Moratorium on Mortgage Rates Will Help Some People...

Word is out that there's the Bush administration has worked out an agreement with lenders to temporarily freeze mortgage rates for some homeowners, so that their mortgage payments won't adjust upward. According to one person familiar with the plan, the moratorium would "apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010." This will be of great help to people who have been able to make payments thus far but are facing a sudden increase of as much as 30% per month. The idea is to keep more people from going into foreclosure, so even though it won't help those already in danger of losing their homes, it should ease some of the pressure on real estate by keeping more short sales and repo's off the market.

The good news is that Treasury Sec. Paulson finally admits that the massive number of homeowners falling behind can no longer be dealt with as individual cases but must be recognized as a nationwide trend. Unfortunately, it's too little and too late for a lot of people.

The article ends with a gloomy outlook of impending recession, which has everything to do with consumer sentiment at the moment. A poll last month indicated that 40% believe that a recession is imminent. If that many people feel this way, it's no wonder that few are buying homes right now when so many need to sell.

AP article on Bush admin plan to freeze mortgage rates

Desperate Home Owners Use Plastic...

Some months ago, I wrote a blog entry on how mortgage companies were thinking of offering credit cards with a very small percentage in rewards going toward paying off the mortgage (kind of like an mileage card for an airline). For homeowners who pay off their credit cards monthly (and don't fly), this might make sense. But now, the word is out that some desperate people have taken to using plastic to avoid foreclosure--and they're not paying the cards off. Uh, oh...

Is this better or worse than the people who pay off their credit cards but lose their houses? A general rule of thumb is, do what you can to keep the house and give up on the cards. But using the unpaid cards to pay the mortgage is definitely scary. I suppose it could work if someone is fairly sure that s/he will get a million dollars in 2 months. But what if the lottery gods are frowning then? If the lender okays a lower monthly payment for now to stave off foreclosure, that unpaid credit card has a nasty interest rate. I suppose that if the house is at least saved, one could then sacrifice the card and then try to negotiate with that company later... Of course, after the late payments on the house, one's credit is already shot, so what's an unpaid card? That is, so long as the roof overhead isn't going to get taken away!

The article goes on to mention the fatal holidays fast approaching (at least, the Mission Inn put up its unlit Christmas decorations in September!). Ooh, think home made gifts! They're ... priceless! (That's what we'll be doing a lot of at my house--mostly from our 5-year-old but also quite a few from me. We're also going to make all our own Christmas cards. And hey, I think my clients will like the personal touch!)

Do I have any wise words for people in such desperate straits? Unfortunately, not really, other than that they need to go to debt counseling (real, non-profit counseling and not another con artist), and they need to get into a situation that they can afford right now. And for those who are starting out and thinking of buying a home, I highly recommend that start with what they can afford, and if it's not available, stay with family or rent, and learn how to save--which means not using those cards very much!


Article on Credit Cards and Mortgages

San Bernardino Tax Relief: Fires and Declining Value

San Bernardino County will be reassessing residential properties that have lost significant value. This will be a little help to those who've had fire damage in recent days. They're also offering tax relief for items such as boats, planes, and business personal property. There's none for home furnishings as these aren't taxable. IVAR has a page with info and links to county sites at:


http://www.ivaor.com/sbtaxrelief.pdf

Once a home is rebuilt, it will be reassessed at where it was when the damage occurred unless additions are made. Such additions will be assessed at full-market value.

For homeowners who haven't had any damage, they should see if they can have their properties reassessed due to lower home sales in the neighborhood. The form to fill out can be found at:

http://www.sbcounty.gov/assessor/documents/arp068.pdf

Fires are part of the California environment

As a child, I once read a book about settlers in the west who had to keep a strip of land cleared around their home in case of fires. Of course, what I know now, living in California, is that keeping the brush cleared is only the most basic line of defense and not much help when gale-force Santa Ana winds are carrying sparks far and wide. As people move further out into the desert, both low and high (our higher altitudes are dry here, too), they need to be aware that fires are a fact of life here and be prepared to live accordingly.


After the Northridge quake, southern Californians became very aware of needing earthquake supplies. But we also need plans on how to react to a big fire. The other evening, a couple on the news said that they decided to leave when their dual pane windows got hot to the touch. They were extremely lucky that firefighters managed to bring that section under control just in time. Quite frankly, I would have been gone before then. Yes, I love my house, but my family (2 and 4-legged members) are more important. Also, firefighters are more important than my house. If homes are still occupied, firefighters no longer have the option of getting out and looking for a better spot to hold the line. They have to waste their time rounding up the stragglers.


Some people think it's a good idea to stay behind and water their property. Well, a few people have survived with their homes intact, and some haven't. Since our property has a number of trees, I don't think I'd take the chance. After all, when trees are exploding in flames, I don't think a garden hose is going to do much.


So when you're looking at a home on the side of a hill with a gorgeous view and only wilderness behind, look to see how you'd get out in a hurry if you had to and ask about insurance deductibles. Buy it if you love it, but don't forget the terrain, the drought, and the winds are here to stay.

30% off of WHAT?

There's a house for sale in Riverside that has extra red lettering on the sign, stating in big letters 30% REBATE. However, when you look more closely, there are smaller letters in-between that explain "off commission." So it's not 30% off the sale price, but rather the agent is promising to put 30% of her commission toward the buyer's closing costs. This means that it's not even 30% of 3% off of the sales price. The sales price is the same, but assuming that the buyer has to get a loan, the agent (not the seller) will help with closing costs. It's an expensive house, so this comes out to about $8700, which is a lot of money to the agent but not actually so much for the seller and definitely nothing for the buyer, who wouldn't have to pay the commission anyway.

Is this a good tactic? Well, it gets attention at first, but then buyers immediately feel put off that it's not a significant amount and doesn't affect the price. Buyers' agents might assume that they'll be asked to throw in 30% of their commission (after all, it's not clear who is supposed to do it, and it may in fact be 30% of each agent's commission...).

In the end, the only way to get serious attention that might result in some offers would be to lower the price in a meaningful way. But for whatever reason, the sellers have chosen to pay the mortgage on a house that has sat empty for about a year. The only way I can make sense of this is to think that the sellers must have tremendous pride of ownership and don't want to sell their house for a penny less than what they think it's worth. Certainly, the listing agent wants to get rid of it if she's willing to give up nearly a third of her commission...

THE MOST AMAZING RESTAURANT IN RIVERSIDE

When my husband and I moved to Riverside from Santa Monica, what we probably most regretted leaving behind was the fabulous array of flavors to be found in restaurants in the L.A. area. We have found some places we like a lot and visit often, but the truth is, we've gotten into a rut. And we certainly never could find anything on a par with what we've had in the Bay Area or on an incredible food trip we took through Italy (shockingly expensive, but we'll reminisce about it until our dying days). But now we've had an amazing dining experience that I must put in the top 5 of my entire life, and that place is Omakase, where chef Brein Clements creates memorable food.

Omakase is not for the faint of tastebuds. If you really think one clove of garlic is sufficient, you will find this restaurant overwhelming. For me, each mouthful was a stunning revelation of intense flavors that woke up different spots on the tongue. I truly understood for the first time just which tastebuds sense sweet, which ones salt, and which ones savory. It was like seeing a fauve painting after going through a museum of well-varnished masters, the flavors contrasting boldly and with stunning clarity, yet still harmonizing into a complete work. Each mouthful of each course was a stunning discovery with one taste standing out here, another there.

I highly recommend going with the chef's tasting menu (they will ask you for specific food allergies to make necessary adjustments). You can also get a glass of perfectly matched wine with each course, but I'm going to have to forego that option next time because I almost had to be carried home after 5 glasses. The portions are small and exquisite, so 5 courses are just right and won't make you a glutton.

To eat at Omakase is to experience something that you will not be able to find in other cities as the dishes bring together Japanese, French, Italian, Indian, American, and who knows how many other traditions together into a new marvel. Moreover, the food there brings together an individual chef's artwork and also locally grown organic fruits and vegetables, so you will only find this in Riverside and nowhere else.

To read up on the restaurant and to see how what new wonders the season has brought to their current menu, click on the following link:

Omakase

Just how thirsty is your lawn?

It should come to no surprise that the biggest use of water in the California is to keep our lawns green. But just how much water we're spraying out there might surprise you. It turns out that the average daily use for yards and gardens statewide is 185 gallons. Doubtless, if we had to haul that water from a well, most of us would settle for hard-packed dirt, and only the extremely wealthy would have that lush, green look. But water has been cheap, and so the desert has been settled with scores of tract homes, all vying for that illusion of living in a rainy area.

But you don't have to settle for dust and prickly pear. There are many lovely low-water plants that you can cover the front lawn with. Most people don't actually play football on the green expanses in front of their homes. A wide variety of plants, both native and imported from other dry climates, can provide plenty of coverage and color while attracting hummingbirds and butterflies. I find these plants much easier to maintain than a lawn (ours is mostly in back, where the dogs get to enjoy it, and it looks truly pathetic). Sure, have some grass if someone actually runs around on it, and you can plant trees strategically to provide shade for some lawn. But according to a survey, the biggest reason for lawns is appearance, and that's a sad reason to be using up water during a drought.

According to the Western Municipal Water District, the annual rainfall necessary to sustain various plants is as follows:
Grass: 45.1 inches
Medium water-use plants: 33.8 inches
Low water-use plants: 16.9 inches
California native plants: 11.3 inches

In an average year (which we haven't had for a while), Riverside gets about 10 inches of rain. So even a yard of only native plants would need extra water. From 7/1/05 to 6/30/06, the total rainfall in Jurupa Hills was a little over 7 inches. Think about that versus the 45 or so inches you sprinkled onto that grass.

PE article on watering

County Records News data on rainfall in Western Riverside

On Love and Distrust

People have always told me that it was a good thing that my daughter was shy and clingy almost from birth. They told me no one would be able to steal her. And yes, she was better than a car alarm, wailing if someone even walked into the room. With my husband and me, she was and continues to be wonderfully affectionate. It was truly gratifying when, as a toddler, she finally learned to kiss me and proceeded to kiss me softly 18 times on the nose. But this doesn't mean that she trusts us absolutely, and it's simply her nature to question our opinions and actions.

Take last night, for example. When we got home, she told me that she hadn't been able to eat her spaghetti at kindergarten because the container slipped out of her hands when she was trying to open it, dumping her lunch on the cafeteria floor. She really likes spaghetti, so she asked me to make more for dinner. While I was making dinner, I cleaned out her lunchbox and, sure enough, found the spaghetti container. It was full and looked untouched. I opened it, examined it for signs of floor and found none. I was puzzled. I'd assumed that she would just have thrown it out. On the other hand, I've worked very hard to train her to bring everything home, so that we can recycle properly instead of just tossing it all into the trash the way they do at school. Plus, I know how much she loves spaghetti and in fact had asked for it again. So I tossed it into the green recycling (it was meatless), and started anew. When we sat at the dinner table, my daughter plunged her fork into her pasta and began to eat voraciously. Then she paused, slowly looked up at me, and asked, "These are the same noodles that fell on the floor?" "No," I told her, "those are in the laundry room, in the green bin." "Really?" she asked. "Go and look," I told her, "It's in there." She thought a moment and then continued to eat without checking the bin.

I had two reactions. One was, "I'm your mother. How could you even think that I would reheat those noodles?" My second was, "Nobody is going to con this child into buying a shoddily built house or a bad refi." Of course, one could say that she knows me well enough to have figured that I would examine her lunch and not just immediately believe that they'd fallen on the floor. She may also have picked up my tendency to question what I'm told, no matter who is talking.

But she's much more distrustful than I was at age 5. I gradually became distrustful in my teen years, after discovering with much horror that my parents weren't always right or logical. And a close relative conned me out of $100 when I was 16. I had always been an unquestioning and fairly obedient child, so learning distrust was rather traumatic. My daughter, on the other hand, seems to have it hardwired into her. Why else would she even think I would try to feed her spaghetti that had fallen on the cafeteria floor?

Then there are the cousins of mine whose mother was infamous for her inability to smell and taste rotting food. She sporadically poisoned the extended family at holiday gatherings, and we all became wary of anything she had to offer. My cousins, from a young age, began throwing their food onto the roof when their mother wasn't looking. Years later, she surprised them by leaving the same house to them all. They were estatic. It was full of rot and had unpermitted additions, but it was in Hawaii and worth a lot of money on paper. Then, these close-knit siblings, who had always supported each other against their mom, began to fight with the one who'd actually stayed home and taken care of their mother. So she took out a huge loan on this unsellable house and split the money with the others, who promptly got hit with taxes on it. Hmm, so maybe they should have continued to be suspicious of their mother despite her last act of love for them...

So beware and ask questions, even if (and especially if) family is involved. Get an appraisal that truly reflects the actual physical condition of a property and the costs to make it sellable. Seek tax information. Have agreements written down and get copies of everything, even receipts. It doesn't mean that you love them less, but it does lessen the amount of pain you'll feel, realizing later that a loved one didn't live up to your expectations.

Of course, my child didn't actually go look at the green bin. But I was ready, and I will be the next time she questions me. I hope she doesn't stop doing so.

Pending Sales Down Most in the West

The numbers are out for this past July, and they support what we've been seeing here in Riverside. There's been a tremendous decline in houses going into escrow, and then some of these are falling out as buyers fail to get loans. Overall, pending sales of existing homes fell just over 12% from June, while in the West, the decline hit nearly 21%. Furthermore, the figures fell almost 22% in the Western states from a year earlier.

These percentages translate into unsold houses in many places, leaving buyers overwhelmed by choice. In general, shoppers tend to feel paralyzed in the face of too many options (which is why agents shouldn't show too many properties!) to the point where none of them seems like a good buy.

This situation means that people who do buy now have an unsual combination of the following 1) good credit, 2) some savings to put down, and 3) the ability to move against the herd. I keep running into people who wished that they'd bought up property during the 90's. All I can say is, the ones who did then were rare and strong individuals. Of course, prices are much higher now, but it's still workable for those willing to reside in a home (and not just pretend to!) for a couple of years.

An agent I know was telling me that several of his middle range and higher end homes have come down a lot. The 2 middle range ones had dropped about 100k each, coming down to the low 600's, while one for over a million had dropped 200k. And I'm seeing starter houses that have dropped 50k. So for those who are ready and can still think clearly, it's actually a sensible time to fight the mass hysteria and pick up a good place to live.

Article on Drop in Pending Sales

1/5 of CA foreclosures weren't owner-occupied

What we knew anecdotally finally has a number: 1/5 of CA of the mortgages in CA that are in default aren't occupied by the people on title. This number could include people who have had to move due to job transfer, etc., but apparently, most of these absentee owners never moved in to start with. They were speculators looking to flip houses, and they lied on their paperwork to get lower interest rates and loans up to 100%. Although this plan may have worked for a few investors when the market was climbing quickly and a lack of available houses meant that inventory sold quickly, the situation changed drastically once more people tried it. Like many other investment fads of past years, the people who got on the bandwagon up to the peak could do well while those who started later lost out. But there's a key difference between this type of speculation and others in that it depended on loan fraud.

Sometimes, investors did it without their loan officer's knowledge. At other times, the loan officer and/or realtor suggested it and didn't explain to the investor that the papers that s/he was signing stated that the property would be owner occupied. In the latter case, the loan officer and/or realtor may have been trying to get a series of commissions, using inflated appraisals, and ultimately the difference in value through straw buyers who would ask for 100k or more back at close of escrow. When the scam works, the con artist makes out extremely well. And if it doesn't, the would-be investors are left with the deed, the debt, and often too much shame to report what happened. After all, it was their own greed that got them into trouble...

LA Times Article on Speculators in Foreclosure

Capital One Gets Out

Capital One has announced that it's getting out of the wholesale mortgage business. They'll lay off some 1900 people over the course of the year as they shut down GreenPoint Mortgage's main office in CA along with 31 other offices. GreenPoint's home page states that the company will honor current rate locks on loans that are "in the pipeline," but no new loans will be made.
There was a note about a related press release on the Capital One website and a link to it. However, when I went there, I was unable to locate the press release, and a search within the site for "GreenPoint" brought up no results. I did find several links to positive articles and press releases, the first one ironically noting that Fortune Magazine had declared Capital One among the top 100 companies to work for. On the other hand, this will probably remain true for those who continue to be employed with them.

The reason for Capital One's decision is that it has become less profitable to sell their loans on the secondary market. There isn't enough money in making loans to keep companies going--they have to be able to package and sell them to someone else. Those investors, however, are nervous after increasing defaults has left them with foreclosed houses and a glut of houses for sale. What this means for real estate, of course, is one less source of loans for anyone who might want to buy and thus fewer able buyers for properties that are sitting on the maket.

For a MarketWatch article, click on the following link:
Article on Capital One

Aggressive Lending Practices and Countrywide's Corporate Culture

The news is out. The questionable loans that were done for my elderly parents and some friends of ours (see entries from 7/25/07 and 7/26/07) were part of an overall corporate culture at Countrywide. This mortgage company not only targeted the sub-prime borrower, they also aggressively went after A paper clients in a manner that was aimed to them into more costly loans and squeeze every last fee out of them. They would then go on to sell the loans at a higher rate than typical because investors on the secondary market found them more valuable due to their potentially very high interest rates on ARMS. The company offered incentives to their loan reps to get them to push more expensive loans, and carefully worded scripts helped them guide borrowers toward signing up.

To read the article on Countrywide's questionable practices, click on the following link:
Countrywide in NY Times

Bank of America to Countrywide's Rescue?

So now the story is that B of A has injected 2 billion dollars into Countrywide (that after they admitted having to borrow 11.5 billion to finance home loans). B of A took nonvoting convertible stock in return--so they can eventually sell them for a lot more (with restrictions) if prices go up. For now, Countrywide's stock value has gone up to $26.25 a share. Last week, shares hit a low of $15, then rebounded a bit after the Fed cut rates. They're still at about half of what they were at their height.

What does this all mean for buyers? Anecdotally, some friends of ours were about to sell their home and buy another. However, last week, they found that because they hadn't received the purchase agreement back in a timely manner, they hadn't been locked into their interest rate. As rates suddenly climbed, they saw their buying power drop about $200,000. They were in a panic, looking for a rental as they had to be out of their house by the end of the month. Today, I talked to them, and they're getting a 30-year fixed for the agreed purchase price--from Countrywide. So yes, this is saving transactions for those who are in the middle of buying and selling.

But this situation also has a dampening effect for those who don't have to buy. It cuts further into consumer confidence. Those who would like to buy their own home worry about buying and then seeing the property lose value. Of course, if they wait for prices to come down as far as possible, interest rates will have risen by then since, as you know, it's about how big a monthly payment one can afford to make. On the other hand, there are those who remember what it was like in the early 90's when people had to move for a job or family, and they couldn't get what they owed. Some friends of ours lost their house and then experienced the humilliation of being refused credit to buy a small tv a year later.

And then there's the reverse side of the coin--people who are waiting for things to get worse, so they can pick up houses on the cheap. They're holding out to see how low things ago (and also hoping that interest rates will stay down), and then they'll buy at just the right moment. However, they're going to need the numbers to work out just right to get rent that will cover a loan (or loans!) for 90%.

So will B of A's move help save Countrywide? We'll have to wait and see if people can make their payments.

Here's a link to an article on Bank of American and Countrywide:

BofA saves Countrywide?

Smile at the Red Light!

Watch out--more cameras are cropping up at Riverside's intersections. They recently put one up on the right-turn lanes from Indiana onto Arlington, heading east. I guess too many people were making the turn from the left-most of them during the red light. Make sure to smile the next time you do that as you'll be videotaped.

Some months ago, a realtor I know was caught on tape running a light. Apparently, the video was clear enough to show her grimace as she realized her mistake too late.

I haven't been able to tell yet if the cameras are having any effect on people's habits. I suppose it's a sign of how much Riverside has grown that I now see drivers running red lights on a regular basis. Lots of our streets have speed limits of 45 and 50 miles an hour, yet we have more and more stoplights popping up to control all the cars. And when traffic gets really thick, it's sometimes necessary to wait through 3 or more light changes to make a left turn, so it seems rather inevitable that several cars at the end will run the red. But I can't come up with any ready explanation for the number of cars that just go through even though they haven't had to wait. Is everyone too distracted by the kids, coffee, and omnipresent cell phone? On the other hand, now that drivers know about the cameras, perhaps they're just looking for a moment of fame...

video on Riverside traffic cameras

Middle Class Refi Victims Don't Get Much Sympathy...

So our friends who got a couple of bad refi's to fix a botched loan (see 7/26/07) tried talking to several lawyers about their options. Two of the lawyers said flat out that they would never have a chance because no one would believe that educated professionals like them would have signed off on a loan they didn't understand. Ouch.

But that's just the point. If you can rip off people who are supposed to know better, and they can't do anything about it because they went to college, then who's left to fight? The elderly, the infirm, the people who are struggling to get into the middle class? How far can they get in a legal battle on their limited time and resources?

In the meantime, our friends report that their original lender's company has gone under. The office is dark and empty. They've tried calling the loan agent himself and keep getting a recording message that doesn't mention his current company's name. He hasn't called them back.

With taxes and insurance, their current mortgage payment is a whopping $4700 a month, and that's interest only, fixed for 5 years. They wouldn't even be able to rent their house out for $3000 a month. Our friends have good jobs, but they have small children in daycare (their other large monthly bill), and they're unable to save at all for the future. Now, there are some people out there who benefited from their misery--shouldn't these individuals be held accountable, regardless of the fact that these two made the fatal mistake of trusting so-called experts to put together good loans for them?

How does your refi company make money?

My parents have been looking at new loans for them, and it's been a confusing time for them trying to see all the differences between the choices they have.

At first, they were going to go with the lowest interest rate, and then they realized that the loan would be for about 10k more than they currently owe. As I explained to them, that's because the mortgage broker was charging them almost 10k for the refi, but that rather than charging them upfront (and probably giving them cause to run away), he was spreading it out over the life of the loan. The monthly payment was lower than they'd be with the other company they were considering, but it came at a price.

My parents weren't too happy with the idea of increasing the principal. As it was, their previous lender had fooled them into an option ARM, and their principal had already increased over 11k before they'd fully realized what was happening.

So now they're looking at a mortgage banker who will charge only $450 for the refi but will use a higher interest rate. As I explained to my parents, the higher interest rate is how his company makes money, particularly since they say that they never sell their loans (very unusual). The second company additionally says it will lower the interest rate .25% if my parents open another account with them, such as a credit card or an IRA.

I told my parents that all companies have to turn a profit somehow, so the only way to choose is for them to ask themselves what is their most important goal. After all, as they're now in their 80s, they really need the lowest payment. They don't want to have to refi soon as this is likely the last time when they'll be able to handle it, so the payment needs to stay stable for a while but probably not for more than 10 years. They also need to talk to an estate planner to bring the whole picture together.

On the other hand, they have a real problem at their age with getting into more debt in order to help someone else make a living. And I can't say I blame them.

More refi horror stories

Some friends of our have gotten stuck in a refi nightmare. These are intelligent, educated parents with young children who started out a small starter home in a good neighborhood. They had a low tax rate and great schools. Then they got lured into a new tract with gorgeous houses, and they thought they got a great buy. They sold their first house quickly during the seller's market and put a nice down payment on the new house. They moved in, the builder made lots of repairs, and they painted and decorated. Things seemed great. The honeymoon period ended abruptly, however, when their insurance person decided to go over everything to make sure they had sufficient insurance. To their shock, he discovered that their impounds just didn't make sense. They double-checked and realized that the person who did their loan on the new house had used the tax rate on the raw land before the original property was subdivided and any of the houses built. Whoops...

Suddenly, they were faced with paying another 10k a year in property taxes as the new house also had Mello-Roos, bringing their tax rate to a whopping 1.8%. Values were high at the time, so they put the house on the market, but they weren't able to sell it. So they refi'ed only to find that their original loan was supposedly paid off while no new payment was arranged for them. This state of limbo dragged on for some days, then the manager tried to get them to take a different payment amount and also to sign off on the change. They realized then that the new loan agent had also made some kind of error, but that someone higher up had caught it because the company would have lost money on the loan. Eventually, they came to a compromise, but our friends still didn't have a loan they liked. The company promised them a free refi later on, but when they tried to contact the loan officer about it, he didn't return their calls.

So they went on to their 2nd refi, using their third lender. They decided to take advantage of the increased value of the house and take out some money to put into the property. They put in irrigation, sod, and a lovely stamped concrete patio with an Alumawood cover and fans. Then several months later, they looked at their statements, and realized that they owed about a thousand dollars more in principal each month. That's when they discovered that they'd been duped into an Option ARM, and that their payment, which had sounded so attractive, wasn't even covering the interest. In effect, they were doing a reverse mortgage! On top of it, they found out that just an interest-only payment would cost them about $4000 per month.

By now, they were sick of the house and were thinking of trying to sell it again. Prices were getting lower daily in the neighborhood, and now they saw that they were in debt for about 100k more than they could even sell it for, with luck, and perhaps after 7 months on the market. They considered refinancing yet again, but at this point, their newest loan officer recommended against it. He told them to stay put for a few years, continue with the interest-only payment, and wait until the market improves.

After my own parents' fiasco, I called them and told them that if they ever do get another loan, to please call me, and I'll come as soon as I'm able to read the whole trust deed before they sign it or at least before the rescission period runs out.

Oh, and by the way, one of the refi companies was ... you guessed it, Countrywide...

Don't forget to read your trust deed

I'd been telling my parents over the last few months some of the fraud I've seen and the terrible loans that people I know have unwittingly signed up for. Then my parents finally told me that some months ago, their monthly payment on their condo had suddenly gone up from about $875 to over $1400 a month, and they had no idea why. This was odd as they've owned a total of 4 homes over some 60 years and have refinanced numerous times. They're hardly beginners. On the other hand, they're elderly now, and they weren't familiar with some of the obscenely intricate loans that have come into existence in recent times.

They told me that they'd called their lender several times, and each time, they talked to someone different who told them to pay a different amount. I finally convinced them to go to Kinko's and scan the entire trust deed and have it emailed to me. These are some of the phrases I found on p. 19:

"The interest rate I will pay may change."
"The interest rate may change monthly..."
"My interest will never be greater than 9.950%."

On p. 20, I found the following statement:
"If the Minimum Payment is not sufficient to cover the amount of the interest due then negative amortization will occur."

Then on p. 21:
"Since my monthly payment amount changes less frequently than the interest rate, and since the monthly payment is subject to the payment limitations described in Section 3(D), my Minimum Payment could be less than or greater than the amount of the interest portion of the monthly payment that would be sufficient to repay the unpaid Principal..."
"For each month that my monthly payment is less than the interest portion, the Note Holder will subtract the amount of my monthly payment from the amount of the interest portion and will add the difference to my unpaid Principal, and interest will accrue on the amount of this difference..."

Then I found the following:
"My unpaid Principal can never exceed the Maximum Limit equal to ONE HUNDRED FIFTEEN percent (115%) of the Principal amount I originally borrowed. My unpaid Principal could exceed that Maximum Limit due to Minimum Payments and interest rate increases. In that event, on the date that my paying my monthly payment would cause me to exceed that limit, I will instead pay a new monthly payment. This means that my monthly payment may change more frequently than annually and such payment changes will not be limited by the 7.5% Payment Cap. The New Minimum Payment will be in an amount that would be sufficient to repay my then unpaid Principal in full on Maturity Date in substantially equal payments at the current interest rate."

I called my parents and told them that they needed to refi ASAP. They had been told about negative amortization or reverse mortgage as an option, and they had chosen not to do it because they believe that it's unethical. Yet that's exactly what they had gotten themselves into. As the interest rate can only go up (and it's now at about 8% for them!), they fail to pay principal and even fail to pay all the interest. They end up owing more, and the debt simply escalates.

In addition, when I first got into real estate, a lender told me that "pick your payment" was a good loan for agents, such as myself, because the borrower can pay more or less each month according to his or her varying income. Now, since when did people in their 80's have a lot of variation in their income? Guess what, my parents' loan also has a "pick your payment" paragraph as it states toward the bottom of p. 21:
"After the first Interest Rate Change Date, Lender may provide me with up to three (3) additional payment options that are *greater* than the Minimum Payment, which are called "Payment Options."
Ooh, boy, that explains why every time they called, they were given a different amount to pay. I told them to get the amounts in writing with an explanation of what each amount represented. They had no idea if a new amount covered any principal at all anymore.

Basically, a loan officer who didn't care that my father is retired and 81 had played bait and switch with him. He lured my parents with an incredibly low introductory interest rate without explaining to them that it was very short-lived and would change dramatically, probably putting them further into debt unless they refinanced quickly. The loan officer didn't plan on being around when my parents found out what had been done to them or perhaps he just figured that they were too elderly to notice or even do anything about it.

This should be criminal. At the very least, it's predatory lending. But my parents probably don't have enough time left to them on this earth to pursue a lengthy lawsuit. At any rate, they signed off on everything. But that's what they do, isn't it? "Sign here, here, and here." People don't get enough time to read it, and they get intimidated, wondering if someone thinks they're idiots for not understanding more quickly. So they sign, and then they're in debt forever.

I have asked my parents not to sign anything again until I've had a chance to read through it first. The borrower is supposed to get enough time to read through the papers and also have some time to change his or her mind after signing. Don't let your parents give up these rights.

Oh, and by the way, the lender was Countrywide...

Lost and Found Skunk

We had a bad scare last weekend. We were getting ready for bed and let the dogs out for a few moments. Then, when we counted noses, we came up one short. And of course, it was Skunk--the only one who wasn't wearing a radio fence collar or regular collar with tags as he'd heard his neck a while back, and the vet had said to leave him naked for a while.

My husband and I took turns walking up and down the streets and Gage Canal until 12:30 am, calling him (softly, so as not to wake up the neighborhood, but loud enough for a cookie-loving dog to come running). No luck. We stayed up till 2 am making signs and then started posting them at 8 a.m. My little girl and I started knocking on neighbors' doors at 9 am. Some people didn't answer, others came still in their bathrobes, but all were understanding when we showed the photo of our beloved black and white Pomeranian. Several people said that they'd seen him and another one of our dogs (who had come back to us, acting like nothing had happened!) and chased them both but hadn't been able to catch them. Then, at 11 am, a woman called to say that she'd seen one of the flyers. She had been driving home and had seen both our dogs in the middle divider on Arlington! She had gotten out of her car and helped another woman catch Skunk while the other one fled. Then the other woman told her that she would take him home with her to Moreno Valley before dropping him off at the animal shelter the next morning.

I immediately turned the car around, and we headed off to Moreno Valley. As soon as we walked in the door of the animal shelter with Skunk's flyer, the people behind the desk told me that they had him. They'd already given him a bunch of shots, and I had to pay some fees, but it was well worth it to get him home. And it turned out that they had already found his microchip and alerted the call center (there was a message on our home phone when we got back--but they never called our cell phones!).

We brought Skunk home, where he seemed quite relieved and a bit tired after his adventure. My daughter kept saying to him, "Don't you ever do that again, Skunk!" Then we had to go around the neighborhood, taking down the flyers. Whew! We were exhausted.

Ever since then, whenever I take Skunk out for a walk, people in the neighborhood wave to him and even honk their horns occasionally. He's famous now and doesn't mind it a bit.

To find out about getting a microchip for your dog, you can go to:
http://www.homeagain.com/

How many roommates can you have?

From time to time, I've heard that there's a 4-person limit on roommates in the neighborhoods around UCR. Then I run into houses where there are 6 or 7 kids living. I finally emailed my councilman Art Gage and got an answer: a maximum of 4 unrelated people can live together unless it's a "sober house" (ie., halfway home). (Wow, that's fewer than dogs, my husband commented. As I explained to him, dogs ARE family.) Of course, it's dependent on the neighbors watching, counting, and complaining to the city.

I recommend the following: if one of the students is on title (or his/her parents own the house), that person in particular should meet the neighbors at the start of the year, presenting a friendly and responsible face. Otherwise, have the most personable student do so. Keep the grass in front short (it may be worth it to have everyone chip in for yard care). Smile a lot, wave, give little gifts (like flowers for grannies), and don't kiss the neighbor's babies. If you are going to have any parties, tell the neighbors ahead of time, keep the noise and trash under control, and shut down at a reasonable hour. If they get mad at your for some reason, fix it as fast as you can. Believe it or not, this will help a lot. Of course, there will always be someone too curmudgeonly to win over, but if most everyone else loves you, it will be ok. Truth be told, I'd rather live next door to a dozen well-behaved students than two lonely louts. Who wouldn't?

Driving on Cooking Oil

While out door hanging near UCR a while back, I ran into a man working on a car in his driveway. It was great--he was rebuilding an old car, so that it would drive on used cooking oil. Now, I've read that a couple of men have actually driven from Alaska to Argentina in a car that runs on used cooking oil. They picked up all kinds of oil along the way, and everything worked. Now, that's what we need. Wouldn't it be great to refuel your car in a fast food drive-thru? Hmm, I wonder if trans fats are also an issue for machinery...

Yahoo news article on Alaska-Argentina drive

Would you like a dog with that house?

Thinking more on the dog limit issue, I've realized that one logical step to take past the limit would be to require everyone to have one dog. In this way, the dogs would be spaced out evenly, and no one could complain because all would be guilty. If one dog barks at a siren, all the dogs will howl across the entire city in waves, and it will be hard to tell where it begins and ends.

I say this after showing property in Alta Loma and discovering that all the neighbors had one dog, all of whom gathered behind his or her fence to bark at us. No one could say that anyone in particular was guilty of lowering property values (one of the worries expressed by the apparently lone Citizen for Companion Animal Limits), so I can only imagine that having one dog in each yard would force people to concentrate on other issues, such as whether or not the kids at the closest school require a police presence at dismissal time.

In fact, when escrow closes, the pound should show up at the door with a free puppy as a house-warming gift. What parent could say "no" in front of their delighted children? Just so long as animal control finds out ahead of time that the buyers don't already have a dog (which should have had a license application made out long before, along with photo, microchip number, and pawprint checked against a centralized dog bureau of investigation list for a past history of unscooped poop and raucous siren howling.)

Further thoughts on the issue of limiting dogs and cats

After attending the committee meeting and hearing the bizarre one-woman show that goes by the name of Citizens for Companion Animal Limits, I have more than a few thoughts based on 2 pages of notes.

1) What will be the cost of limiting the number of licensed dogs?
First, there will be a decrease in income as people who would license all of their dogs will have to stop at 4, and those who never licensed theirs before probably won't start up in order to take up the slack. Secondly, there will be an increase in the cost of tracking those dogs that have been licensed to make sure that they haven't been replaced at death by another animal. Moreover, the brilliant suggestion of requiring owners to put a microchip in their licensed animals would entail paying personnel to check that dogs are really who their owners claim to be. Now, would that happen yearly and at the pound (less expensive for the city but a traffic nightmare for owners who would have to get off work to go in at a centrally appointed hour, not to mention the liability involved in gathering a lot of dogs together for a riot) or at homes (wow, that would be quite a gas bill for the city, plus they'd have to get everyone to make appointments)? Anyway, it's not even a question of cost here but of multiple costs that go on and on.

2) If the city is then paying so much attention to dogs who are licensed, will there be any time left to look for abused animals?
Good question. Considering the amount of time that would be needed for doggie roll call, I can't imagine anyone would have time to go after those who don't have licenses, much less those who are mistreating dogs. At any rate, the limit on dog numbers will create a new class of criminals--people who would license their dogs but can't because they've exceeded the limit. And by chasing after them, the real problem of suffering animals will be overlooked.

Dogs and Cats: A question of quality, not quantity

It's happening again--they're having another meeting to discuss limits on dogs and cats that Riverside pet owners can have. The group who's pushing for this has managed to come up with a mostly positive-sounding name: Citizens for Companion Animal Limits. But they seem to be missing the point: it shouldn't be a question of limiting the number of animals that all residents can have but rather about the quality of care that any person gives his or her animal(s). Let's face it, there are plenty of people who shouldn't have even one dog, cat, turtle, goldfish, let alone a child.

The reason we have so many dogs (all licensed-- except for the newest acquisition, who's getting a license next week--fixed, and current on shots) is because we've had to pick up the pieces after someone else made a mistake. Having managed to find the majority of owners of the dogs who've ended up at our house, we're lucky only to have 6 at the moment whose previous owners never showed up, gave up their animals, or had them taken away from them. It isn't easy having so many different personalities and types. We watch "Dog Whisperer" a lot for tips, brush, feed, bathe, walk, pick up after them, and we plan our schedules around their and our child's care. Also, the vet bills are astronomical. Just keeping their flea meds and heart worm medication up puts a serious hole in our budget. The commission from the 2nd house I ever sold went entirely to pay for doggie boot camp for our Dalmatian rescue (I have a special place in my heart for people who abandon Dalmatians--they need extra forgiveness for their--the humans', that is--rotten behavior). Another commission I earned once went entirely to diagnose a dog's rare blood disease (atypical hemolytic anemia) and finally to have her put down when chemotherapy couldn't save her.

So we're not the kind of people who keep unfixed animals and then end up living in filth and squalor. Our dogs mostly stay indoors (dogs actually prefer to sleep a lot, so this keeps them happy and generally quiet), so they're not barking day and night.

One very special characteristic of the city of Riverside is that there's long been a live-and-let-live attitude here about home owners and their pets. While I can understand the desire to get irresponsible pet owners under control, the way to do so is by observing who takes care of their animals and addressing such cases in an appropriate manner rather than by making a blanket (and blind) judgement that imposes a random number.

So show up tomorrow and be counted. I have a feeling that someone snuck this issue onto the agenda because no one seems to know about it!

PE notice about meeting on dog limits

UCR Area Sellers Stubbornly Keep Prices Up

All over town, prices are coming down except for right around UCR. A few sellers have come down 10k to 30k, but most are still pricing like it's spring of '06. What are they thinking?

First, most of these houses have an awful lot of debt on them. I looked at one Canyon Crest home's records and discovered that even though the family bought it in the 70's for less than 35k, they recently refinanced it for about 470k. The home is now vacant, so I guess they needed the money for another property...

And then there are the houses that are listed by agents who've never been inside. One such house last fall finally went for about 50k under where it started for a total of 325k. Sounds like a bargain for a 4-bedroom house. However, when I sent inside it and looked up, I saw daylight. Floors and walls were rotted out from old plumbing leaks. The home really needed 100k in repairs to make it safely livable (and not just another case of "let's paint over the dry rot"). The house had been completely paid off for decades, but the old man (now in a nursing home) had been convinced by his agent that it was a gold mine. Whoops.

Another home has been listed at 399k for several months. The out-of-area agent told me that he took the highest and lowest solds, and the sellers picked a price in the middle. This is very aggravating for someone like me who has sold some of the highest priced comps he used. This particular listing has 4 bedrooms on record, but good luck finding all of them. North of UCR, there are a number of houses that were given permits to add a bedroom (without a closet) that had to be entered through another bedroom. While this may have worked in the old days, people no longer consider these bedrooms but rather walk-in closets and (if large enough) studies or sitting rooms. Moreover, this house has numerous illegal additions, including random exterior doors (various heights, no stucco work, rotting wood frames) and a toilet in a closet (that also suddenly has an exterior door). They enclosed the breezeway to the garage (again, allowed in the area) but didn't put in any insulation. The "guest room" is an uninsulated 8 x 10 shed (and yes, there's someone sleeping in there). The backyard is bare dirt and a few pathetic trees, one of which had been attacked with an axe that was still stuck in a branch. The agent told me that even as a fixer, it only needs about 30k in work. So I have to ask, why doesn't he buy it himself? Maybe because no one will! Again, even while the family owes very little on the house (they would have owned it outright except that they refi'ed a couple of years ago), they've been convinced by someone who isn't familiar with either the property or the area that it's worth too much.

What this neighborhood does have going for it is proximity to UCR, an excellent high school, and a mellow "live and let live" community. Due to the rugged hills surrounding it, the area has a natural beauty and a protected feeling. Also, these hills mean that there isn't much more room to build. The limited number of properties is what keeps the value up here. But the small size of the houses by today's standards, plus the poor condition of many of them, make it a hard sell in the current market.

Pitfalls of the Short Sale

I'm beginning to see short sales pop up in our MLS--not as many as buyers are looking for but enough to attract attention. For a buyer, the home can be a good buy at some tens of thousands of dollars less than what the sellers got it for. The lender has agreed to take less than what is owed (provided that the sellers have real hardship). However, the property generally won't be 100k under market.

There are certain matters to take into consideration first, and this can be problematic if the sellers haven't done all their homework.

1) The lender has to approve the short sale and will have final say on the buyer. I saw a house fall out of escrow several times because the lender wasn't happy with the buyer's contingencies.
2) Buyers should remember that if the lender hasn't already approved of the short sale, the whole process may take up to 6 months.
3) If the sellers admit that their income isn't as high (without a job loss or death) as they said it was when they applied for their loan, they may have committed fraud.
4) While the lender may "forgive" the amount of the loan lost, this amount is then considered taxable. For instance, if the lender accepts 50k less, the sellers will have to pay taxes on this amount.
5) In the case of a VA loan, the seller will have to repay the lost amount before being able to get another VA loan.
6) Buyers' agents should be check to see if the dual commission is marked "yes," meaning that the lender will want them to take a reduced commission.

Short sales can be a good buy for buyers who don't have to sell a house first, aren't picky about condition, and who can be flexible. For sellers, it certainly isn't an easy way out, and they need to make sure they understand all of the ramifications.

recycling taken to a new level--your flooring

I try to recycle whenever possible. It's not just about getting nickels for soda cans, either (which go into our little girl's piggy bank). It's also about trying to keep our landfills under control (1. they fill up 2. chemicals that don't belong there leach out into the water, etc.). Anyway, we generally put out very little garbage weekly, and most of what we set out goes to the composting and recycling programs. When we have wood, I break it up for kindling in the fireplace. The dog poop goes into our own compost piles, and believe me, the plants like it.

As I've written before (9/4/06), we have some nice areas here in the Inland Empire that smell ... like manure. Cows, in particular, are a great producer of the stuff, and in the age of farming on a massive scale, we're hard put to use it all. Now, there's an idea afoot to take what's left after cleaning it up and making ... particle board with it. What a great idea--those fibers have survived a cow's four stomachs. It could probably make some resilient floors, and it would be a lot cheaper than imported Italian porcelain tile. Of course, the idea is in the early stages, and we'll have to see what designs they come up with. But it's certainly no worse than making vinyl flooring out of ... compressed, liquified dinosaur remains.

To read the Yahoo News article, click on the following link:

manure article

The wind and the barn owl

The wind was very strong yesterday, about the worst we've had in a couple of years. Whenever this happens, I expect baby owls to start raining from the palm trees.

I have no idea why, but the local barn owls like to build their nests in the Mexican fan palms around us. They must like the view from up there, but these slender, graceful trees bend and bow in the winds, their fronds flying off. Nestlings don't have much of a chance. One year, three baby owls fell. One died immediately, another was so injured that it had to be put down, and the third was in good enough shape for the county to take it in. I couldn't get near the lives ones. They have wicked talons and beaks, and they're too scared to let anyone get near. There's not much their parents can do when the little ones can't fly.

This year, however, instead of a baby, I found a dead adult owl by the lemon tree in the middle of the afternoon. At first, I panicked, thinking that it might have eaten a rat that had been poisoned. I spent some time talking to our pest control and several vets' offices, considered paying for a necropsy, then read up on barn owls online. It turns out that they're quite short-lived in the wild, often dying during the first two years of life. So, in the end, we figured that it was more likely that the owl was asleep in a palm and got knocked out by the wind. He was probably too groggy and fell too fast to save himself. (I was once outside at night when a stray cat knocked a sleeping pigeon out of a tree. I scared the cat off, and the pigeon sat on the ground for a while, too befuddled to get up right away. He eventually managed to get back into the tree. Like us, their reaction time is affected by deep sleep!)

Toward dusk, I heard its mate calling, and I felt sorry for it. I've found a site that has instructions for building barn owl nests, and I'm going to talk to our handyman about trying to set one up. Maybe that way, we can keep them safer, and if they stick around, we'll be able to stop paying for the rat control. Then our owls can be secure, knowing that they're getting only organic rodents in our yard!

Here's the site I found with the owl nest plans:
owl nests
And here's the Press Enterprise article on yesterday's weather:
Press Enterprise article on windy weather

This is actually a terrific time to buy if you don't want to go with the herd

I keep reading in the paper that the market will be down for a while longer, and I even saw one article that recommended that buyers wait another 6 months. What for? I have to ask, to start a mini sellers' market in the spring?

Actually, this is good time to buy as the sellers who are on the market are more motivated (they're the ones who have hung on through the fall). I'm seeing some nicely priced houses that are fixed up now and look better than they did when they first came on the market last summer.

And there's very little competition right now from other buyers. So while other people are lowering their FICO scores by picking up items that they don't have to pay for until 2007 (which is basically the same as getting another store credit card despite the "no interest until...") or reducing their savings (ie., funds for closing costs and deposit) by splurging on tinsel, this could be a good time to get a home instead. Give everyone handmade gifts (homemade cookies and your children's art projects are priceless) and promise to have them over for lots of backyard barbecues once it gets warmer. And then they can give you housewarming gifts that will more than make up for budgeting during the holidays.

Or you can wait like everyone else and then see what happens when you're in competition.

Sharks with Halos? Investors and Foreclosures

I got a call last week from a woman who teaches people how to invest. She wanted information about buying foreclosures. It turned out that she didn't have a real estate license and had never bought a foreclosed property before. We talked for a little while, and I told her that there are implications for the realtor who is representing an investor who is buying a property that is in foreclosure. Namely, that there are so many pitfalls, and that if the seller complains that he or she has been defrauded, the agent is the first to fall. As I put it, a few thousand isn't worth losing one's license. There are special laws to protect sellers who are in foreclosure (ie., they have extra rights of rescission) due to a history of investors abusing these people, to put it mildly.

She began to explain to me that when she first thought about the subject, she had been inclined to think that it was about taking advantage of sellers in foreclosure, but she had come to see it as helping these people out. Well, I told her, while it may be true that they're getting out from under a mortgage they can't handle, the investor is generally looking to profit and prefers to pay about 40% less than the market value. Also, the seller is still ruined credit-wise and will have trouble even renting an apartment afterwards.

The way I see it, it's not too different from telling someone who is about to die that you will save their lives if he or she gives you both their kidneys. After all, they can go on dialysis and eventually get a donated kidney (perhaps from one of their own children!). Yes, you have literally saved this person's life. Will he or she love and appreciate you? I don't think so. Do you have enough self-love to make up for this deficit? Well, that depends on you. Some of us go there, others won't.