Donne Knudsen

Having researched and poured over the nitty gritty specifics of the recently passed housing recovery bill as well as read numerous articles and blogs on how this bill is going to be either the shot of adrenalin that this housing market needs to get going again or the virtual final blow that drags this market to depths we've never seen in our lifetime, there are two subjects that have definitely struck a nerve within the lending and real estate industry. The first being the elimination of the seller funded down-payment assistance (DPA) programs and the second being the first time buyer "tax credit".

I don't want to get into the details of the elimination of the seller funded DPA programs; it just simply raises too many questions, concerns and emotions. I have my viewpoint and perspective on the matter and I think that at this time, its best if I restrict those discussions to conversations between my friends, family, clients and senate representatives (let that be your first clue as to where I stand on this issue). Right now, I want to address the other hot topic and that is the first time buyer "tax credit" and the effect it will have for my clients.

I laugh now when I see the term tax credit attached to this measure. It's not a true tax credit where a dollar-for-dollar reduction is made in what the taxpayer owes but rather an income based, 15yr, interest free loan, for first time buyers who purchase between April of this year to July of next year. Having said that though, an interest free loan is the best kind of loan you want to have if you need to get a loan. This will be a welcomed opportunity for my young FHA clients who borrowed against their 401k's so they could come up with the required 3% down-payment, for now, until the requirement goes up to 3.5% (don't even get me started on that topic - that's a whole other discussion). The $7,500, interest free loan (please - let's all stop calling it a tax credit) will repay most of what they borrowed that way reducing the interest that they are paying on their 401k loan. It will also be appreciated by my FHA clients who spent nearly everything they had to come up with the down-payment that they have nothing left to put towards repairing that totally, "as-is", fixer-upper they just bought. For one particular client, she can finally now replace that horrible, stinky carpet she's had to have cleaned three times just because she hasn't been able to afford to rip it up and get it the $%^& out of her home.

Unfortunately though, for my CalHFA (a CA state revenue bond program) clients, they will not be eligible for the interest free loan because the "tax credit" can not be combined with any mortgage revenue bond programs (MRB). This would equate to the whole concept of "double dipping". Well, if there was ever an argument to advocate double dipping it would be for CalHFA individuals and families.

With a large percentage of my business being CalHFA, I know firsthand the trials and tribulations as well as the obstacles that these individuals and families go through just to realize the American dream. More times than not, my CalHFA clients spend nearly everything they have just to get into their first home. These are low-median income individuals and families who are often either paying unaffordable rents in order to live in Ventura County just so that they could be closer to their jobs or they are paying exorbitant commuting costs to travel from their homes in the San Fernando Valley (LA County) to their jobs in Ventura County. Both scenarios limit the amount that these individuals and families are able to save for a home or a down payment and they don't have 401k's to borrow against (their employers don't offer or provide any kind of retirement and/or savings program). Every year, they are spending higher and higher percentages of their incomes on housing and commuting because their incomes don't rise at the same rates that their housing and commuting costs do (wouldn't that be great if they did?). Does this make them any less deserving or worthy of owning a home or getting an interest free loan simply because they don't make as much money as someone who has saved tens of thousands of dollars for a down payment and closing costs? ABSOLUTELY NOT!!!

There are those in the lending and real estate industry as well as the general public who are of the opinion (and are very vocal about expressing their opinions) that if a first time buyer doesn't have the tens of thousands of dollars needed to make a sizeable down-payment and cover their own closing costs, then they have no business buying a home. Fortunately for my clients, I do not share that opinion and neither does the Federal Housing Administration or the California Housing Finance Agency. For decades, both these agencies have been devoted and dedicated to and have supported the needs of renters and first-time homebuyers by providing financing and programs that provide safe, decent and affordable mortgage options for low-median income individuals and families. If I had known about these programs 20+ years ago (I've only been an LO since 2002) when my first husband and I purchased our first home, we would have participated in every program that we would have qualified for. These programs are responsible, full-doc loans with conservative requirements and guidelines that are self-supporting and do not cost the taxpayer anything. I believe we need to be making these programs accessible to an even larger percentage of the population rather than reducing the number of people these programs can help. BTW: when it comes to a "tax credit" it would be nice if it were truly a "tax credit".

http://www.federalhousingtaxcredit.com/

After reading Carol Lee's Blog on "What to offer on a foreclosure" and a blog by Robert Rauf (Robert's Blog) on "Why you should not make a low ball offer", I felt compelled to write my own blog on "One reason why you may not want to low-ball that REO".

Like Carol Lee, I had also done some research on what many of the REO's, in certain areas in certain price ranges, were being sold at. For most of the areas I checked, my results were very similar to hers. In every area, there was the one property, maybe two, that was outside of the median averages (higher or lower) that kind of skewed the end results but most properties in these areas and price ranges were selling between 92% - 102% of the listed price.

These were areas that many of my clients (low-medium, income first timers) were looking in and were becoming really discouraged because they were not getting their offers accepted. For some, it was simply a matter that they were competing with all or mostly cash investors. For my FHA/CalHFA clients, they simply can not compete with cash investors. However, for two particular clients, it appeared to be that none of their offers were simply competitive enough - they were perpetually low-ballers.

These two clients had got it in their head that they were not going to pay more than a certain percentage of what the asking price was. Where did they get this notion? From something they read on the internet by some person, they don't know and have never met and who lives in another area and/or state. Of course, their realtor and I have relentlessly advised and informed them on what they should be offering as well as what they can afford to offer in order to get their offers accepted but to no avail; these two individuals are determined to get a "great deal" period.

With one of these clients, I have sat down with him and shown him how he has actually wasted time and money by making these low-ball offers. For example: earlier this year, he made a low-ball offer on an REO that was approx. 13% below the asking price and asked for 100% of his closing costs to be paid by the seller. Both his realtor and I advised him not to do this. His realtor advised him to increase his offer to approx. 6% below the asking price and lower his request for seller credits by half. This recommendation was based on a comparative analysis of recent sales for the area. The client wouldn't budge. The listing received multiple offers and eventually sold for the exact price that his realtor had advised him to offer (don't know if they paid any seller credits).

He's just recently made another low-ball offer on another REO at approx. 12-13% below the listed price and is asking for 100% of his closing costs in seller credits. His realtor advised him to increase his offer to approx. 5% below the asking price and lower his request for seller credits by half. This recommendation was based on a comparative analysis of recent sales for the area. The property has multiple offers and he's probably not going to get his offer accepted (this is probably going to be one of those properties that goes for more than the list price) but just for the sake of this exercise, let's say he does. This property is on the same street as the other offer he made earlier this year and it's a model match home. Had he purchased the first home earlier this year at the price that he was advised to offer, his payment would have been $55 a month lower that if he gets his current offer accept at his current offer price. Yes, I know what many of you are thinking "it's only $55 a month", but if he gets his current offer accept at his current offer price, over the life of the loan he will spend nearly $20,000 ($19,847 to be exact) more for his loan. What did this client say when I "did the math" for him, "looks like I need to be offering even lower then"!!! Some buyers today just don't get it.

A part of me (a very small part) feels as though I haven't done a good enough job educating and informing my client (thank God, those moments don't last long). But then I realize, I have done my duty and I have educated and informed my client, but it's up the client what he does with that information. As for my other client, after he lost another low-ball offer last week, he indicated that he was going to wait a little longer until prices came down even more. I passed on the story to him about my other client, he thought about that for a moment and said he needed to re-think his plan. I haven't been able to sit him down yet and "do the math" on his previous offers but I still have hopes for him. His offers haven't been stretched out over a long period of time like the other client; his offers have all been made just recently. However, if he waits too much longer, he will be in the same situation.

Buyers just need to learn that the best time to buy is now and the "great deal" you're going to get is the property that you get today at a fair market price for a good rate (yes, they still exist). Waiting may get you a cheaper priced home but you're going to pay more for your loan because rates are going up, not down. The loan you get now will be the "great deal" compared to the loan you get in six months.