save energy while still maintaining good light quantity and quality.

*  Consider using high-intensity discharge (also called HID) or low-pressure sodium lights.
*  Exterior lighting is one of the best places to use CFLs because of their long life. If you live in a cold climate, be sure to buy a lamp with a cold weather ballast since standard CFLs may not work well below 40°F.
*  Turn off decorative outdoor natural gas lamps; just eight such lamps burning year-round use as much natural gas as it takes to heat an average-size home during an entire winter.
*  Use outdoor lights with a photocell unit or a motion sensor so they will turn on only at night or when someone is present. A combined photocell and motion sensor will increase your energy savings even more.
*  Consider using 4-watt minifluorescent or electro-luminescent night lights. Both lights are much more efficient than their incandescent counterparts. The luminescent lights are cool to the touch.
*  If you have torchiere fixtures with halogen lamps, consider replacing them with compact fluorescent torchieres. Compact fluorescent torchieres use 60% to 80% less energy, can produce more light (lumens), and do not get as hot as the halogen torchieres. Halogen torchieres are a fire risk because of the high temperature of the halogen bulb.
*  Take advantage of daylight by using light-colored, loose-weave curtains on your windows to allow daylight to penetrate the room while preserving privacy. Also, decorate with lighter colors that reflect daylight.
*  Recessed downlights (also called recessed cans) are now available that are rated for contact with insulation (IC rated), are designed specifically for pin-based CFLs, and can be used in retrofits or new construction.
*  Use CFLs in all the portable table and floor lamps in your home. Consider carefully the size and fit of these systems when you select them. Some home fixtures may not accommodate some of the larger CFLs.
*  Consider using 4-watt minifluorescent or electro-luminescent night lights. Both lights are much more efficient than their incandescent counterparts. The luminescent lights are cool to the touch.

11:45 AM - Aug. 26, 2007 - comments {2} - post comment

Making sense of the current mortgage industry

Anyone watching or reading the financial news over the last few days and weeks has seen a lot of angst and consternation over the state of the mortgage industry. In fact, one of the larger lenders in the US, American Home Mortgage, was forced to shut down operations last week. But why? What is happening, and most importantly, what does all this mean to you? Let's unpack the definitions and details, so that you really understand the truth behind the headlines.

Over the past several years, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans. Another type of "non-conforming" home loan is one where the credit and income might be perfectly fine, but the loan amount is higher than $417K, which is the current maximum loan that can be done using pools of money from mortgage giants Fannie Mae (FNMA) and Freddie Mac (FHLMC). If the loan amount is higher, it can certainly be done - it's called a "jumbo loan" - but the end money comes from private institutions, not from the large government sponsored entities of Fannie and Freddie.

Most non-conforming loan product rates popped significantly higher in the last week. Here's the scoop.

The end investor for Subprime or Alt-A loans will charge a premium for taking on a pool of these loans, because they know that traditionally, they might have a higher rate of default and delinquent payments within that risky pool. But lately, default and foreclosure has been on the rise - partly due to the fact that with credit tightening and a soft real estate market, many troubled homeowners are unable to refinance or sell in order to get out of trouble. So now, these end institutions are demanding a much higher "risk premium" for taking on these pools of loans, as they see the rates of default are climbing higher.

But since these institutions are purchasing these pools of loans sometimes months after the borrower has actually closed at a given rate, this increase to the risk premium means that instead of paying $101K for a $100K loan that will bear interest, they may only be willing to pay $95K for that $100K mortgage to account for the risk. Multiply that times thousands upon thousands of loans...and you have millions upon millions of dollars in loss for the company trying to sell the pool at a much lower price than they were expecting. This is called a "liquidity crisis", and is exactly what happened to American Home Mortgage - there was no mismanagement, but they simply got caught holding too many "hot potato" loans, forced to sell them at massive losses...and eventually they had to make the decision to close the doors and stop the bleeding.

Further, even when a lender is able to take some losses, they may be subject to a "margin call". This means that as their losses and risk premiums increase, the value of their loan portfolio decreases. As the value decreases, the credit lines that are secured by those portfolios begin to issue margin calls as the value of the asset that they are secured on is now diminished. This is exactly like margin calls in the Stock market. If you have a loan against a Stock that is losing value, you will get a "margin call" and need to pay down the loan, as the underlying Stock is losing too much value to be considered adequate collateral any longer. So for the big lenders, as their portfolio is losing value due to increased risk premiums and losses...the margin calls start coming in, and they are required to pay down their balances. In turn, this means that they have less availability to fund their new loans, which then exacerbates the problem.

In response to seeing this situation play out in the demise of American Home Mortgage, lenders of other non-conforming loan products increased their interest rates dramatically almost overnight to be better prepared - and likely over-prepared - for increased risk premiums down the road. Even though loans above $417K are not presently suffering from increased delinquencies like the Subprime and Alt-A loans are, these rates popped higher as well, because they are being purchased by smaller private entities that can't afford to take on any margin of risk.

What happens next, and what should you do now?

The present situation will likely settle out over the coming year, and the rates on products that have moved so significantly higher now should trend lower down the road as delinquency rates stabilize. But here are a few important things to do right now.

First, even if you are not presently in the market for a home loan of any type, call me to make sure that your credit standing is as solid as possible. Many people I talk to about home loans didn't expect they would have a need, and didn't plan in advance to ensure their credit would qualify them for the best possible financing. With no immediate need for a home loan, time is on your side...why don't we take a few minutes together and just make sure you are prepared, should a need arise down the road?

Next, if you are in the market for a home loan, or know someone who is - know that now is time to be working with a real qualified professional who can keep you informed of changes in the market and get your loan funded quickly. Now is NOT the time to be playing the risky game of trying to scour the entire nation to find someone who promises to save you a paltry amount on costs, or deliver a rate that seems too good to be true. Your home and your financing are just too important, and times have changed.

11:33 AM - Aug. 24, 2007 - comments {0} - post comment

Got a gift card you can't use?

If Aunt Millie insists on giving you a $25 gift certificate for Toys “R” Us every year on your birthday even though you haven’t set foot in the place since you were 10, don’t just throw the card in a junk drawer along with all the others. You may be able to recoup the value.

There are now a number of Web sites that allow you to auction off unwanted gift cards or trade them in for cards from stores you regularly shop at:

Cardavenue.com. Registration for this site is free and takes less than five minutes. Once you’re signed in, browse available gift cards being offered for trade, or post your own for sale or swap. If you’re after a card from a particular retailer or restaurant, create a “wish list.” You can even combine two or more cards and trade them in for one card of equivalent value. So, for example, if you have a Starbucks’ card worth $50 and a Banana Republic card worth $100, you can swap them for one worth $150 at Bloomingdale’s.
Swapagift.com. This service allows you to trade or sell gift cards. Those looking to cash in their cards quickly should check out the site’s “preferred merchant list.” If your gift card comes from one of the retailers on the list, Swapagift will buy it from you for 60% to 70% of its original value. The only caveat: it has to be worth no less than $25 and no more than $500.

EBay. The online auction house doesn’t allow users to trade cards, but it is the largest market for selling them off, according to Bankrate.com, a Web site offering consumers free cost-saving advice. To start your search, just go to the home page and select “gift certificate” from the category menu.

11:24 AM - Aug. 22, 2007 - comments {1} - post comment

What is going with mortgage lenders?

Tim Ray at Apollo Mortgage takes a few minutes to explain what is going on with the mortgage market.

The Federal Reserve has taken significant action in the last few weeks due to the credit crunch. And now they've made an unexpected move by cutting the discount window rate – which is great news. I'll get to that in a minute, but first let's look at recent events and understand what they mean.

Market movement
To date, over 120 mortgage companies have closed their doors due to reduced liquidity. The result: Borrowers who want to take out non-conforming loans have fewer, more expensive options.

Many media outlets have incorrectly added fuel to the fire by stating that mortgage lending has stopped altogether and that borrowers can't get a loan without a 20% down-payment. This is not true.

Conforming interest rates and loan programs, those backed by Fannie Mae and Freddie Mac, have not been significantly impacted by recent events. Even better, interest rates have come down from recent highs. While this is good news, the market is experiencing unprecedented volatility and changes could come at any time. Borrowers need to act swiftly and decisively in today's climate.

What did the Fed do?
Now back to the discount rate. This is the interest rate charged to commercial banks and other depository institutions on the loans they receive from their regional Federal Reserve Bank's lending facility. The Fed's decision to cut this rate provides stability in the financial markets and this can be good for all of us.

How exactly does this provide stability? Here's an example: Imagine you just wrecked your car and it requires $5,000 worth of repairs. You have a short-term need for cash to pay your mechanic. Even though you know you will eventually be reimbursed by your insurance company, you still need the cash now. So do you sell off stocks to get the cash, or tap into an equity line of credit? Most likely, you draw from that line of credit rather than liquidating a long-term investment.

This is what the banks are facing in today's liquidity crisis. And Bernanke's move helps them avoid long-term damage by supplying access to short-term cash.

It's important to note that the discount rate is different than the Fed Funds Rate, which directly impacts interest rates that you pay for Home Equity Lines of Credit, credit cards, and automobile loans. Most importantly, the discount window rate cut does not directly impact mortgage rates.

7:42 AM - Aug. 21, 2007 - comments {0} - post comment

Thinking of using the builder's lender?

This article from Business Week tells a story of what's happening way too often right now.  If you're thinking of buying a newly built home, be aware of the lender consequences.

August Elizabeth and Armando Motto are living a real estate nightmare with a new breed of monster: the big homebuilder as lender. In November, 2005, the couple, who have four children, agreed to pay $540,000 for a newly built three-bedroom house in suburban Clarksburg, Md., near Washington, D.C. Rather than send them to a bank, the builder, Beazer Homes USA Inc. ( BZH ), offered to provide a mortgage itself in an arrangement of the sort that helped fuel the long housing boom across the country.

But when it appeared that the Mottos might not qualify financially for the loan, things took a troubling turn. Beazer, according to the couple, inflated the pair’s earnings in loan-application documents by incorrectly stating they were collecting rental income from the house they were leaving. “I don’t want to misrepresent myself,” Elizabeth said in e-mail correspondence with Beazer’s outside mortgage service, dated July 14, 2006. But in the end, the couple signed the documents, and soon after they closed on the Clarksburg house.

They now regret it. The Mottos moved to Clarksburg, but they haven’t succeeded in unloading their previous home in Rockville, Md. They have nearly $1 million in mortgage debt on the two dwellings. With $145,000 in family income, Elizabeth says, they are “on the brink of foreclosure” on both houses. “We are so broke.”

Beazer, one of the dozen or so large publicly traded builders that have started or stepped up mortgage-lending businesses to put more buyers in freshly finished houses, declines to discuss specific customers. The Atlanta company has much more than the Mottos to worry about. On Aug. 1 its stock fell nearly 18% on rumors that it was preparing to file for Chapter 11 bankruptcy court protection—which Beazer swiftly denied, calling the Wall Street gossip “scurrilous and unfounded.” Just five days earlier, Beazer revealed that the Securities & Exchange Commission had elevated an informal inquiry into its mortgage business to a formal investigation. The company warned that criminal penalties could follow. Earlier this year, Beazer received a subpoena from the Justice Dept. seeking documents related to its home loans, and the company is also under civil investigation by the North Carolina Attorney General’s office.

Leslie H. Kratcoski, Beazer’s vice-president for investor relations and corporate communications, says in an e-mail that the company “intends to continue to fully cooperate with all related inquiries but does not have further comment at this time.”

EGGED ON BY WALL STREET
A diverse cast of characters combined to launch the once-in-a-lifetime housing boom of the past five years. Traditional mortgage companies and banks unleashed a barrage of loans, many to borrowers with iffy credit histories who didn’t bother to read the fine print about upwardly mobile interest rates. Wall Street egged on the often-reckless underwriting by buying vast quantities of home loans for repackaging as securities. Now that the boom has fizzled and foreclosure rates are rising, the important role of large homebuilders as lenders is also coming into sharper focus.

In addition to spitting out subdivisions, many of which now stand half-empty, builders jumped into the mortgage business to a degree they never had. Wall Street provided the same encouragement it offered other lenders. Even as the housing supply began to exceed demand last year, builders kept sales brisk by pushing adjustable-rate, interest-only, and other risky loans. In some cases they attracted clientele who couldn’t afford conventional mortgages. In others, builders allegedly violated federal lending standards to get customers to sign on the dotted line. KB Home ( KBH ) paid a record $3.2 million settlement in July, 2005, to resolve allegations by the Housing & Urban Development Dept. that the builder’s mortgage unit overstated borrowers’ income, among other practices, to obtain loan approvals. KB, which denied wrongdoing, sold its loan business before settling.

“Homebuilders really started to push these more aggressive mortgages down the throats of potential buyers to boost sales,” says G. Hunter Haas IV, who as head of mortgage research and trading for Opteum Financial Services ( OPX ) had an insider’s perspective on the proceedings. Opteum has served as a middleman between Wall Street and builders. The Paramus (N.J.) firm provided developers with financing for their mortgage operations, then resold the loans to investment banks, which packaged them as securities and hawked them to hedge funds and insurance companies. The whole process added liquidity to the market and made it easier for developers to build and sell expansively.

But by early this year, Opteum’s home-loan business was going sour. The investment banks and their clients were rejecting builder-originated loans as too shaky and likely to go into default, Haas explains. Some homes were turning out to be worth less than builders had claimed, and some borrowers didn’t have the income noted on applications. “Homebuilders were getting sloppy, and Wall Street was giving more scrutiny,” Haas says. In June, Opteum decided to get out of home-loan brokering.

Until the market turned, the growing heft of the largest developers made it easier for them to obtain Wall Street financing for their mortgage businesses. Once dominated by modest local firms, the industry in the past two decades has seen the emergence of sizable publicly traded corporations such as Pulte Homes ( PHM ), Lennar, and Centex ( CTX ), each of which has a market capitalization of $7.5 billion to $8.5 billion. The 10 largest builders together had revenues of $98.8 billion last year, up from only $9.3 billion in 1992. Public companies built 27% of all new homes in 2006, compared with 8% in 1992. And in Denver, Las Vegas, and Phoenix—markets that were scorching hot until recently—public companies put up 55% or more of the new houses.

Busy developers that provided Wall Street with equity-underwriting business discovered they had friends in the investment banking world. “Once builders got larger and a little bit more predictable, they were able to borrow money from various credit markets, borrow from Wall Street, and expand more easily,” says Thomas W. Smith, a building industry analyst with Standard & Poor’s Equity Research, which like BusinessWeek is owned by The McGraw-Hill Companies.

For a while during the boom the big builders could do no wrong in Wall Street’s eyes. The Dow Jones U.S. Select Home Builders Index surged 290% from October, 2002, to July, 2005, as the profits of the 10 biggest developers more than tripled. But the pressure to beat quarterly expectations didn’t relent when more and more new subdivision homes remained empty. Providing loans to financially marginal buyers was one way some developers tried to prop up their financial performance, says S&P’s Smith. “You’re trying to support earnings at high levels, so it’s conceivable that greed gets into people’s minds,” he adds.

Now the bust is taking a brutal toll. In January, industry analysts predicted that the 10 biggest builders would have average earnings per share of $3.69 for 2007; the latest forecast is for a loss of $1.18.

Sheer overbuilding, a symptom of every housing bubble, is the most obvious explanation for the new ghost towns sprinkled around the country. But increased builder lending helped feed the trend. Statistics are scarce because developers don’t break out their lending revenues, but some analysts track “capture rates,” or the percentage of home sales financed by builders themselves. Pulte Homes, the largest developer by market cap, had a capture rate of 90% last year, up from 64% in 2000, according to Daniel Oppenheim of Banc of America Securities ( BAC ). No. 3 Centex had a rate of 80% for the fiscal year that ended in March, up from 61%.

By the time marginal buyers fall behind on their payments, the builder has usually sold off their loans to Wall Street. But the human fallout can be found in neighborhoods around the country.

Several developments built recently near Columbus, Ohio, by Dominion Homes Inc. ( DHOM ), are scarred with empty houses, overgrown yards, and front windows with neon-orange foreclosure stickers. Dominion often offered “buy-down” mortgages in which it forgave or reduced early payments, according to borrowers. One young couple, Travis and Kelly Gunther, say this enticement helped persuade them to borrow all of the $180,300 they paid in 2004 for a Dominion home in a neighborhood called Williams Creek. Kelly has worked intermittently as an executive assistant; her husband, a plumber, recently went to Iraq to work for a private contractor. Kelly claims Dominion told her the couple’s initial monthly payment of $1,160 would rise $100 a year, to $1,360 in 2006. In fact, the payment rose by more than $200 a month each year, to $1,599. She says Dominion salespeople described annual homeowner association fees of $50 a year that ballooned to $285, while taxes turned out to be double the company’s projection.

Although she feels misled, Kelly concedes that she and Travis didn’t carefully scrutinize the fine print spelling out their loan terms. “I wanted the house with the tree-lined streets,” she says. Earlier this year the Gunthers lost their Dominion home in a foreclosure and are moving to a nearby rental apartment.

Adrian Lee, a firefighter in Pataskala, Ohio, is negotiating to avoid foreclosure on the new four-bedroom house he bought from Dominion in 2004. “I know I’m in too much house for what I can afford,” he says. Admitting that he shares blame for his predicament, Lee says of the Dominion sales team: “They didn’t explain the [$163,800] loan to me. I didn’t know after the buy-down mortgage that my payment would be so high. The same people who help you get a home won’t help you maintain and keep it.”

THE FORECLOSURE NEXT DOOR
Lori M. Steiner, a senior vice-president with Dominion, says in an e-mail that the Dublin (Ohio) company doesn’t discuss individual customers. But Dominion says it diligently reviews each sale to make sure buyers are financially prepared to take on the mortgages they seek. The company says it has done extensive research in the Columbus area and that the spike in foreclosures there reflects broader economic problems that have nothing to do with its financing business. Ohio, hurt by a loss of manufacturing jobs, has one of the highest foreclosure rates in the nation, along with California, Florida, Michigan, and Texas.

Even some home buyers who are content with their loans claim they’ve been injured by builders’ lending to others. Robert V. Phillips, a lawyer in Rock Hill, S.C., represents residents of a subdivision in Columbia, S.C., who allege in a federal court suit that the value of their homes has fallen as a result of foreclosures stemming from Beazer’s reckless mortgage practices with other customers. The suit, which seeks class-action status, claims that Beazer salespeople encouraged prospective buyers to “falsify information on loan applications.” This made it “inevitable that the subdivisions…would experience a foreclosure rate which significantly exceeds the statewide average,” and that has hurt the value of the plaintiffs’ houses, the suit alleges.

Beazer has filed a motion to dismiss the action, noting that the plaintiffs don’t claim to have been misled or directly harmed by the company. “The complaint,” Beazer argues, “is based upon speculative allegations of causation and conclusory statements.”

11:07 AM - Aug. 20, 2007 - comments {0} - post comment

How to pick a financial planner

The folks at Kiplinger's offer the following steps to make sure your financial planner will do the best job for you:

Financial and investment planning often consists of creating a comprehensive overview of your current financial condition along with recommendations for achieving your future financial goals. Depending on its complexity, such a plan can cost you anywhere from several hundred to several thousand dollars.

People are also likely to turn to a financial planner for help with less sweeping challenges. What to do with a lump sum received from an inheritance is a common problem, teeming with tax and investment decisions that need to be made in a hurry.

A good planner will see to it that your investments are diversified and appropriate for your goals and stage in life: growth funds for an IRA, for example, or municipal bonds to generate tax-free income. A good planner can also help you anticipate the tax consequences of your investment decisions.

Even if your planner is going to make your investment decisions, keep informed about what's happening to your account, and don't hesitate to disagree if you become uneasy about what's being done with your money. It is up to you to make sure that the planner stays in tune with your goals and risk tolerance.

A planner's credentials are the most obvious clue to his or her preparation for the job. The best-known credential is the Certified Financial Planner (CFP) designation. In addition to the CFP, other leading planning credentials indicating extensive training include the ChFC (Chartered Financial Consultant), and the CPA/PFS (Certified Public Accountant, Personal Financial Specialist).

The Yellow Pages are full of the names of planners, but start your search with a reference of some kind, from friends, family, or co-workers. Lawyers, accountants, mortgage professionals, and insurance agents are also good people to ask. Once you've got a list of planners with recognized credentials, call or visit two or three, comparing their fee structures and their competence as investment advisors.

Fee Structure
Planners earn their keep in one (or more) of three ways. Some work on a fee-only basis, charging you by the hour or by the specific task. Others collect commissions on the products they sell you, such as stocks, bonds, mutual funds, and insurance policies. Many charge a mixture of fees and commissions.

An advisor's fee structure is no indicator of competence. Just because a commission-based advisor is likely to pick a fund with a sales load and a fee-only advisor would probably choose a no-load fund, it doesn't mean that the commission-based planner isn't acting in your best interest. However, in the end, while you might not pay the commissioned planner any more than you pay the fee-based advisor in the case of that fund load, the sales load is coming out of your investment, leaving less working for you in the market.

Investment Record
A planner you're considering should be willing to give you information on how other clients' portfolios have performed. Compare those records with one another and the performance of the markets as a whole before making a choice. Often the advisor will provide you with comparable performance benchmarks to give you an idea where to look on your own. Pay special attention to how well the planner has done in achieving the objective you'll be pursuing, whether it's for growth, income, or a combination. Ask the planner to sketch out how he or she would deploy your financial resources, and decide whether you like the result.

12:51 PM - Aug. 18, 2007 - comments {0} - post comment

How to read your mortgage documents

12:48 PM - Aug. 16, 2007 - comments {0} - post comment

Taking charge of the appraisal process

“With all the publicity about foreclosures and scams surrounding the real estate finance industry, consumers are understandably nervous about buying and selling a house,” said Mike Evans, a Fellow of the American Society of Appraisers. “As long as they understand how to stay on top of the transaction, they’ll do okay.”

The system is structured so that the mortgage company has control of the appraisal process.  The mortgage company hires the appraisers; not the buyers—even if they are paying for the report. The pressure on the appraiser happens because deals are made or broken depending upon whether a house appraises for the sale price or not. Buyers need to make sure that they are getting an accurate home appraisal and not just an appraisal that hits the right number to make the deal go through. If they don’t, they may buy a house that costs more than it is worth and they will lose money if they have to sell it within a few years.

“Home buyers need to protect themselves by checking the credentials of everyone involved in the transaction and requesting that their assigned appraiser be state licensed and accredited by a national professional organization,” said Evans. “Appraisers with advanced accreditations have more to lose if they succumb to pressure by the agents than appraisers who are new to the field or only maintain the minimum certification required by law. They also have more experience dealing with this type of pressure and are not as affected by it”.

ASA understands that lender pressure is a reality for many appraisers and supports legislation to change the system. In the meantime, however, they offer the following advice to consumers about how to protect themselves:

- An appraisal is not the same as a home inspection. Appraisals are an opinion of value and not an assessment of individual problem areas. Home inspections determine the condition of the property.
- Home buyers can request that their lender select an accredited appraiser who belongs to a professional appraisal society. Real estate appraisers accredited by the American Society of Appraisers are required to adhere to the United Standards of Professional Appraisal Practice (USPAP), which are standards of best practice and ethics recommended by Congress. In addition, ASA-accredited appraisers have demonstrated their skills, completed extensive experience and education, and must adhere to the ASA code of ethics.
- Home buyers should ask their lender for a copy of the appraisal report—it is a consumer’s right under federal law. Reading the appraisal report will give the home buyer an idea about what similar houses sold for and what factors made the house worth more or less. Homeowners then have an idea of what fixes could add value to their homes before they sell it.

12:29 PM - Aug. 14, 2007 - comments {0} - post comment

How to get better gas mileage

12:26 PM - Aug. 12, 2007 - comments {0} - post comment

Be careful when you give

THEY SAY IT'S BETTER TO GIVE THAN TO RECEIVE...SO MAKE SURE YOU DO IT RIGHT!

Most everyone has received requests from various organizations and charities asking you to donate to their causes. And it sure sounds like a good idea to help disadvantaged children, the local police officers, or help find a cure for cancer. But a call for a donation from the ASPCJ - American Society for the Protection of Cat Juggling - might warrant some further investigation. So how can you tell if the charity that you are considering supporting is legit?

First stop... the web:

Check to see that their website is full of information about their programs, history and goals. Look into the various programs they support, as much of the time you are unable to specify exactly where your contribution will be used. Be extra cautious of organizations with websites that are skimpy or out of date.

Next stop... the IRS:

The IRS maintains a list of all organizations that are classified as charities for purposes of tax deductions. You can search for information on the IRS website by hitting this link: IRS Charitable List.

Avoid a nasty surprise by understanding the type of organization you are contributing to. For example, the Sierra Club is not considered a charity, but rather a lobbying group, and as such, donations to the Sierra Club are not tax deductible. However, donations to the Sierra Club Foundation are tax deductible, as it is the charitable organization arm of the Sierra Club.

Important note - if you plan to make a donation other than money (clothing, household goods, car, etc), you will need to keep careful records of exactly what you donated and its value, as the IRS is cracking down on over-inflated valuations of donated goods. This is especially important if the value exceeds $5000, in which case an actual appraisal is required.

Final Stop... the report card:

The Better Business Bureau operates a website (www.give.org) that tracks many charitable organizations and grades them on twenty standards. These standards range from the makeup and compensation of the board to the percentages of their donations that are used for programs vs. administrative and fundraising costs. A charity that you can feel confident in will hit all twenty of the goals, or if they miss one or two benchmarks, will have provided reasonable explanations for this shortcoming.

Some charities - now using the term loosely - hit very few of the goals, or choose not to respond to the BBB's request for information. Reconsider a donation to an organization whose fundraising and administrative expenses will consume the majority of your contributions. In a random sampling, there were several organizations whose actual pass-through to their programs was under ten percent of the total money contributed. It's important that your donations make their way to help those who need it.

11:36 AM - Aug. 10, 2007 - comments {0} - post comment

Structural Issues

12:45 PM - Aug. 8, 2007 - comments {0} - post comment

Reverse Mortgages - a way for seniors to stay in their homes

HUD Secretary Alphonso Jackson is urging Congress to quickly enact The Expanding American Homeownership Act of 2007, which could help more seniors access reverse mortgages and build nest eggs for health care needs, home repairs and other emergencies.

“If you love your home, and want to stay in it for years to come, then a reverse mortgage is your best and safest bet for retirement security. Reverse mortgages offer seniors the financial freedom they deserve, and this legislation could help two million more older Americans turn their homes into retirement nest eggs,” said Jackson.

Many older Americans who have lived in their current homes for several years or decades have seen the value of their homes rise dramatically, especially in recent years. However, in high cost areas, such as the Northeast and West, home values have surpassed the Congressionally-mandated cap of $362,790 for obtaining an FHA-backed reverse mortgage - leaving millions of seniors without access to the financial security this critical program offers.

The Expanding American Homeownership Act of 2007 would make reverse mortgages available to an additional two million seniors by raising the FHA’s Home Equity Conversation Mortgage (HECM) loan limit equal to the Fannie Mae/Freddie Mac conforming loan limit. By increasing and simplifying the loan amount, this change would help those seniors who have homes valued above the current FHA loan limit of $362,790 but less than $600,000, obtain a reverse mortgage through FHA. Eligible seniors would still have to be 62 years of age or older and have paid off their mortgages or have only a small mortgage balance remaining. The loan amount depends on the value of the home, the age of the homeowner and the expected interest rates. The reverse mortgage does not have to be repaid until the borrower moves out of the home permanently.

Last month, HUD announced that more than 308,000 seniors have used the federally-insured HECM loan program since 1990 to convert the equity in their home into cash without having to move. The volume of new reverse mortgages insured by the FHA’s HECM program has increased 10-fold over the past six years.

In addition to providing greater access to reverse mortgages, The Expanding American Homeownership Act of 2007 would address growing concerns about increasing home foreclosures and high-risk mortgages. The legislation would protect and preserve the American Dream of homeownership by modernizing the FHA and giving home buyers access to a safe, fair and affordable alternative to exotic subprime loans. The legislation is currently pending before the U.S. House of Representatives.

12:41 PM - Aug. 8, 2007 - comments {0} - post comment

Price it to Sell

This article by Jim Remley tells it like it is.  If you want your house to sell, here is what your listing agent wants you to understand.

Contrary to popular belief, when selling your home its value is determined by one thing and one thing only - what a qualified buyer is willing to pay for it. No more and no less. Sure, many sellers will argue that their home has an insurance replacement value, or an appraised value, or a tax assessed value, but unless your insurance agent, your banker, or your tax assessor is willing to write you a check for the home - guess what? None of that matters. A home without a buyer has no value in the market place. Sure it might have a value to you the seller, and it might have a value to your banker, and to your insurance agent, and to your appraiser. But none of these people are buyers.

So here is the secret to pricing your home to sell - It's not what you think the home is worth that matters, it's what a reasonable buyer will think your home is worth that will ultimately determine if your home will sell.

Now you maybe thinking - Hey wait, if I left it up to a buyer, they would pay me as little as possible for my home. True, they would. But in the real world every buyer knows that you, the seller, have no obligation to sell your home at any price. To purchase your home the buyer will have to make you an offer you can't or won't refuse. One that will motivate you to pack up your Ken and Barbie collection, hire a local mover, and wave good bye to a home full of memories.

But here-in lies the trap that many sellers fall into (myself included), which is the mistaken idea that we can hold out for an inflated price and eventually the market will come to us. Wrong! Buyers are under no obligation to buy any particular home, and no amount of marketing, open houses, websites, or signage will motivate a buyer to purchase an overpriced home. Why? Because they can buy one of your neighbors homes for less! This reveals one of the most important considerations in pricing your home - Price VS Time.

Understanding Price VS Time

The age old dilemma that has faced buyers and sellers since the dawn of private property rights is a simple question: What is more important price or time? Believe it or not this conundrum underlies and controls every sellers decision to sell, and every buyers need to complete a purchase. For sellers this boils down to the need to sell within a set time frame or instead to hold out for the best possible price, and as you might guess, for buyers it's the need to buy within a set time frame or to purchase a home for the lowest possible price.

A seller who would like to sell for top dollar should be prepared to potentially wait longer for a buyer willing to pay a premium price. Like trying to sell ice during December, a seller might have to give the stuff away just to get rid of it, but if they wait long enough, say until mid-August when temperatures crest over 100 degrees suddenly that same ice can have real value. On the flip side, a seller who needs to sell quickly, and doesn't have time to wait, should expect to discount their price somewhat because of the limited time they have to expose their home to the market.

What's the difference? Timing!

Buyers are in the same boat. A buyer who has the luxury of shopping for a home over a long period of time can probably wait to find a bargain, while another buyer who must buy a home in the next few weeks will probably be willing to pay a premium. Again it boils down to price vs time. So you might ask yourself what is your highest priority - Selling quickly or selling for a higher price?

To be honest when I pose this question to my own clients they often smile coyly and then answer - I want both! The funny thing is that they aren't kidding! This sticky situation often reminds me of one of my first jobs after graduating high school, which was working graveyard at a local lumber mill. Like clock work every night, the foreman would come by to monitor my production. We called him Perry, which could have been his last name or his first name because he never clarified it. Over the roar of the machinery Perry would cup his hands together and yell "You need to put out more wood!" Finally after an especially tough day, I looked him back in the eye, and yelled back "Do you want quantity or quality?" Throwing his yellow hard hat down on the concrete floor and then kicking it for emphasis he snarled back "I want both!"

Like Perry, most of my clients want their cake with the icing generously slathered on top. Because of this, many homeowners will attempt to put the responsibility of getting both top dollar and fast sale on the back of their hired gun, the real estate agent. The result can be summed up in one word - frustration. Why? Because no matter how much a seller yells, screams, and kicks a real estate agent, they don't do miracles. This is why successful sellers understand that while a real estate agents job is to provide marketing, expert advice, and negotiating services, in the end they don't own the property. They don't make the final decisions on pricing. The seller does, and ultimately the seller's asking price will in large part determine how slowly or quickly the home will sell.

To frame this discussion in a different way, consider what you will do should you arrive luggage in hand at the end of your listing period and the home has not yet sold. At that point are you more likely to give it a little more time or adjust your price? I know - Neither, I'll just fire the agent! To be honest, this is exactly what many sellers' do, they fire their agent and reboot the marketing. Does it work? Sometimes it does, but often these sellers end up three months later in the same slow boat to nowhere. Successful sellers on the other hand take ownership of their pricing decisions by making a clear decision about which is more important to them, selling quickly or selling for top dollar.

Successful sellers have learned that to price their home accurately means they need to think like a buyer, they need to get inside a buyers skin and look at the world through a buyers eyes. For instance, imagine for a minute that you are moving to another area of the country, to a city that you are completely unfamiliar with. If you were faced with buying a home in strange city what would be your first step?

If you're like most buyers you would probably start online by viewing listings at websites like www.realtor.com or www.yahoo.com/realestate to get a general feel for local home prices. Next you might narrow your search down to a specific community or neighborhood by comparing utility costs, school reports, and crime statistics with other online tools like www.homefair.com or www.neigborhoodscout.com. Feeling good about your findings you might then venture out into the real world to begin viewing homes in person.

As a typical internet empowered real estate buyer you will look at an average of nine homes over eight weeks with the assistance of a real estate professional. By the end of your journey, like many buyers, you become so knowledgeable about the market that by the last showing you are able to guess, with reasonable accuracy, each homes listing price before your agent can even tell you.

So what happened here? As a buyer you went from a blank slate, with no impression of the market to having the ability to predict listing prices. A big leap sure, but this description is exactly what most buyers' experience. But this is only the build up, the next step for buyers who have found their dream home is to review a Comparative Market Analysis.

A Comparative Market Analysis is a report that compares a specific home, often called the "subject home" with other homes in a specific neighborhood. This analysis is then used to provide an anticipated sales price or price range for the subject property. Although not formally called an appraisal, the report provides a similar function by giving home buyers and home sellers a clear understanding of the market data that might affect their opinion of value. To learn more about using a CMA to help price your home talk to your local REALTOR®.

12:30 PM - Aug. 6, 2007 - comments {0} - post comment

Forget the gimmicks - focus on the house

“Serious buyers are looking for a place to buy a home, not a trip to Tahiti,” said Dave Ledebuhr, owner/broker of Musselman Realty in East Lansing, Mich. On top of that, lenders are leery of gimmicky incentives, fearing that they’re built into the price of the home and that loan dollars are being used to pay for that tropical trip, he added.  Instead, effective incentives get to the heart of what’s on the minds of potential buyers — the overall cost of the home and the monthly payments they’ll have to manage, he said.

Help in bringing down the interest rate of the mortgage for a year or two by paying points, for example, can go a long way in giving one home an advantage over another, said Dave Dalzell, owner/broker of Dalzell, Realtors in Abilene, Texas. Contributions to the down payment and common closing costs could especially be of help to a first-time home buyer, said Greg Zadel, owner of Zadel Realty in Firestone, Colo.  Incentives can be considered when the home is first listed as a way to distinguish it from the start, Dalzell said. They can also be added when the home hasn’t sold in two or three months as a way of enticing a buyer without lowering the cost. Or incentives could arise in negotiations, when a buyer needs that one extra little nudge to commit.  Make no mistake, the location and condition of a home are going to be its main selling points. But if sellers “put on their buyer’s cap” and really consider what issues the buyer might have, it could make all the difference, Dalzell said.

“I tell my seller to look at his bottom line,” said Susan Ramsey, a Realtor with Re/Max Integrity Realtors in the Phoenix area. A seller should figure how low he or she is willing to go, factoring in both the selling price and other incentives used to get a buyer to commit.

But also be aware that most seller concessions need to be disclosed. “Everything should be in writing and attached to the contract,” Dalzell added.

In addition, buyers and sellers need to make sure that they don’t exceed the lender’s allowable seller-paid assistance, Ledebuhr said.

Below are six of the most common incentives being used in markets today:

1. Reducing the price

A price reduction might be the most common buyer incentive, and often it is the one that is looked at first, said Delores Conway, director of the Casden Forecast at the University of Southern California’s Lusk Center for Real Estate.

“The price is something that is a common currency — it appeals to everybody,” she said.  Gene Rivers, who owns four Keller Williams offices in Florida, agreed. If a buyer has in her mind that she’ll pay $350,000 for a home and the seller won’t budge from $375,000, “$5,000 in closing costs and a plasma TV ain’t going to get it done,” he said.

But those extra little perks can grab the attention of a buyer; it also might inspire a commitment from someone on the fence between two similarly priced properties, Dalzell said.  “What we usually recommend before you reduce the price … think about what you can do with the same dollars in an incentive,” Dalzell said.

2. Paying points

Sellers can offer to pay mortgage points for a buyer, an incentive that Dalzell tends to use in environments like today’s, when rising interest rates are at the front of a buyer’s mind. One point is 1% of the loan amount, charged as prepaid interest.  For example, instead of having an interest rate at, say, 6.5%, a seller might be able to pay points so that the rate is at 4.5% for the first year, Dalzell said.

“When a buyer sees a lower interest rate or monthly payment, that’s something they can relate to,” he said. The setup makes sense for a buyer who has furnishings to buy for the new place; it also can make for an easier monthly-payment transition for families that are upsizing. A word of caution to buyers considering this tactic, however: This assistance doesn’t last forever and usually spans about one to three years. Before accepting, understand and plan for the point in time when the window closes and payments return to their normal levels.

3. Down-payment aid

For some buyers, the hardest part of entering the ranks of homeownership is the down payment — also an area where a seller can help. It’s mostly first-time home buyers interested in this kind of assistance because they’re often the ones lacking in funds to complete a deal, Zadel said.  “It gets people into homeownership,” he said. “The disadvantage is that the buyer is financing that additional amount,” he added, because a seller would likely come down in the price of the home if a chunk weren’t dedicated to down-payment assistance.

4. Help with closing costs

Closing costs include items ranging from taxes to title insurance and can add up, ranging between 2% and 7% of the loan value, according to Freddie Mac. So many buyers, especially those stretching to make a down payment, will be interested in having a seller help out.  In Phoenix, buyers in every price range have been asking that these costs be covered, according to Ramsey. “They ask for it because they know that they’ll get it,” she said.

5. Adding a home warranty

A residential service contract is sometimes thrown in as an incentive because it acts as insurance for a home’s systems, often including plumbing, heating and cooling.  At a cost of a few hundred dollars, some real-estate agents consider it an inexpensive add-on that affords a buyer a little extra peace of mind, Dalzell said. That peace of mind can be especially welcome during the first year in a house. Others take a different view, and say there’s often confusion over what elements are covered. If a problem is considered a pre-existing condition, assistance could be limited. Plus, a warranty might not be necessary for a handy buyer who would likely take on projects himself, or ” if you’re buying a condo that’s two years old, a home warranty might not be that big of a deal,” added Zadel.

Those who accept a warranty should read the service contract and call the 1-800 number to ask questions, Dalzell said. If the seller pays for this add-on, he recommends having the buyer choose which company to use.

6. The little things

Other perks will appeal to buyers, too, ranging from the common to the unique. Payment of homeowner association fees — typically associated with condo developments — are sometimes offered. Ramsey said that sellers with pools might also offer a year’s worth of upkeep for it, a welcome help to those worried about the maintenance of the backyard attraction.

Or maybe if a corner of the home was designed to fit a grand piano, leaving that instrument behind entices a buyer to go through with the deal, Conway said.  The important thing for buyers to remember, Conway added, is that they should honestly want this add-on. Translation: A homeowner with no interest in music probably should give up a piano for a more personalized incentive

12:26 PM - Aug. 4, 2007 - comments {0} - post comment

Price it right and get it sold

The most dramatic improvement is found in the asking price vs. sale price category:  Eighty-six percent of respondents said their clients are getting at least 90% of asking prices. Of this figure, 55% say their clients are getting more than 95% of asking prices. The asking price-sale price percentages are even higher in California (94%), the West, Metro Chicago and Texas, all reporting 93%, and the Midwest (91%).

In home price appreciation over the past year, 40% reported an increase in value of between zero and 20%. Another 19% reported no change in value. Only 41% reported a decrease in value between zero and 20%. Seventy-nine percent of respondents in Texas – especially in the Dallas-Fort Worth metroplex – reported appreciation of 0-20% in the past year. 

In measuring the amount of time needed to sell a home, 43% of respondents said it is now taking 90 days or less, on average.  Of this figure, 18% said it is taking less than 60 days from listing to contact.

Buyer-seller ratios are also improving, although buyers are still in the driver’s seat in most areas of the country. Second quarter survey results show that home sellers outnumber buyers by 54% to 29%. The remaining 17% report an equal number of buyers and sellers in their marketplaces. In Texas, 69% of respondents reported more buyers than sellers and that 83% of listings are selling within 90 days. 

Fifty-nine percent of member agents report that the inventory of unsold homes in their exclusive ZIP code territories is up over a year ago and is 18% higher than the first quarter of 2007. Twenty-one percent said the number of unsold homes is about the same as a year ago. 

“Our latest national survey results certainly counter the gloomy real estate reports we’re seeing from some financial prognosticators,” said Michael Bearden, president and CEO of HouseHunt, Inc., a consumer-oriented Internet firm that supplies free information and services to homeowners, home buyers and home sellers in 47 states through more than 1,500 member agents and its primary Web sites, HouseHunt.com and moveUp.com.

Bearden added: “The fact that 86 percent of sellers are getting at least 90 percent of asking prices tells me that marketplace reality is replacing unrealistic home seller expectations. Potential buyers who have been sitting on the sidelines for the past 18 months are finding good value and lots of choices in their local marketplaces. Inventories of unsold homes are slowing building again in many parts of the country after leveling off in the first quarter of this year. Tougher mortgage loan qualifications will be a short-term negative factor for first-time and marginal buyers.”

12:21 PM - Aug. 2, 2007 - comments {0} - post comment

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