Fort Knox Bullion Depository

Why Mortage Lending is so tight in 2012.  This is a song that many realtors/loan officers and buyers are singing daily.  Sometimes the buyers state that getting a home mortgage is like taking a shopping spree at Fort Knox.

The housing market continues to struggle as Realtors report one in three contracts now fail, up nearly 10 percent from the year prior and now the top challenge of the housing industry. Failures are due to declined mortgage applications or failed underwriting as appraised values are coming in below the negotiated price, according to the National Association of Realtors.

But why is mortgage lending so tight? Why are banks making things so difficult? It seems that now, more than ever, contract failures is the last thing the housing sector needs.

In a recent unsolicited and unplanned letter from the Federal Reserve chairman to Congress suggested that the housing market has the potential to be fixed and while Republican Senator Hatch publicly asserted that Bernanke was stepping out of bounds by influencing policy, the letter explained in detail why lending is so tight.

In the letter, the Fed notes, “Other data show, for instance, that less than half of lenders are currently offering mortgages to borrowers with a FICO score above 620 and a down payment of 10 percent – even though these loans are within GSE parameters. This hesitancy on the part of lenders is due in part to concerns about the high cost of servicing in the event of loan delinquency and fear that the GSEs could force the lender to repurchase the loan if the borrower defaults in the future.”

The Texas Real Estate Center (RECON) explains that the Fed asserts concerns about the high cost of mortgage servicing stem from:

• the realization of how expensive it is to resolve a nonperforming loan,
• uncertainty about what it will cost to comply with new mortgage servicing-related regulations and
• the potential change in the way Mortgage Servicing Rights (MSRs) are treated for capital requirements under Basel III (new international banking regulations).

RECON analyst, Gerald Klassen writes, “The good news is that we can understand the reasons. The bad news is that self-preservation may prevent the problem from being fixed.”

Klassen notes recent reports that it costs a servicer 75 basis points or more to service a defaulted loan compared with the 25 basis point servicing fee it receives, making it a losing business.

FHA loans are also difficult to obtain, with various factions, including the Department of Housing and Urban Development calling for a loosening of credit score minimums. According to the Asset Securitization Report, “Lenders are telling HUD officials the agency must first change FHA’s lender/monitoring system known as Neighborhood Watch so they aren’t stigmatized for making loans to borrowers with lower credit scores.” Lenders with higher default rates will have higher Neighborhood Watch ratios than other which RECON says could lead to audits and indemnification demands.

“Don’t forget to add the risk of government and private lawsuits and judicial foreclosure proceedings to the list of concerns about making loans that are more likely to default,” Klassen says. “If you were a lender facing all these challenges, would you make the loan? Demonization of mortgage lenders and servicers makes for great political theatrics. But it doesn’t want them to lend more.

This article is a reprint from AG Beat. Author is Tara Steele.

San Diego Home on Fire

Notice of Fire Prevention Fee: The Governor signed AB 29 of the First Extraordinary Session (ABX1 29) into law on July 7, 2011. ABX1 29 imposes a $150 annual wildfire protection fee per habitable structure for property owners in the SRA. SRA lands cover about 31 million acres in 56 counties, and include an estimated 1.1 million to 1.5 million individual parcels, and approximately 800,000 habitable structures. Public Resources Code Section 4210 provides a legislative finding and declaration that the presence of structures within the SRA can pose an increased risk of fire ignition and an increased potential for fire damage within the state’s wildlands and watersheds and that the costs of fire prevention activities should be borne by the owners of these structures.

The State Board of Equalization (BOE) is required to annually assess and collect the fee from property owners on behalf of the California Department of Forestry and Fire Protection (CDF) in accordance with the Fee Collection Procedures Law. CDF is responsible for providing the BOE with a list of property owners who are liable for the fire prevention fee, and the amount to be assessed. However, the BOE is currently waiting to receive funding from the State of California in order to begin its collection duties, so the BOE has not yet finalized its method for the billing procedure of the Fire Prevention Fee.

Potential Carbon Monoxide Sources in the Homee

Every owner of a “dwelling unit intended for human occupancy” must install an approved carbon monoxide device in each existing dwelling unit having a fossil fuel burning heater or appliance, fireplace, or an attached garage.

The applicable time periods are as follows:

1. For all existing single-family dwelling units on or before July 1, 2011.
2. For all other existing dwelling units on or before Jan. 1, 2013.

(Cal. Health & Safety Code § 17926(a).)

Carbon Monoxide Detectors must be installed by July 2, 2011

 

Common Questions & Answers

What is carbon monoxide?

Carbon monoxide is a gas produced whenever any fuel, such as gas, oil, kerosene, wood, or charcoal, is burned.  A person cannot see or smell carbon monoxide.  However, at high levels carbon monoxide can kill a person in minutes.

In addition, there are well-documented chronic health effects of acute carbon monoxide poisoning from exposure to carbon monoxide, such as lethargy, headaches, concentration problems, amnesia, psychosis, Parkinson’s disease, memory impairment, and personality alterations.  (Cal. Health & Safety Code § 13261.)

What is a carbon monoxide detector?

It is a relatively inexpensive device similar to a smoke detector that signals detection of carbon monoxide in the air.  Under the law, a carbon monoxide device is “designed to detect carbon monoxide and produce a distinct audible alarm.”  It can be battery powered, a plug-in device with battery backup, or a device installed as recommended by Standard 720 of the National Fire Protection Association that is either wired into the alternating current power line of the dwelling unit with a secondary battery backup or connected to a system via a panel.

If the carbon monoxide device is combined with a smoke detector, it must emit an alarm or voice warning in a manner that clearly differentiates between a carbon monoxide alarm warning and a smoke detector warning.

The carbon monoxide device must have been tested and certified pursuant to the requirements of the American National standards Institute (ANSI) and Underwriters Laboratories Inc. (UL) as set forth in either ANSI/UL 2034 or ANSI/UL 2075, or successor standards, by a nationally recognized testing laboratory listed in the directory of approved testing laboratories established by the Building Materials Listing Program of the Fire Engineering Division of the Office of the State Fire Marshal of the Department of Forestry and Fire Protection.  (Cal. Health & Safety Code § 13262.)

How many devices and where do I place them in the home?

This new law requires the owner “to install the devices in a manner consistent with building standards applicable to new construction for the relevant type of occupancy or with the manufacturer’s instructions, if it is technically feasible to do so” (Cal. Health & Safety Code § 17926(b)).

The following language comes packaged with carbon monoxide (CO) detectors:

For minimum security, a CO Alarm should be centrally located outside of each separate sleeping area in the immediate vicinity of the bedrooms.  The Alarm should be located at least 6 inches (152mm) from all exterior walls and at least 3 feet (0.9 meters) from supply or return vents.

Building standards applicable to new construction are as follows (overview summary only):

• Section R315 et seq. of the 2010 edition California Residential Code (CRC) [effective Jan. 1, 2011] (applicable to new one-to-two family dwellings and townhouses not more than 3 stories and also where work requiring a permit for alterations, repairs or additions exceeding one thousand dollars in existing dwellings units):

Installed outside of each separate sleeping area in the immediate vicinity of the bedroom(s) in dwelling units and on every level including basements within which fuel-fired appliances are installed and in dwelling units that have attached garages.

• Section 420 et seq of the 2010 edition California Building Code (CBC) [effective Jan. 1, 2011] (applicable to other new dwelling units and also where a permit is required for alterations, repairs or additions exceeding $1,000 in existing dwelling units):

Installed outside of each separate sleeping area in the immediate vicinity of the bedroom(s) in dwelling units and on every level including basements within which fuel-fired appliances are installed and in dwelling units that have attached garages.

Are there any penalties for noncompliance with this law regarding installation of carbon monoxide detector devices?

Yes. A violation is an infraction punishable by a maximum fine of $200 for each offense. However, a property owner must receive a 30-day notice to correct first.  If an owner who receives such a notice fails to correct the problem within the 30-day period, then the owner may be assessed the fine. (Cal. Health & Safety Code § 17926(c).)

Can a buyer of a “dwelling unit intended for human occupancy” rescind the sale if the dwelling doesn’t have the necessary carbon monoxide detectors?

No.  However, the buyer may be entitled to an award of actual damages not to exceed $100 plus court costs and attorney’s fees.  (Cal. Health & Safety Code § 17926(d).)

When selling a home, the following language has now been added to the mandatory Real Estate Transfer Disclosure Statement that both seller and buyer sign:

Installation of a listed appliance, device, or amenity is not a precondition of sale or transfer of the dwelling. The carbon monoxide device, garage door opener, or child-resistant pool barrier may not be in compliance with the safety standards relating to, respectively, carbon monoxide device standards of Chapter 8 (commencing with Section 13260) of Part 2 of Division 12 of, automatic reversing device standards of Chapter 12.5 (commencing with Section 19890) of Part 3 of Division 13 of, or the pool safety standards of Article 2.5 (commencing with Section 115920) of Chapter 5 of Part 10 of Division 104 of, the Health and Safety Code. Window security bars may not have quick-release mechanisms in compliance with the 1995 edition of the California Building Standards Code.

Do landlords have any special obligations regarding carbon monoxide detectors?

Yes.  All landlords of dwelling units must install carbon monoxide detectors as indicated in earlier.  The law gives a landlord authority to enter the dwelling unit for the purpose of installing, repairing, testing, and maintaining carbon monoxide devices “pursuant to the authority and requirements of Section 1954 of the Civil Code [entry by landlord].”

The carbon monoxide device must be operable at the time that a tenant takes possession.  However, the tenant has the responsibility of notifying the owner or owner’s agent if the tenant becomes aware of an inoperable or deficient carbon monoxide device.  The landlord is not in violation of the law for a deficient or inoperable carbon monoxide device if he or she has not received notice of the problem from the tenant.  (Cal. Health & Safety Code § 17926.1.)

What are the symptoms of carbon monoxide exposure?

Flu-like symptoms which can include:

• Nausea
• Fatigue
• Headaches
• Dizziness
• Confusion

If you are experiencing breathing difficulty,

• Call 911 immediately.
• Evacuate the premises.
• Do not re-enter the premises until the problem is corrected.

If you are not experiencing flu-like symptoms and have concerns:

• Ventilate the premises
• Turn off all fuel-burning appliances

This information provice by Avalar San Diego Real Estate and portions are from

 the California Association of Realtors Publication

sample investment real estate in San Diego

Now is the time to invest in Investment Real Estate in San Diego and Avalar San Diego Real Estate can give you professional advice on your alternatives.  Here are 9 reasons why the time is now.

1. 1031 Exchange Opportunity - Investors with low basis properties may utilize Internal Revenue Code § 1031 to defer tax on the sale of one under performing asset to acquire one or more discounted replacement properties that may enhance cash flow and provide higher long term investment returns.
2. Attractive Purchase Prices - Many distressed sellers (and some banks) are selling investment properties at deep discounts and accepting offers that are below current replacement costs. Recent reports indicate that lenders are selling foreclosed properties (often referred to as ‘real estate owned’ or “REO” property) at an average discount of 28% below prices being paid for comparable non-distressed properties in the same market.
3. Historically Low Financing Costs - The Fed’s stimulus efforts, such as QE2 (“Quantitative Easing 2”), have resulted in historically low interest rates, making the cost of debt service exceptionally attractive. Qualified real estate investors can take advantage of today’s low interest rates to bolster cash flow and lock in better long-term investment returns. Investment real estate in San Diego fills this prescription.
4. Inflation Hedge - With many economists predicting that inflation will increase at some point in the future, hard assets, like investment real estate in San Diego, can provide a hedge against the declining value of money in an inflationary environment. Additionally, ownership of leased real estate can provide an investor with increased income as rent rates also tend to rise in inflationary periods.
5. Yield - Financial institutions are paying very low yields on money market accounts and other conservative investments. In contrast, many investment properties are generating returns in the 7-9% range, providing considerably better yields than many other competing investments.
6. Less Competition - Foreign ownership of U.S. investment real estate is increasing. Foreign investors see U.S. real estate as a solid investment in a stable economy, and the lower value of the dollar has made U.S. real estate an even more attractive bargain. These two trends will increase demand, which will drive up prices on certain types of investment property. By buying now, investors can stay ahead of the competition.
7. Desirable Product Classes - Some classes of investment property are experiencing considerably more demand than supply. For example, in the multi-family segment, demand for rentals has increased as foreclosures have mounted and there is little new multi-family construction in the pipeline to meet such increased demand. As a result, multi-family rents are increasing and many experts project this trend to accelerate.
8. Worst Price Declines are Over - Property values nationally have declined by 30% or more since the market peak in 2006. Many economists believe we are at an important pivot point where prices will stabilize and begin to increase (albeit at lower appreciation rates than in the past).  Avalar San Diego agrees with this statement.  If investors wait too long, they may find they are facing competing bids and higher prices to close. Buying before demand picks up in the nearly inevitable recovery locks in today’s bargain prices.
9. Real Estate is Local - Despite national statistics about real estate prices, most investors are aware that real estate is local and supply/demand and investment returns are determined by local market conditions. Many investors are using 1031 exchanges to exchange out of areas that are not projected to perform well and into areas where the local economy is more robust and investment returns are more favorable.
Financial professionals tell their customers it is almost impossible to ‘time the market’ and purchase investments at the very lowest point and later sell these same assets at near market peaks.   The concept is fraught with many problems and, as a result, most financial advisers caution customers to not pursue this approach. Despite this advice, investors often wait until it’s too late to purchase and miss opportunities. Don’t be left out.

Call Avalar San Diego Real Estate to evaluate  your alternatives while the market is low

That means household growth, which has dropped drastically in recent years, will need to greatly reverse its trend to meet the forecasted spike in demand. From 2007-2010, household growth averaged about 500,000 per year–less than half the 1.2 million annual pace averaged prior from 2000-2007.

To absorb the current rate of foreclosed and distressed homes plaguing most markets, a more normal rate of household formation is critical, according to the report. However, household growth partially has stalled as young adults have delayed home ownership and immigration has slowed.

As such, in recent years, builders have drastically cut production of new homes.
“With inventories of new homes at historic lows, a turnaround in demand could quickly result in tighter markets,” the report notes. “Over the longer term, the number of younger households is set to rise sharply, supporting growth in the population that fuels growth in both new renters and first-time buyers. The path of the economy and evolution of the mortgage market will determine when and if this increased demand materializes.”

The report predicts a need for greater housing units for several reasons. For example, the report projects demand for 1 million new homes a year is needed to meet population growth in the coming decade. The report also predicts a surge in smaller homes, estimating that 3.8 million baby boomers will be looking to downsize their homes within the next decade. Also in adding to the increase in housing units needed, Immigration growth, the need to replace existing homes, and demand for second homes will contribute to rising demand, the report notes. Therefore, researchers conclude at least 16 million new housing units will be needed over the next decade.

Source: “Harvard Real Estate RecoveryHinges on Return of Demand”, Inman News