Is Stimulas Package California's Life Saver?

The Details of the Stimulus Package are unfolding.
Ok, so after all the buzz, the details are finally coming out and so far it's not that exciting. We are recovering from a market in the Bay Area that was so inflated, with home owners realising appreciating values in excess of 15% per year, to a market in which we see values falling at a rate of 2%+ per month over the past 14 months. The message of the stimulus package is a good one but when we are faced with home values that are $200K below the loan amount on the home, there is only so much money to go around. This is probably not the remedy for California homeowners. Thus far, the stimulus package is focused on homeowners that are 5% underwater on their loan to value. The other piece of the package sounds great, but again, there is only so much cash to go around; the fed is putting the onus on banks to reduce homeowners' mortgages to a level of 31% of their income. The ideal formula, and what was always a safe rule of thumb but difficult to acheive in our fair state, is that your homeownership expense should equal 25% of your income. And of course, there is a Santa Claus too! But here is a gem that might be helpful. If you have missed a payment or are struggling, many loan notes contain a boiler plate requirment that the lender modify the note in favor of the borrower should there be a danger of default. Your lender, a business, may not always bring this to your attention, but check it out if you are in this situation. Freddie and Fannie have required such verbage in loans for years but most of us have not experienced this market, therefore, we have never had to take advantage of this stipulation. So there is some sizzle apart from the stimulus package. The good news in all of this is that at least the government and country are moving in a better direction to help with this crisis. As there is no such thing as a National Housing Market, there is probably not going to be one package to fix all the woes, but it's a start and hopefully will lead to some local legislation that will actually be effective.

Are buyers and Realtors afraid of a good deal?

The bad press these days is not doing buyers or sellers any good. Within the Silicon Valley market place approximately 40% of the current housing inventory is comprised of Short Sales or REO (Real Estate Owned/Bank Owned) properties. There is a perception, both real and imagined among buyers that short sales are to be avoided at all costs. In reality, there is often more negotiation room on a short sale than a home that has already been foreclosed on. The reason, a bank must pay considerable costs ($50K+) to process a foreclosure. After they get through that process, often the price is what it is and they will let the listing sit on the market until that one buyer comes along.

The direction of the current legislation is leading me to believe that in fact, Pre-Approved Short Sales will most likely be the "wave of the future". The state of California makes if very difficult for banks to forclose and costly if the properties they do forclose on become a blight on the neighborhood. We've all seen those houses, the lawn died 2 months ago, there is a smell coming from the property that is most likely toxic and there is a mattress leaning up against the garage door. In California, the state charges a bank owner up to $1000 per day if their properties are a "blight" on a specific neighborhood. Thank you SB1137! A short sale is actually a more compassionate and dignified process for a seller and buyers can propose conservative sales prices for the banks consideration. A realtor representing a buyer in a short sale should inform the buyer on the current market value and typically the bank will accept within 15% of the fair market value. So buyers...GO FOR IT!

It is also understandable that a short sale in difficult to navigate from a compassion standpoint as well. Walking into a home that is being sold as a short sale, the home is not always vacant, and the awareness that the seller is "losing their home" is uncomfortable. But let me ask this question, what is more uncomfortable, having a foreclosure notice stapled to your front door, or successfully selling your home and working with the lender to forgive a debt? I would take what is behind door # 2 every time! The consequences are less severe and you get to move on your terms not the terms of some faceless trustee handling the sale for the bank. Buyers who make an offer on a short sale are not taking advantage of someone's misfortune, that is negative propaganda! Buyers who have the patience to await bank approval (and yes, it does require patience) on a short sale, are helping the seller out of a difficult situation in a more dignified way. It's a win, win and just think, thanks to these patient buyers, those sellers who had to short sell will be in a position to purchase again in 2 years.

Short sale is a good deal with benefits for both buyers and sellers! It's time we stopped ignoring this huge part of our market. I hear the same trepidation from REALTORS as well as buyers. As agents, we need to roll their sleeves up and figure out how to navigate short sales for both sellers and buyers. If we as REALTORS are putting out negative information, perhaps because this is uncharted territory, then we are not providing the service we are hired for. Let's just take on this market in a straight forward fashion and then and only then can we turn it around. We all need to educate ourselves . Knowledge has always been a key to power, and this economy is no different. I don't know about you but standing on the sidelines as a consumer and as an agent is just not an option. I don't want someone else telling me how things are going to work and I have to assume my buyers and sellers feel the same.