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Facts, Fiction, and the Fantasy of Real Estate
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Top Tips by Gerri Willis Column archive
Guard against mortgage fraud
It’s on the rise, with seniors and first-time home buyers most at risk. Here are the red flags to watch for.
By Gerri Willis, CNN
October 12 2006: 1:07 PM EDT
NEW YORK (CNNMoney.com) — Mortgage fraud is one of the fastest growing white collar crimes, according to the FBI, with reports more than quadrupling since 2001.
Mortgage fraud refers to a whole host of scams, but the bottom line is that most cases involve inflating the value of a property for more than its worth, with the scammer pocketing the difference.
In today’s tips we’ll tell you how you can avoid these schemes.
1: Get the sting
It really takes a village to commit mortgage fraud. First of all you need an appraiser or a bank official who validates the inflated property price. Keep in mind it can be hard to tell what IS artificially inflated since property values have increased so dramatically in some markets.
When the buyer unknowingly pays this higher price, the scammer’s profit is then locked in. And all along, the lender either must not be aware of, or turn a blind eye to the scam.
2: Protect the vulnerable
Watch out for mom and dad. The people most at risk of falling victim to mortgage scams are older folks. First time homebuyers too can be easy prey. Here are some of the states where mortgage fraud is most common: California, Florida, Illinois, Arizona and Nevada.
3: Recognize the red flags
Remember, scammers are usually real estate insiders, so recognizing a scheme may be harder than you think. But there are some red flags you should look for.
Here’s one of them: Your broker insists you use a specific lender. The bottom line here is that a broker shouldn’t care what lender you choose. That’s your right.
Another red flag: Lenders who encourage you to borrow more than you can afford. You should have a clear handle on what your financial comfort zone is.
You should also sound the alarm if you are not given copies of loan documents you sign. This is generally a routine practice.
And finally – don’t be rushed. A loan officer shouldn’t rush you through the process. Don’t feel pressure to sign anything without reviewing the forms.
4: Bypass the Scammers
To avoid falling victim to mortgage fraud, never buy a property without seeing it first. Hire your own appraiser. Fraudsters pay appraisers for the report they want. If you have questions about how the property was appraised, call the US Housing and Urban Development Department at 800-569-4287 or go to HUD.gov. This organization can help you figure out if your home was appraised appropriately.
-An Article from CNN Money: http://money.cnn.com/2006/10/12/pf/saving/toptips/index.htm?postversion=2006101213
Housing slowdown may hit bank profits
Regulators warn that the few ‘positives are starting to fade’ in banking.
September 29 2006: 5:29 PM EDT
WASHINGTON (Reuters) — Earnings at U.S. banks were strong in the second quarter but may soften with a cooling real estate market and higher lending costs as the economy digests the recent spate of interest rate hikes, a U.S. bank regulator said on Friday.
The Office of the Comptroller of the Currency said during a briefing with reporters on the condition of the banking industry that a few positive aspects of the economy that helped banks achieve record earnings are showing signs of slowing.
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“Positives are starting to fade,” said Nancy Wentzler, deputy comptroller for global banking and financial analysis, pointing to the once-hot real estate sector.
“It certainly started to cool this summer in August,” she said. “And now we are seeing a little more emphatic reduction in some of the housing and housing-relating activity that had been a big boon to bank earnings.”
Banks that have enjoyed strong growth in deposits are experiencing slower growth as the rise in interest rates has made time-sensitive accounts such as certificates of deposits, which carry higher interest rates, more appealing to customers, she said.
Real estate nightmares
Another trend putting pressure on banks’ bottom lines is the growth of branches throughout the country.
The OCC found that 38 percent of depositary institutions – big and small – have increased their branch presence over the last several years by 5 percent or more while the U.S. population has remained largely constant.
About 33 percent of the counties in the United States have seen a big increase in brick-and-mortar bank locations. Sixty percent of the growth has been in urban areas, a sign that banks are reaching out more to households to increase their deposit base and asset management.
“They’re mushrooms and they’re growing everywhere,” Wentzler told a briefing to discuss the condition of the banking industry.
Overall, banks in the second quarter saw bigger increases in non-interest income on a year-over-year basis due to trading activities, asset sales and fee income, the OCC said.
The increase was mainly driven by the top five U.S. banks – JPMorgan Chase (down $0.19 to $46.96, Charts), Citigroup (down $0.26 to $49.67, Charts), Bank of America (up $0.05 to $53.57, Charts), Wachovia (up $0.16 to $55.80, Charts) and Wells Fargo (up $0.06 to $36.18, Charts).
Over the last several years, banks have increased the real estate portion of their loan portfolios, with big banks having increased loans in residential properties while smaller banks have increased commercial real estate loans.
Courtesy of CNN Money: http://money.cnn.com/2006/09/29/news/companies/banks_housing.reut/index.htm?postversion=2006092917
Housing start gain may signal slide is over
Latest reading on new home market shows surprise increase in housing starts, although permits fall more than forecasts.
By Chris Isidore, CNNMoney.com senior writer
October 18 2006: 1:44 PM EDT
NEW YORK (CNNMoney.com) — Home building may be ready to shake off its 2006 slump, as housing starts posted the biggest jump since January, according to a government report Wednesday.
The report also showed that building permits, seen as a sign of builder confidence, fell more than expected.
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But the housing starts number was seen by some as perhaps a signal that home building has hit bottom and is ready for a recovery. At the very least, the market appeared more resilient than many experts had assumed.
“The worst may be over,” said Rich Yamarone, director of economic research at Argus Research. “No, it’s not blistering. But we’re not in the housing boom anymore. When you put it in this historical perspective, you can’t call this anything other than strong.”
The number of new projects that home builders started rose to an annual pace of 1.77 million in September, according to the Census Bureau, from the 1.67 million pace in August. The 6 percent increase in September contrasts with a decline in starts in six of the previous seven months.
Economists surveyed by Briefing.com had forecast starts would again slow in September to a 1.65 million rate.
While the 1.77 million rate is well below all the monthly readings from the second half of 2003 through the first half of this year, it’s still a solid number. Only one month in the 10-year period from 1992 through 2001 had more starts.
Still, the pace of building permits fell, coming in at a rate of 1.62 million, down from 1.73 million in August. Economists were looking for this sign of builder confidence in the market to barely edge lower.
The disconnect between the two numbers surprised David Seiders, chief economist with the National Association of Home Builders (NAHB), who said builders seemed to be working through a backlog of home permits they held for properties where they had not started construction.
Seiders said that a pick-up in building is not necessarily a positive for the market, which has seen the inventory of completed but unsold homes increase to record levels, pushing down prices and forcing builders to offer incentives to sell homes.
“If both permits and starts were up I’d be scared because I think there are still inventory issues that we need to work through,” he said. “I hope the bounce in starts is a temporary phenomenon. I think it’s inevitable that starts will be down in October.”
Most of the nation’s leading home builders, including Lennar (Charts), Toll Brothers (Charts), Centex (Charts), Pulte Homes (Charts), D.R. Horton (Charts), KB Home (Charts)and Hovnanian Enterprises (Charts), have seen sales and profits fall, with many citing a glut of homes on the markets as reasons to scale back their own sales targets going forward.
But survey of builders’ confidence by the NAHB released Tuesday showed its first modest uptick in a year in October, even though builders still had an overwhelmingly negative view of the market.
Courtesy of CNN Money: http://money.cnn.com/2006/10/18/news/economy/housingstarts/index.htm?postversion=2006101813
Middle class living on the edge?
Could your family absorb the financial strain of a job loss or medical emergency? A Democrat-funded think tank says most families’ economic risks are growing.
By Debora Vrana
The middle class today is less prepared for an economic emergency, such as losing a job or visiting an emergency room, than at any time since the late 1970s, concludes a new study from a political think tank in Washington, D.C., that’s funded by Democrats.
“Middle Class in Turmoil,” produced by the Center for American Progress and the Service Employees International Union, mines data from the Federal Reserve, the U.S. Bureau of Labor Statistics, census records and other sources to paint a picture of increasing peril for those in the middle 60% of income distribution, about $18,000 to $88,000.
Despite a growing economy, a rising stock market and stronger corporate earnings that are helping the rich get richer, the middle class in America is caught in an unprecedented squeeze that makes it increasingly unstable, the study’s authors say. The financial declines each year since 2001 have been dramatic, they report:
Income for middle-class families has remained stagnant or flat since 2001.
Prices for big-ticket items — housing, health care, college education and transportation — have skyrocketed, leaving families unable to save.
Middle-class families are borrowing record amounts of money to pay their monthly bills.
“Families are being forced to live beyond their means, just to pay for the basics, such as housing and health care,” said Christian Weller, a senior economist for the Center for American Progress, which is headed by John Podesta, a former Clinton-administration chief of staff. “They are not only spending their current income but all their future income.”
Would you be able to keep your home for even three months if the family breadwinner became unemployed? Just 28.8% of middle-class families could sustain themselves through a spell of joblessness in 2004, the most recent year for data, compared with 39.2% in 2001, the study says.
Do you have the cash reserves to pay for a medical emergency? With double-digit increases in health-insurance costs for most of this decade, it’s no surprise that the number of Americans without insurance rose by 1.3 million last year, up to 46.6 million people, according to the U.S. Census Bureau. The cost of family health insurance is up nearly 90% since 2000, according to the Kaiser Family Foundation, a nonprofit organization. The study says only 22.3% of middle-class families could cope with the $3,013 average cost of a small medical emergency, such as treatment for a broken ankle. That’s down from the nearly 35% that could handle such an expense in 2001.
Do you have three months of income put away for a rainy day? Just 18.3% of middle-class families — those with dual incomes earning from $18,500 to $88,030 — in 2004 had accumulated wealth equal to three months’ worth of income, a drop from the nearly 29% who had such savings in 2001. The number is expected to be even lower now.
“People are incredibly anxious, and families are stressed out. We’re seeing too many families passing like ships in the nights in the driveway,” said Andy Stern, the head of the Service Employees International Union, the largest and fastest-growing union in the United States. “The rising tide is not raising all boats — only luxury liners. It’s not building the kind of America that any of us want.”
To maintain day-to-day consumption, Americans are taking on record amounts of consumer debt, researchers say — $5.2 trillion since 2001. In June 2006, families took on debt equivalent to 129% of their disposable incomes, a big increase from the 96% in March 2001. Many homeowners are tapping into the equity in their homes, assuming more debt to pay for escalating energy and health-care costs. Falling home prices could force many of these middle-class families into foreclosure or back into apartments.
Middle-class families are also struggling with the ballooning costs of higher education. The total cost of tuition, fees, and room and board at four-year public colleges has increased 44% in the past four years.
A political football
Expect the financial condition of the middle class to become a critical issue in the November elections, say Democrats, even though Republicans have assailed the new study, arguing the concern is overblown.
“Let’s not kid ourselves. The data say we’re wealthy. And we’re one of the wealthiest nations on Earth,” said Tim Kane, a director at the Heritage Foundation, a conservative think tank in Washington, D.C. “You can make a case that there is increased inequality, with the rich getting richer, but I don’t think there is increased poverty.”
But some economists and others, such as Lou Dobbs, a CNN commentator, are increasingly calling for public-policy action to alleviate financial stresses on the middle class. Dobbs has made the subject a key focus of his on-air commentary, calling the slipping condition of this group nothing less than “class warfare.”
One family feeling the pinch is the Andrew Miller family in Charleston, S.C. With a combined income of just less than $100,000 a year, Miller and his wife say they work harder than ever but are no better off than five years ago. They keep a tight rein on spending, but tiny raises that don’t match inflation and escalating health costs are leaving them feeling like they are treading water.
“The (medical) co-pays have jumped to $25 for each visit,” said Miller, who has two daughters, ages 10 and 8. “Luckily, we have pretty healthy kids. But our premiums are also going up. We’re just getting squeezed here.”
Middle-class security indicators Year Have 3 months’ income set aside Can cover jobless spell Can cover medical emergency
1989
21.2%
35.0%
Not available
1992
16.7%
25.3%
Not available
1995
24.5%
36.0%
32.4%
1998
22.6%
33.1%
29.2%
2001
28.8%
39.2%
34.8%
2004
18.3%
28.8%
22.3%
Courtesy of MSN Money: http://articles.moneycentral.msn.com/SavingandDebt/SaveMoney/MiddleClassLivingOnTheEdge.aspx