California First Time Buyer Grants

I'm not sure if these are accurate or currently available but one of my loan officer friend sent this list and I thought I would pass it along.

Some of these might be grants, some might be loans, and some might be old and obsolete. I know, if I am working on a loan for a first time buyer, as a loan officer I always check and see if there are applicable programs available and if so what factors that program has. Sometimes it works out well - other times my clients are glad I read the fine print.

For instance, the city of Concord has a grant program for first time buyers. I pulled the information and on the surface it looked good. "a zero-interest, 45-year loan" You can't argue with ZERO % right?

Down the page a bit I found these...

• "The City loan carries shared appreciation when the home is sold."
• "When you notify the City of your intent to sell or transfer your FTHB home, the City of Concord has the option to designate an eligible purchaser who meets the income requirements of our FTHB program. This enables the City to meet 2002 requirements of Community Redevelopment Law, which requires this FTHB property to remain affordable for a total of 45 years."
• "There are resale restrictions recorded on the deed to the FTHB home. The Resale Restriction Agreement limits the sales price of your house when you sell. When you are ready to sell the home, the City will calculate the maximum future resale price, which is not equal to the full market value."

Suddenly ZERO % doesn't sound so perfect anymore does it?

So take it with a grain of salt but here are some possible programs that might help the new homeowner...

Alameda Down payment Assistance Program (DAP)	$10,000	(510) 749-5824
Anaheim Home Program (HOME)	$35,000	(714) 765-4340
Anaheim Police Residence Assistance Program (PRAP)	$20,000	(714) 765-4340
Anaheim Second Mortgage Assistance Program (SMAP)	$25,000	(714) 765-4340
Brentwood Police Officer Recruitment Incentive Program (BPOAP)	$28,500	(925) 516-5195
California Gold Taxable MRB Second Mortgage Loan Program (SML)	$25,000	(916) 444-2615
California School Facility Fee Down Payment Assistance Program (DPA)	$25,000	(916) 322-1353
Campbell Deferred Second Loan Program (DSLP)	$50,000	(408) 299-5142
Chico Mortgage Subsidy Program (MSP)	$20,000	(916) 895-4862
Citrus Heights First Time Home Buyer Program (FTHB)	$20,000
Coalinga Downpayment Assistance Program (DAP)	$6,400	(559) 935-1533
Concord First Time Homebuyer Program (FTHB)	$25,000	(925) 671-3325
Costa Mesa Homebuyer Assistance Program (HAP)	$40,000	(714) 754-5692
Culver City Mortgage Assistance Program (MAP)	$60,000	(310) 253-5780
Del Norte/Humboldt Yurok Indian Housing Authority Downpayment Assistance Gift	$40,000	(707) 482-1506
Dinuba Homebuyer Assistance Program (HAP)	$20,000	(559) 591-5900
Dixon Down Payment Assistance Program (DPA)	$40,000	(707) 678-7000
El Cajon 120% First Time Homebuyer Program (FTHB)	$60,000	(619) 441-1768
El Cajon 80% First Time Homebuyers Program (FTHB)	$60,000	(619) 441-1768
El Monte Down Payment Assistance Program (DPAP)	Max 22%	(626) 580-2070
Emeryville First Time Homebuyer Program (FTHP) Moderate Income	$71,025	(510) 596-4316
Fairfield City-Wide In-fill Housing Silent Loan Program (FSLP-2nd)	$50,000	(707) 428-7457
Fairfield City-Wide In-Fill Housing Silent Loan Program (FSLP-3rd)	$50,000	(707) 428-7457
Fremont Adams Ave Home Project Second Mortgage (SM)	$207,926	(510) 494-4520
Fremont First Time Homebuyer Programs (FTHB)	$40,000	(510) 494-4506
Fresno CalHome Mortgage Assistance Program (MAP)	$30,000	(559) 262-4292
Fresno County Downpayment Assistance Program (DAP)	$4,000	(559) 262-4292
Fresno County- Economic Opportunities Commission (FCEOC) Refugee Individual Development Account (IDA)	$6,000	(559) 263-1065
Fresno Downpayment Assistance Program (DAP)	$4,000	(559) 498-4815
Grand Terrace Affordable Housing Program (AHP)	$25,000	(909) 825-3825
Hanford Home Sweet Home Program (Home)	$20,000	(559) 585-2587
Hawthorne First Time Homebuyer Program (FTHP)	$80,000	(310) 970-7086
Hayward First Time Homebuyer Program (FHP)	$11,000	(510) 583-4244
Hesperia First Time Homebuyer Downpayment Assistance Program (DAP) Scott McGookin	$20,000	(760) 947-1907
Imperial First Time Home Buyer Program (FTHB)	$20,000	(760) 355-4373
La Quinta Home Purchase Program (HPP)	$85,000	(714) 541-4585
Lincoln Homebuyer Mortgage Program	$40,000	(800) 995-0431
Livermore Down Payment Assistance (DAP) Deferred Payment Third Loan	$20,000	(925) 373-5699
Livermore Down Payment Assistance Program (DAP) Ten Year Amortization Second Loan	$20,000	(925) 373-5699
Long Beach Housing Development Company Downpayment Assistance Program (DAP)	$10,000	(562) 570-6949
Los Angeles County Home Ownership Program (HOP)	$60,000	(213) 890-7248
Los Angeles County Montebello Housing Development Corporation Calhome FTHB Mortgage Assistance Program (MAP)	$30,000	(323) 722-3955
Madera County Homebuyer Assistance Program (HAP)	$20,000	(559) 675-7821
Manteca City Manteca First Time Home Buyer Assistance Program (DAP)	$30,000	(209) 239-8427
Mendocino County Down Payment Assistance Program (DPAP)	$70,000	(707) 463-5462
Mendocino County Individual Development Empowerment Account Program (IDEA)	$10,000	(707) 462-0522
Mendota First Time Homebuyers Program (FTHP)	$25,000	(559) 655-3291
Merced County First Time Homebuyer Program (FTHP)	$60,000.	(209) 385-7654
Merced First Time First Time Home Buyer Grants Program (FTHB)	$25,000	(209) 385-6863
Modesto Down Payment Assistance Program (DPAP)	$60,000	(209) 577-5310
Monterey County First Time Home Buyers Program (FTHB)	$135,235	(831) 786-1357
Monterey Down Payment Assistance Program (DAP)	$25,000	(831) 646-3728

They say the devils in the details....

Always work with a True Mortgage Professional!

California First Time Buyer Grants - Part II

This is part two of yesterday's post. I didn't announce that yesterday was Part I.

I just thought I'd let it happen.

Nothing gets by the watchful eye of Super Sharp Real Estate Agent, Susan Goulding! She called me on why the list stopped at M.

Could that be because she works in Tracy?

Susan who really knows Tracy, passed along this tip:

"FYI - Tracy has a $75,000 downpayment assistance program for low to moderate income earners. Property must be in the City's Redevelopment Zone -- 3% simple interest for 30 years as long as you live in the property and don't refinance. It's a fantastic program - eliminates MI for most 100% buyers."

So Susan Goulding, here is your list for California First Time Buyer Grants from N to Y

(You'll notice my email completely missed Tracy's program)

Once again...

I'm not sure if these are accurate or currently available but one of my loan officer friends sent this list and I thought I would pass it along.

Some of these might be grants, some might be loans, and some might be old and obsolete. I know, if I am working on a loan for a first time buyer, as a loan officer I always check and see if there are applicable programs available and if so what factors that program has. Sometimes it works out well - other times my clients are glad I read the fine print.

For instance, the city of Concord has a grant program for first time buyers. I pulled the information and on the surface it looked good. "a zero-interest, 45-year loan"

You can't argue with ZERO % right?

Down the page a bit I found these little nuggets...

• "The City loan carries shared appreciation when the home is sold."
• "When you notify the City of your intent to sell or transfer your FTHB home, the City of Concord has the option to designate an eligible purchaser who meets the income requirements of our FTHB program. This enables the City to meet 2002 requirements of Community Redevelopment Law, which requires this FTHB property to remain affordable for a total of 45 years."
• "There are resale restrictions recorded on the deed to the FTHB home. The Resale Restriction Agreement limits the sales price of your house when you sell. When you are ready to sell the home, the City will calculate the maximum future resale price, which is not equal to the full market value."

Suddenly ZERO % doesn't sound so perfect anymore does it?

So take it with a grain of salt but here are some possible programs that might help the new homeowner...

Napa First Time Homebuyer Loan Program (FTHB)	$69,350	(707) 257-9543
National City First-Time Homebuyer Program (FTHP)	$17,000	(619) 336-4250
Nevada County Downpayment Assistance Program (DAP)	$40,000	(530) 265-1388
Norco First Time Homebuyer Program (FTHB)	$22,500	(909) 270-5645
Oakland "Public Safety Officer/Teacher/Communications Dispatcher Down Payment Assistance Program" (DAP)	$10,000	(510) 238-3909
Oakland Mortgage Assistance Program (MAP)	$50,000	(510) 238-3344
Oroville First Time Homebuyer Program (FTHB)	$50,000	(530) 538-2495
Oroville First Time Homebuyer Program (FTHB)	$40,000	(530) 538-2495
Oxnard Historical Enhancement & Revitalization of Oxnard (HERO)	$5,000	(805) 385-7400
Oxnard Resale Housing Conditional Matching Grant Program (GRANT)	$10,000	(805) 385-7400
Palmdale Mortgage Assistance Program (MAP)	$10,000	(661) 267-5126
Pasadena Homeownership Opportunities Program (HOP)	$60,000	(626) 744-8316
Pasadena Neighborhood Housing Services Inc CalHome First Time Homebuyer Program (FTHP)	$30,000	(626) 744-4141
Paso Robles CalHome Program (CalHome)	$90,000	(805) 237-3970
Placer County First Time Homebuyer Assistance Program (FTHB)	$35,000	(530) 889-4246
Pomona Calhome First Time Home Buyer Program (FTHB)	$30,000	(909) 620-3630
Porterville First Time Low Income Home Buyer Program (FTHB)	$20,000	(559) 782-7460
Rancho Cucamonga First Time Homebuyer Program	$16,000	(909) 884-6891
Redding Downpayment Assistance Program (DAP)	$35,000	(530) 225-4173
Redlands First Time Homebuyer Program (FTHB)	$15,000	(909) 884-6891
Richmond In-Fill Homeowner Assistance Program (INFILL)	40,000	(510) 307-8151
Rio Vista First Time Home Buyer Program (FTHB)	$5,000	(707) 374-6451
Ripon Gap Down Payment Assistance Program (GAP)	$60,000	(209) 599-2108
Riverside CalHome Mortgage Assistance Program (MAP)	$30,000	(909) 341-6511
Riverside County Individaul Development Account (IDA)	$4,000	(909) 955-4900
Rocklin First Time Homebuyers Down Payment Assistance Program (FTHB)	$35,000	(800) 995-0431
Roseville First Time Homebuyer Program (FTHP)	$60,000	(916) 774-5446
Round Valley Indian Housing Homebuyer Assistance Program (HAP)	$25,000	(707) 983-6188
Sacramento CalHome First Time Homebuyer Mortgage Assistance Program (MAP)	$29,350	(916) 264-1522
Sacramento County and City First Time Home Buyer Program (FTHP)	$5,000	(916) 264-1524
Sacramento County and City Homebuyers Assistance Program (HAP)	$2,500	(916) 264-1524
Sacramento County MCC Expanded Teacher Home Purchase First Time Homebuyer Program (FTHB)	$5,000	(916) 264-1524
Sacramento County MCC Expanded Teacher Home Purchase Homebuyer Assistance Program (HAP)	$2,500	(916) 264-1524
Sacramento Mortgage Assistance Program (MAP)	$20,000	(916) 264-1522
Salinas First Time Homebuyer Downpayment Assistance Program	$40,000	(408) 758-7334
San Diego County San Diego Neighborhood Housing Services CalHome Program (CalHome)	$40,000	(619) 282-6647
San Diego Down Payment Assistance Grant (DPAG) Program	$7,500	(619) 578-7491
San Diego Neighborhood Housing Services Cost Assistance Support for Homebuyers Program (CASH)	$10,000	(619) 282-6647
San Fernando First Time Homebuyer Program (FTHP)	$45,000	(818) 898-1233
San Francisco First Time Homebuyer Program (FTHB)	$100,000	(415) 252-3177
San Joaquin County GAP Loan Program (GAP)	Max 20%	(209) 468-3157
San Jose Neighborhood Housing Services of Silicon Valley, "The Vernal Fund" Mortgage Assistance Program (MAP)	$80,000	(408) 272-2878
San Jose Teachers Homebuyer Program (THP)	$40,000	(408) 277-8486
San Leandro First Time Homebuyer Program (FTHB)	$20,000	(510) 577-6002
San Marcos Down Payment Assistance Loan Program (DPAL)	$10,000	(760) 744-1050
San Mateo County Start Program 2nd Lien	$65,000	(650) 802-5033
San Mateo County StartPLUS 3rd Lien	$5,000	(650) 802-5033
San Mateo Countywide Home Investment Partnership Program (CHIP)	$60,000	(650) 522-7223
San Mateo First Time Home Buyer Program (FTHB)	$60,000	(650) 522-7220
Sanger First Time Homebuyers Program (FTHP)	$2,700	(559) 876-6329
Santa Clara County Deferred Closing Cost Program (DCCP)	$6,500	(408) 299-5142
Santa Clara County Second Loan Program for Teachers (SLPT)	$10,000	(408) 441-4260
Santa Cruz County First Time Home Buyer Program (FTHB)	$25,000	(408) 454-2280
Seaside First Time Home Buyer Program	$30,000	(831) 899-6728
Shasta County Down Payment Assistance Program (DAP)	$30,000	(530) 245-6431
Simi Valley Closing Cost Grant Assistance (GRANT)	$3,000	(805) 583-6853
Simi Valley First Time Homebuyer Assistance Program (FTHB)	$40,000	(805) 583-6853
Sonoma County Employee Second Mortgage Program (ESMP)	$15,000	(707) 565-7500
South Lake Tahoe First Time Homebuyer Assistance Program (FTHB)	$60,000	(530) 542-6157
Stanislaus County Down Payment Assistance Program (DPA)	$50,000	(209) 525-6330
Stanislaus County Public Facilities Fee Deferral Program (PFF)	$25,000	(209) 523-6330
Tulare County First Time Homebuyer Program	$20,000	(559) 733-6291
Turlock First Time Home Buyers Program (FTHB)	$60,000	(209) 668-5610
Ukiah Down Payment Assistance Program (DAP)	$70,000	(707) 463-5462
Upland Primary Assistance Loan Program (PAL)	$30,000	(909) 931-4113
Vacaville Down Payment Assistance Loan Program (DPAL)	$10,000	(707) 449-5687
Ventura First Time Home Buyer Grants Program (HBAP)	$45,000	(805) 654-0038
Victorville Mortgage Assistance Program (MAP)	$5,000	(760) 955-5032
Visalia Homebuyer Assistance Program (HAP)	$20,000	(559) 738-3460
Waterford First Time Home Buyer Assistance Program (DAP)	$20,000	(916) 725-1181
Watsonville Downpayment Assistance Program (DAP)	$30,000	(831) 728-6014
Watsonville First Time HomeBuyer Program (FTHP)	$90,000	(831) 728-6014
Woodlake First Time Home Buyer Grants Program (HAP)	$20,000	(209) 564-8055
Yuba City First Time Homebuyer Assistance Program (FTHB)	$50,000	(530) 822-4697

They say the devils in the details....

Make sure you are working with a True Mortgage Professional.

Lease Option to Buy Snag

From a Sellers perspective the Lease Option could be viewed as a viable method of moving the property from the negative side of the equation to the positive  side.  If a home is on the market it obviously has no rental income, it's also not benefiting the present owners by providing a roof over their heads.  As it sits on the market it's costing the seller each and every day.  They probably have to wait to make an offer on their new home until they have an offer on their present home.  One of the latest tactics when a home doesn't sell is to Lease Option it.  I wrote about one such instance here:

Your Listing Hasn't Sold? Lease Option It!

This tactic could be a win for the Seller depending on the structure of the deal.  Many deals are structured to favor the Seller, not the Buyer.  Not that there couldn't be a Win - Win for both, I just happen to see more tilted towards the Seller.  That makes some sense as they are the ones writing the contract. 

For the potential Buyer, there are certainly risks involved. 

Lease Options are nothing new.  Rent to Own business models are known to all.  I could go down to my local Rent - A - Center and pick up a new leather couch.  Exorbitant rental fees aside, I now am watching my Rent to Own Plasma, while sitting on my Rent to Own couch.  If I miss my weekly payment, they come pick up my TV and couch and I'm back to where I started.  If I continue my payments to the end, I now own the couch and TV.  It's all good.

Lease Option the house and I will probably put something down as a deposit, I'll have to make my monthly rent on time each and every month, and then 2 years later a portion, or maybe all of my rent is applied towards the purchase price.   It's all good.

Almost.

• What happens if the market zooms in those 2 years?
• What if it declines?
• What will rates be like in June 2008?
• Will his credit be any better then?
• What will underwriting guidelines be like in June 2008?
• Will he be able to qualify for anything at all?

These are just the reasonable questions we can ask.  The foreseeable ones.

But remember, there's a reason the house wasn't sold to begin with.  Was it overpriced?  Was it below standards?   Did the owners need money?  There was a reason.

This presents another risk to the Lease Option Buyer.  What if the Owner / Seller goes under?  What happens if the home goes into foreclosure?  When you signed the agreement, did you ask for financial statements from the Seller?  Did you check to see if there were any liens on the property?  Of course not.

Lease Options can be good vehicles to move property.  But increasingly there are more and more reports coming out as good Lease Options go bad.

Here's a couple I've been following:

 Crisp & Cole lease to buy program

http://www.buzzle.com/editorials/12-2-2005-82927.asp

http://sfvblog.com/tag/investor-info/lease-option/

"If you lease option the house, you can charge up to 25% more than the current market rental price, because you are offering to let the tenants buy the house. You might also be able to use the option consideration to pay for the payments to the bank of which you are behind."

How scary is that?

East Bay, Hot Bed of Defaults

I read an article in the Contra Costa Times yesterday.
It was also covered by all the news stations.

"Loan Defaults are the Worst in the East Bay!"

Hey, I can see that.
I blame all sorts of people here: LINK
Good people have been mislead into signing for more house than they can honestly afford.
The payments on the loan changes and viola!

"Honey, we can't afford to pay the mortgage this month"

And since money is the primary cause listed in divorces - guess what else the east bay might soon be leading in?

I was talking to a divorce attorney the other day and he was eagerly waiting for the flood. He already hired a couple extra people to help with the "soon to be" workload - really!

No matter why the current homeowner is past due there are a couple of things to look for here.

On the Opportunity Side of the coin, if you are buying your first home, picking up additional investment property, or just looking to get a deal - This may be your time!

• Distress Sales
• Foreclosures
• Notice of Defaults
• Short Sales

You name it, they'll be a lot more coming!
But are you ready?

To take advantage of any of the above you need your "Ducks in a Row".
You need to be able to act quickly.

You should be pre-approved now by a mortgage professional.
We're talking "Full Doc" and at a high enough interest rate that if rates bump 1/2 % your approval isn't out the window.
Remember, you are not locking at this rate, just qualifying at it.

Make sense?

Before you dive head first thinking you are going to get the deal of a lifetime - do your research. Read, read and read some more. Flipper? Start here: LINK

What if you are on the other side of the coin?
What if your spouse just told you, "Honey, we can't afford to pay the mortgage this month"?

Don't wait - don't hesitate - you need to Activate!
Get in contact with a mortgage professional now!

If you have to refi - do it.
If you have to sell - do it.
Do everything you can to NOT make a LATE mortgage payment.

Even if you have a couple of late payments - it's not the end of the world.
You still have options but ONLY if you act quickly - wait too long and those "opportunists" listed above will be taking advantage of you and you don't want that do you?

Want to read more about dealing with foreclosures?
http://www.patagoniafinance.com/2006/12/youre-in-foreclosure-happy-holidays.html

New Century Mortgage

Just Wednesday I mentioned the changing combo loan marketplace. LINK

Low and behold the poopie hit the round spinning thing.

Yesterday, New Century Mortgage, a major Alt-A slash Sub-Prime lender that has some deep problems suspended all new loans yesterday.

I had a colleague yesterday call my processor looking for help.

She had no less than 3 loans with New Century in process, (some signed and waiting for funding) when she got the call.

In the email I received, I'm guessing that all 3 were... HIGH LTV Loans.

"In order to pursue this opportunity we have elected to suspend new loan submissions effective immediately. We will lift this suspension as soon as we are able to identify a liquidity solution.

During this time, we will continue to fund our approved loans as permitted by our lenders. This includes the prioritization of purchase transactions with the exception of 80/20 Combo and 100% One Loan products."

Bummer, right?

But let's assume these three loans were for purchases.
Now you have 3 different houses that went off the market, accepted offers, and were very close to the Close of Escrow.

The sellers of these three houses have now been deeply effected by the sub prime collapse, even if they themselves have had perfect credit all their lives.

Let's follow the domino a little more down the line...
These 3 sellers, upon having their home in contract, probably went out and made offers on 3 homes for them to move into. Those offers were probably contingent on the sale of their home.

Now that their home is going to have to go back on the market, they cannot complete the sale of their next home so those sellers (twice removed) are also negatively effected. And the domino doesn't stop there it keeps going.

No it's not fair, but it is proof that all things are connected.

"Paging Dr. Mueller to the White Courtesy Phone..."

"Hi, my name is Mike Mueller
I'm not a real Doctor but I play one on TV...

I have a problem, it's a serious problem,
and guess what?
I know you have it too!
It effects each and every one of us every day."

Actually the realization is closer than you may think.

Disclaimer: The following is an analogy, a metaphor if you will. While using myself as an example, I am not equating the level of training as a mortgage professional is equivalent to a medical doctor. The analogy is in the dispersement of the treatment to treat the ailment.

I am a highly trained, highly skilled, Mortgage Professional.
While the real doctors are also highly trained, skilled professionals we both use much of the same systems and tools.

We both rely heavily on new and complicated technology.
This technology allows us to make better decisions in our recommendations.
Yet nothing replaces a human smile, a warm handshake, and a knowing voice assuring the patient that, "Everything's going to be alright."

The M.D. works in conjunction with others very well.
He refers tasks better done by specialists like lab tests & X-rays.
If the doctor is a general practitioner, they may bring in the opinion of other specialists in specific fields.

As a professional, I do the same.
I order work (lab tests) from my title company, my processor, appraisers and so on.
As for specialists, I have plenty. Not everyone who comes to see me is in good mortgage health.
As a mortgage broker I need to know who might be able to help my patient.
With the plethora of lenders available, sometimes it's in the patients’ best interest to call in a specialist.

Bringing in the expertise of others is critical to the patient's health.
Having a general practice doesn't mean the MD can, will, or should do most everything involved in the treatment.
The same goes for my chosen field of practice.

While I do have a State of California, Department of Real Estate License which would allow me to represent the seller or the buyer in a transaction, as a true professional I fully understand the implications and serious ramifications that may be possible if I did.
Working in the best interest of my client is my Fiduciary Responsibility as decreed by law.
Doing anything more would be Real Estate Malpractice in my professional opinion.

In the course of treatment the M.D. may recommend certain drugs.
Some times these may be considered "over the counter" and available to the patient with little guidance from the Doctor.

Other times the best drug for treatment may be by "Prescription Only".
Prescription drugs may have serious side effects if used by the wrong person, or in the wrong conditions, and may interact with other drugs a negative ways. While a particular drug may work medical miracles on one person, it may be deadly for another.

When dispensing any drug it's imperative for the patient to be aware of possible side effects and precautions. The Doctor upon writing the prescription will make these issues and concerns perfectly clear to the patient.
For this reason the F.D.A. determines the drugs that may pose serious problems be dispensed only by trained professionals.

As a mortgage professional, I dispense or prescribe loans.
Just like there are no bad drugs, there are also no bad loans.
Every loan program has the potential to be a good program if applied to the right condition with the right patient at the right time.

When the patient comes for an office visit,
(And yes, sometimes I do house calls) it is my job to accurately diagnose the ailments of that patient.
Once diagnosed, we can discuss possible treatment options.

Sometimes the best remedy may be something simple, akin to putting ice on a swollen joint.
Example: "Mr. Johnson, I suggest you live with the adjustable loan another 6 months until your prepayment period is up."

Sometimes the best remedy may be something generic, something "over the counter" but offered with a little guidance.
Example: "Mrs. Smith, I suggest you go down to your bank and get a $50,000 HELOC, but make sure there are no costs at all."

And then sometimes the best remedy is something very specific, but something with serious warnings and contraindications, something that if used improperly could result in devastating complications to the patient.
Example: "Mr. and Mrs. Newlywed, this combo loan will allow you to buy your first home but remember the interest rate is going to be fixed for only a short period of time. After 7 years this loan will become adjustable and you may want to move, sell or refinance before that time."

Any and all of the above also have possible side effects and complications that as a professional it is my duty to warn about.

I am a professional. I am very confident in the work I do and the patients I treat.
But I have a problem.

The industry allows non trained, non skilled, non professionals to prescribe the same drugs I can.
These pseudo professionals appear to the unknowing patient as professionals.

• Do they do the same diagnosis I do?
• Do they ask insightful, probing questions, like I do?
• Do they fully understand the needs and goals of the patient, like I do?
• Do they accurately and precisely articulate both the risks and rewards of all possible solutions, like I do?

And maybe the most important question of all...

• Do they act with the same Fiduciary Responsibility, like I do?

Anything less is mortgage malpractice and that, in nutshell, is my problem.

Scarcity is a Value

Over the weekend we held our Investing in Real Estate: 101 seminar.
We filled the big room of the Walnut Creek Marriott.
150 people if I heard right.
No room for walk ins.

I heard nothing but good comments so far.

One of the best things (I think) in doing these seminars is that each and every person has a card they can turn in before the end and have their question answered. They don't have to stand up, they can ask anonymously, and get a real answer to maybe something they were afraid to ask.

The question came up, "Where would you suggest investing in?"
It's an open dialogue in this part of the session.

Rob handled the question originally and rattled off some far away cities in NC, WA and then mentioned Sacramento. Charlie Krackeler didn't have much to say about it, but I did.
I objected!

Rob's point was that since Sacramento was the Capitol, it was the hub of the state.
There will always be jobs because they are not going to up and move the Capitol to Walnut Creek. Jobs equal good housing appreciation.

My point was that he is part right.
Jobs, schools, and roads all add to healthy appreciation and a good overall economy.
That's true enough.
But the world is driven by supply and demand.

I argued that pretty much anywhere in the central valley there is plenty of cheap land.




I used the area by the Arco Arena where Hwy 80 intersects Hwy 5 as an example.
I have a very good friend who bought a new house, in a new division, for 1/3 what he could have down here in the Bay Area.
By the way, the Arco Arena was originally built back in 1988 in the middle of farm land. This area is now called Natomas. and it literally is right next to the Arco Arena. It even has it's own school district!

Important Point
When we as a society need more housing we build horizontally not vertically.
That means "Out" not "Up".
That's housing - not office space.
Office space builds up not out.
We want to live in our own home, our own little homestead that we can stake out with a white picket fence.
When we go to work, we want to go to the hustling bustling towers with the corner office.
Your mileage may vary, but you can see my point.

As more Sacramento housing was needed, developers simply bought the cheapest land available (farm land) and built OUT.

Some of the most expensive residential land in the bay area is where?
In places where they can NOT or will not build out.

Case in point - the SF Peninsula.
Surrounded by water on three sides and SJ on the other where can they go?
So there is a finite amount of houses able to be built.
That means suitable housing is scarce and not plentiful.

Or look at CA coastland. Want to buy a house overlooking the ocean?
This also a good example of a limited amount of spaces available.
You and I both know you'll either pay the big bucks, or have to settle for somewhere obscure.
"Cheap coastal homesites are available in the Aleutian Islands - Call Now, Operators are Standing By!"

Looking at Natomas as an example.
I went looking for a picture of before and after.
I found a whole page on the CA website dealing with the growth in this area:
LINK
Oh, and here's another good page: LINK

Here's a picture of the area showing 1999 and then again in 2003.





The red squares are farmland, bluegray housing.
It's easy to see, we converted lots of farmland to housing.
And you know what's outside of the picture?
Even more farmland!

Tree-hugging aside, here's the point:
If Sacramento housing is or becomes expensive, the developer just turns around and buys more farm land and builds more houses.
Don't blame the developer, he's just doing what the market dictates he do.
he sees the demand and increases the supply.

Macro economics say...
With a diminishing supply and rising demand, prices will increase.
(Think Oil and Gas)
What do you think gas would cost if oil was plentiful and all we had to do was turn on the tap?

While the conversion of farmland to houses isn't as easy as "turning on the tap", and limited growth or no growth initiatives may stand in the way of rabid builders plowing under the fields of corn, the general idea remains.

I met yesterday with the person who posed the original question.
As it turns out they may not be able to afford a place in the bay area.
Sacramento may fit their price range.
They are First Time Home Buyers and have limited buying power.
If they buy smart, and with a good exit plan, I see no reason why not to buy where they can.

DISCLAIMER:
I am not advocating Growth or No Growth.
I am not down on Sacramento.
Farmers vs. Builders.
Golden State vs the Kings.
Arnold vs. ?
I'm simply making the case that scarcity builds value.

When to Invest?

The question always comes up.
It doesn't matter if it's a "First Time Home Buyer",
or the "Wanna-Be Investor" it's always the same question.
"When is the right time to buy?"

But hey, it also comes in the form of a definite thought or statement.
"I'll buy when the market hits bottom."

Either way, question or statement, it comes down to WHEN?

When should you enter the market?
Guess what my take on this is?
That's right, it is always a great time to start investing!

Sounds like a sales pitch right?
It's not. The true investor always wants to be in the game.
Here's why...

There is always value in the market, though some times it is harder to find that value than other times. There is always a house or building that has not been taken care of properly, with motivated sellers. These are great properties to buy, just about anytime. More importantly, the real estate market is cyclical. Predicting cycles can some times be like predicting the weather. Since many of the greatest economists cannot seem to do either, it is not worth trying to jump in at the trough and get out at the peak. If anyone tells you differently, ask them if they have any swamp land they can sell you as well.

Buy and hold investors almost always make money because of the nature of real estate price increases. Even if you get in at a peak and hold, real estate typically comes back to bail the hold investor out. Established investors who only work in certain markets have even more of an advantage because they have seen peaks and valleys. They can read signs much better and know when it’s a great time to buy. Better still, they know what properties to buy because they are so familiar with the hot (and cold) spots in the area.

It's also important to consider the market when you decide on property types.
A quick example will make this clear: If you only invest in apartment buildings, then you want to watch out for housing prices and interest rates in your area. If rates get low and prices are still reasonable, people will flock from apartments to houses, leaving you with high vacancy. Doing some easy math (Net Operating Income falls) will show you that prices of apartments buildings will decline. Once this happens however, it might be a good time to buy apartment buildings. Why? Inevitably, housing prices will begin to rise and price people out of the market. As new home buyers enter the market, they will not be able to afford homes, but might be willing to settle for an apartment while they save.

It's the old supply and demand, ebb and flow all again.

So when?
Now!
(after you do your homework - right?)

First Time Home Buyers

Here's a great follow up story to yesterdays PMI topic.

The reports coming out today are that the FTHBs are getting back into the market.
I found a small chart showing the cost differences between renting and buying in various markets. I have a couple of complaints about this graphic.
The first thing I have to say is that this is gross. Not bad gross, BIG gross. Gross in the that it broadly covers the US.

What size magnifying glass should we be using?

I see report after report on housing declines.
If I look at specific areas in the bay area, or the country I get radically varied numbers.
Median Existing Home Sales for Oct. in the bay area (as a group) were identical to those a year ago, $614,000. So we were unchanged year over year. We were if you look at the bay area in general.

In that same period, Santa Clara County went up 3% yet Napa dropped 8.7%
Want to focus even closer?

I have a motorcycle friend, Alan who just opened a therapeutic massage business in Los Gatos.
I'm using Alan as an example because he's a well educated and thinking person who would have done his due diligence homework.

Moving from SLO, if he was looking at Los Gatos charts depending on the actual zip code he'd see two drastically different pictures.
Zip 95033 gave it's residents a 33.6% drop year over year!
That's a huge hit! Why would he ever think about moving?
Maybe it's a good buying opportunity?
That aside, if he looked at Los Gatos' zip just one away 95032 - he'd see appreciation of 10.5%!

Get the idea?

It also is a very short term graph. It deals with just the here and now.
It does not account for appreciation over time.
It does not account for tax deductions.

I had a Probability and Stats professor who drilled into us students that we had to know the time frame, the sources, and the facts that go into any graph. You have to be careful.

Enough of the graph. Let's talk about FTHBs.

The share of first-time home buyers dropped earlier this year to its lowest level since 1987, according to the National Association of Realtors. First-time home buyers now account for 36% of home purchases, according to a study released last month by the Realtors group, down from 40% in the three previous years.

First-time buyers play a key role in the housing market. They provide a source of new demand for homes, and they also make it possible for owners of entry-level properties to trade up, creating a ripple effect that affects higher-priced sectors of the market. Declining affordability has made it difficult for many first-time buyers, an important factor in the recent housing downturn.

First-time buyers are particularly sensitive to rising housing costs, in part because they don't have equity from an existing home they can tap as prices shoot higher. And lower incomes provide less of a cushion when monthly payments climb. In a sign of just how hard it is for first-time buyers to come up with the cash needed to buy a home, 45% of first-time buyers bought their home with no money down, according to the recent National Association of Realtors survey, up from 43% a year earlier.

How and why did that happen?
In part, as the Lenders saw the demand for 100% financing, they responded by creating reasonable programs to allow the high LTV loans. Because values were appreciating at a pretty good clip a FTHB saw the opportunity to act and did so. Many of them got in using short term loans. These may have been ARMs with fixed period portions. The "credit window" was wide open. Underwriters and the guidelines they wrote loans by were very lenient to say the least.


Flash forward to today:
That same credit window is closing.
It won't shut, and it may not even be noticed to most.
Simple fact is that as more and more lenders take bigger and bigger hits on defaults in their portfolios they have to adapt and make changes. You will not read this in any newspaper, nor on the TV. The last thing a lender's marketing department wants is for potential borrowers to feel they cannot qualify and hence not even make an application. And really, they are right. They want to get you in the door, make the application, then turn you down if they have to. Remember this, turning you down costs them money. The only way they are going to make any money is on approving people. We're all in the business of completing loans.
But they are smart enough to know that there is no way the average or even highly informed borrower could possibly make that determination on their own.

I did a quick search of news articles and here's the one and only snipet I could find on the topic:

"New guidelines for nontraditional mortgages, recently issued by federal banking regulators, could make it tougher for some first-time buyers to use these products. Some lenders are also beginning to tighten their standards as mortgage delinquencies rise."

I'm sure everyone else saw that too - right?

Here's an analogy for you...
You find out you need to have your gal bladder removed.
You want to educate yourself as much as possible.
So you go online and gather as much info as you can.
You talk to as many other people who had the same operation.
You talk to doctors, nurses, and those guys that give you the laughing gas.
You even find out your Brother's Wife's best friend used to perform the same operation on underprivileged Pygmies in the jungle bask in the day. You even get a 2nd opinion.
He thinks you need to lose some weight and have the operation at the same time.

No matter how much you think you know - will you ever know as much as the guy who is going to ultimately make the incision?

Moral of the Story:
You have to use professionals who know, professionals you trust.
Additionally, I have to say these same professionals have to be able to trust you too.
But that's a story for another day.

PMI, Have the rules changed?

P.M.I. - Private Mortgage Insurance.
For years it's had a bad name.

But what exactly is it?
And maybe more importantly "why" is it?

First of all it's insurance.
It protects the lender - not the home or the homeowner.

When a borrower buys a home they will have a certain amount of equity depending on how much they put down in relation to the purchase price.
If that equity is less than 20%, that's where PMI comes in.

Let's look at it from the Lender side first.
For a lender it's all about default rates.
Given any particular portfolio there will be a measurable amount of defaults that will happen.

As the LTV (Loan to Value) goes up, so does the chances a loan will end up in default. The less "stake" a borrower has in a home the easier it is for them to walk away should something happen.

Coincidentally, as a LTV goes up so does the exposure, or risk that a lender will be taking.

Looking at two typical owners...

First Case:
We have a homeowner from a typical Country Western song:
Billy Bob just lost his job.
Billy Bob just lost his truck.
Billy Bob just lost his wife.
and then yesterday, the dog ran away!

But he still has his home.
A 2 bedroom / 1 bath modular home they bought as a fixer upper a year ago.
Problem is, he has little or no equity.
(they bought it with 100% financing but since then they've seen prices in their area drop)

Second Case:
Mr. and Mrs. Dink.
They both work, and as you may have guessed, no kids.
They both work for the same drug company.
When they were transfered here they sold their old home, and used the proceeds towards the purchase of their new one here.
Right now they have about 65% LTV (or 35% equity).

But, Oh No!
Their company's newest wonder drug just failed FDA clinical testing.
It was supposed to help rednecks with depression but it turns out it has a very weird side effect.
It seems it reduces I.Q. by 100 points and causes buck teeth in grown men.
The stock plummets and the company lays off 1/2 it's workforce.
Mr. Dink, who worked in the Marketing Department got his pink slip via email the next day.

In which of the two cases do you think the homeowner will do most everything they can to continue making the payments?
I'll bet you would see Mr. Dink working a WallyWorld if he needed to - right?

Lenders see people with the best of intentions walking away from their homes all the time. They track the numbers, they minimize their risks. That's what business is all about. No surprise there.

Enter PMI.
Like I said, PMI is insurance that protects the lender.
The borrower pays a monthly premium and if they default on their loan, the lender forecloses, and PMI steps in and minimizes the losses for the lender.

For the lender that means they can go out on limb with who they loan money to yet still be covered on their risk.

To the borrower with little money down, this means is that there are lenders and loans available that will allow them to buy their first home.
If there were no PMI, these loans might not be available.
So PMI is a good thing?

It is.
It helps people get into their first home where they might not be able to without it.
It helps the lenders provide loans that they could not have risked without it.
It helps the economy, the housing industry, the market in general.

But then again, paying PMI was always like throwing money down the toilet.
PMI isn't tax deductible.
That's where the bad rap came from.

So PMI is a bad thing?

It is as well.

But guess what?
That is changing!

"New legislation allows eligible borrowers with adjusted gross incomes of $100,000 to deduct 100% of their borrower-paid MI premiums on their federal tax returns*.

Based on the new legislation passed December 9, 2006, the provision is effective for transactions closed after December 31, 2006. MI premiums paid between January 1 and December 31, 2007 may qualify for tax deductibility on borrowers' subsequent federal tax returns as follows:

* Borrowers with adjusted gross incomes below $100,000 may deduct 100% of their MI premiums.

* Deductions are phased out at 10% increments for borrowers with adjusted gross incomes between $100,000 and $109,000."

As always, your mileage may vary. Consult your tax professional.

In the end, the jury is still out on weather paying PMI is wise or not so wise.
We've always had high LTV loans that do not require PMI.
You could think of the PMI as being built into the rate.
(that would make your payment higher as well but also tax deductible)

What we'll have to see is how these high LTV loans are priced.
Once again, supply and demand will come into play.

Follow along with the thought here.
If PMI loans now make more sense than non-PMI loans with higher rates,
fewer non-PMI loans will be originated.
Those Lenders will then lower the rates to make the non-PMI loans competitive with PMI loans.
How much will they lower their rates?
We don't know yet.
That's why the jury is still out.

Here's the Crux:
As the market changes, you absolutely must work with a professional in your corner who understands the implications of these changes.
You cannot use your that guy who does mortgages down the street or your Sister's Husband's Friend.

I can guarantee a year from now, I'll run into loan officer's who still don't know PMI is tax deductible.

Yeah, they'll still be driving their T-Top Camaro, listing to CW on their 8-Track, with their mullet flowing in the breeze. And they'll still be doing bad loans for people.


BTW:
PMI is an acronym for private mortgage insurance,
there are many companies who provide this insurance,
but there is also an international mortgage insurance company called PMI - headquartered right here in Pleasant Hill, CA.
That's great "Branding", eh?

In actuality, what many refer to as PMI should be called MI - or Mortgage Insurance.
The distinction probably started in reference to government loans which carry their own forms of MI.

December Seminar

Scheduling a seminar in December is crazy!

With so much else to do, why in the world would anyone want to take time out of the busiest month in the year?

Between shopping, partying, skiing, and the holidays themselves - it's a pretty short month.

I know plenty of people in the real estate field that take the entire month off!

In the end though, I would guess 130 people felt a Rob Black Seminar was important enough to put off the shopping, put off the partying, the skiing, or whatever else they could have been doing. Instead they braved the rain and traffic and drove from as far away as Santa Rosa to sit and learn what it takes to invest in real estate properly! My hats are off to all of them!
I thank you and I certainly hope you came away with some valuable information.

I'd also like to thank Rob Black for putting this on.
Unfortunately, he wasn't able to make it - something last minute came up.
(and no it wasn't shopping, partying or skiing)

A big thank you to my co-presenter Charlie Krackeler.
I'd be happy if I was 1/4th the speaker Charlie is.
Wow! is he entertaining!

Also thank you to Santa Clara's Network Meeting Center.
A great facility to hold most any size meeting.

But once again, thanks to all those that came out to learn something!

I'll try and see if I can get presentation notes and maybe even the presentation itself available to download soon.

Investing in Real Estate: 101

This Saturday, Rob Black has arranged another educational seminar.
This one is in the San Jose TechMart.

It runs from 9 to Noon.
Cost is $6 in advance.
Why charge you ask?
First of all it's such a small amount,
and second, it's a great way to raise money for local charities.

Sign up is here: www.RobBlack.com


"Investing in Real Estate: 101
Santa Clara's Network Meeting Center (Silicon Valley's Techmart)
December 9th 9:00 AM to Noon
5201 Great America Parkway
http://www.acteva.com/booking.cfm?bevaid=123230

Wealth Preservation & Retirement Planning seminar. Learn how to reduce risk with diversification, tax reduction strategies, estate planning tips, how to pull money out of the markets in retirement, economic outlook, portfolio structure, asset allocation and much more. All questions wealth preservation and retirement planning questions will be answered.

Real Estate 101 and a Real Estate Investments seminar. Expert speakers will teach you about buying your first home, evaluating investment properties, calculating real estate ratios like rent multipliers, buying rentals strategies, proper use of mortgages, financing, taxes and much mo