Christina Dunham's Random Real Estate Musings

It’s Summertime! To help you stay cool during the coming summer months, below are some no-cost and low-cost tips to help you save energy. Not only will these tips help you save energy and money, they may also add value to your home. We hope you find them useful as you plan your minor redecoration or major remodeling projects.

Cut Heating & Cooling Costs

· Check around doors, windows, fireplaces, and other areas that may feel drafty. Use weather stripping to prevent heat from leaking out. If your house is poorly insulated, consider adding more energy-efficient insulation to your attic.

· Set your thermostat at 78 degrees when at home and at 85 degrees when you leave. Consider a programmable thermostat to adjust the temperature at pre-set times, especially if your home is vacant during most of the day.

· Check the temperature on your hot water heater. If you have a dishwasher, keep your hot water thermostat at 120 degrees. Otherwise, you can lower it even more. Save up to 10 percent on water heating costs.

Ward Off Water Waste

· Fix leaky faucets by replacing washers. One drop a second equals 20 kilowatts a month or 2,700 gallons per year.

· Avoid standing under a hot shower for as long as possible. Cut your shower time in half and save up to 33% on hot water heating costs. Consider replacing your showerhead with low-flow versions.

· Don’t pour water (like a half-drank glass of water) down the drain when there may be another use for it such as watering a plant or garden, or cleaning.

Lighting

· Open blinds and curtains on the sunny side of the house and utilize natural lighting whenever possible.

· Install compact fluorescent lights in high-use fixtures (save about 66 percent on lighting cost per fixture). They are more energy-efficient, last for years, consume little power and generate little heat.

· Turn off lights in unoccupied rooms. Use task lighting to focus light where you need it, instead of overhead lighting which brightens up an entire room.

Laundry List

· Only wash/dry full loads of laundry or properly set the water level for the size of load you are using.

· Consider a front-loading washing machine. They use 50 percent less energy and one-third less water. Plus, they remove far more water in the rinse cycle, resulting in less drying time.

· Up to 90% of the energy used in doing laundry is for heating the water. Use cold water and save 2-4% on energy costs. There are new detergents especially designed for cold water washing. For a breakdown of annual cost savings, visit: http://www.switchtocold.com/energy_and_cost_savings.html

Energy-Efficient Landscaping

· Plant the right mix of trees and shrubs. Positioning trees by windows can lower your energy bills by blocking the hot summer sun or winter winds.

There is nothing like owning your own home. Andrew Carnegie said: “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments.” In the long run, the largest asset most people will ever have at retirement is the equity they’ve built in their own home.

According to a 2003 U.S. Census study on Net Worth and Asset Ownership, the average net worth of a homeowner was $97,200 while the average net worth of a renter was only $1,400. About 69 times less.

Although the Bay Area real estate market is currently experiencing a slump, over the long run, real estate is an excellent hedge against inflation because overall, it increases in value at or above the inflation rate. According to the National Association of Realtors, the average yearly price increase in real estate over the last 36 year period has been 6.4%. In California, the average annual increase has been 8.9%. That means the house that your neighbors bought in 1968 for $20,000 is now worth over $450,000.

In comparison, the average inflation rate over the same period has been around 3.49%. If you invested that same $20,000 in something that matched the inflation rate, this investment would only be worth approximately $69,000.

Below is a comparison of historical property values since 1968, indicating the median prices of homes across the United States. The 2007 figure reflects the median price as of the first quarter of 2007:

YEAR	MEDIAN PRICE $	CHANGE		YEAR	MEDIAN PRICE $	CHANGE
1968	20,100	N/A		1988	89,300	18.12%
1969	21,300	5.97%		1989	89,500	0.22%
1970	23,000	7.98%		1990	92,000	2.79%
1971	24,800	7.83%		1991	97,100	5.54%
1972	26,700	7.66%		1992	99,700	2.68%
1973	28,900	8.24%		1993	103,100	3.41%
1974	32,000	10.73%		1994	107,200	3.98%
1975	35,300	10.31%		1995	110,500	3.08%
1976	38,100	7.93%		1996	115,800	4.80%
1977	42,900	12.60%		1997	121,800	5.18%
1978	48,700	13.52%		1998	128,400	5.42%
1979	55,700	14.37%		1999	133,300	3.82%
1980	62,200	11.67%		2000	139,000	4.28%
1981	66,400	6.75%		2001	147,800	6.33%
1982	67,800	2.11%		2002	156,200	5.68%
1983	70,300	3.69%		2003	168,200	7.68%
1984	72,400	2.99%		2004	185,200	10.11%
1985	75,500	4.28%		2005	219,000	18.25%
1986	80,300	6.36%		2006	221,900	1.32%
1987	75,600	-5.85%		2007	212,300	-4.33%

Despite California’s much publicized housing boom a couple of years ago and subsequent downward corrections in the last few months, the overall picture shows a steady appreciation in real estate value. Often, buying real estate solely for short-term appreciation is a big gamble, as evidenced by the state of the real estate marke

The Bay Area Housing Market is in a slump. Property values are going down or stagnating, foreclosures are on the rise, and interest rates have crept up for the fifth week in a row. In the Bay Area, with a large supply of houses available (average days on the market for Contra Costa and San Mateo County is currently at 55 days), sellers are more willing to offer concessions, either by lowering the purchase price or by giving the buyers credit towards closing costs.

“There is a panic on the real estate side as many people never thought they would see homes depreciate in California in their lifetime. Sellers are giving credit backs that were unheard of for the better part of 15 years because they can no longer expect multiple offers of 10-20% over asking price,” says Carlos de la Fuente, President of Business Relations for CPR Financial Solutions.

What then affects property values? First and foremost is location, location, location. A three bedroom/two bath house that costs $175,000 in Cambridge, Maryland sells for $875,000 in Half Moon Bay, California due to the variance in location. Location takes account of the quality of the neighborhood and area services (schools, churches, transportation), accessibility to conveniences (shopping centers and playgrounds), as well as climatic conditions.

Other elements affecting property values include:

• Demographics of the area – including income and educational levels, population growth or decline and migration patterns
• Economic influences – employment opportunities, wage levels, types of industries, availability of natural resources
• Political and governmental regulations – zoning restrictions, fire and police protection, and government-supported programs
• Utility – does the home have sufficient appeal? Are the home’s characteristics, design and architecture, and amenities desirable?
• Scarcity – are there few or many properties for sale in the area? The greater the scarcity of properties, the higher the value.
• Demand – are there few or many buyers looking for homes? Are interest rates favorable for the buyers?

To determine a property’s value, an appraisal inspection is typically ordered. It is the appraiser’s job to interpret what’s occurring in the marketplace to arrive at an opinion of value, at a specific point in time. For example, a home that appraised for $750,000 last year might only be worth $695,000 this year due to one or more of the factors above.

Typically, an appraiser needs to inspect and document the condition of the property, both inside and out. From the overall quality of construction, layout, and amenities including any upgrades, the appraiser determines the home’s marketability throughout the valuation and comparison process.

The appraiser estimates the square footage of the home, or the home’s gross living area (GLA), by measuring the exterior of the home. It’s important to note that non-living areas, such as garages, sunrooms and covered porches, aren't included in GLA, but are accounted for and considered in value separately. Finished basements (typical in Daly City and San Francisco homes, for example) are also calculated separately from the above-ground GLA.

The appraiser will generally consider only permanent fixtures and real property. Because many above-ground swimming pools and small sheds are not permanent structures, they typically usually aren't included in the valuation.

In arriving at a home’s final appraised value, the appraiser refers to data from a wide variety of sources, including the local Multiple Listing Service, local tax assessors records, local real estate professionals, county courthouse records, private public record data vendors, interviews with sellers and buyers, appraisal data co-operatives and his or her own personal knowledge or office files from previous appraisals.

It’s important to note that a home’s VALUE may be different from a home’s PRICE. The latter is determined by what a buyer is willing to pay. During the real estate boom in 2004 and 2005, it was common for a home to sell for $50,000 or even $100,000 over its appraised value. Today, buyers are in the driver’s seat, with sellers discounting their homes for a faster sale.

In 2006, the FBI estimates that lenders lost about $1.5 billion due to mortgage fraud, although the full extent is unknown since these figures only include crimes reported through Suspicious Activity Reports (SARs). SARs are reports filed with the IRS by financial institutions that suspect money laundering and other financial crimes.

An article in Bankrate.com indicates that mortgage fraud tends to intensify in down markets, and buyers, sellers and homeowners looking to refinance alike may all be tempted to bend the rules. With home values on the decline and foreclosures on the rise, sellers are scrambling to unload their properties. In the meantime, borrowers are growing desperate to refinance their home loans before the rates begin to adjust. As a result, they are more willing to succumb to creative offers with abracadabra features.

In mortgages, the most common type of fraud is Application Fraud, utilized by unscrupulous loan officers to get borrowers into loans that, in reality, they cannot afford. By inflating income or falsifying asset information, borrowers are able to meet the minimum debt-ratios or cash reserves required by lenders. Called Low Doc or Stated Income loans, mortgage industry insiders typically refer to these as “liar’s loans.”

A Low Doc or Stated Income loan can be fraudulent on many levels. The FBI compiles information on mortgage fraud through complaints filed by financial institutions and the Department of Housing and Urban Development and reports that mortgage fraud continues to escalate in the U.S. For example, the Mortgage Asset Research Institute (MARI) reported that one of its lender clients compared a sample of 100 stated income loans with the borrower’s tax returns and found that 90% of the income reported was inflated by 5% or more. Furthermore, 60% of the income reported was exaggerated by more than 50%.

MARI has been compiling reports from major mortgage lenders, agencies and insurers describing incidents of alleged fraud and misrepresentation into a database called Mortgage Industry Data Exchange (MIDEX), which provides a wide range of statistics on fraud characteristics. In 2005, the areas where misrepresentation or fraud occurred are:

While providing Full Documentation (pay stubs, tax returns, bank statements, etc.) can give borrowers the best possible rates and terms, sometimes it is just impractical. Low doc loans, which often carry higher interest rates than traditional loans, were originally designed for people whose income fluctuated widely, such as commissioned sales reps or self-employed business owners, as well as high net worth individuals who didn’t want their entire financial history scrutinized.

If a bulk of your income is from commissions or business earnings and fluctuates greatly on a month to month basis, then it is best to go with a Stated Income loan where income is simply indicated on the loan application form but not verified. “Keep in mind that for this type of loan, the income still has to make sense based on your title/position as well as length of time on the job. Lenders always double-check your claim against Bureau of Labor Statistics figures, so they know if your story is far from the truth,” says Carl DeRivera, Loan Processor for the Daly City branch of Atlantic Bancorp, “I have seen people claim to be making $8,000/month as a postal carrier. No one’s going to buy that.”

If the income documented by your monthly pay stub is not sufficient to qualify but you feel that you can afford the monthly mortgage payment because of additional earnings from a side-job or if family members will be helping to cover the mortgage, then opt for a No Income or No Doc loan. While the rates may be a little higher, no income is disclosed on the loan application so you don’t run up against debt-ratio limitations. These types of loans are available for up to 90% financing, depending on credit score.

Note that for Stated Income, No Income or No Doc loans, a two-year stable work history is required and verbal verification with your boss will be performed prior to closing. For more information about Low Doc and No Doc loans, visit http://www.atlantic-dunhamgroup.com/DocumentingAssets.

Brown packages with URGENT stamped on the envelope, thick glossy catalogues filled with knick-knacks on sale, pre-approved credit card offers offering zero percent interest for balance transfers, and official-looking letters that say you’ve won a prize.

We’ve all been bombarded with junk mail, and it is particularly annoying for those of us who have limited space in our Post Office-assigned mail boxes. On top of being an annoyance, unwanted mail also presents a risk to our credit reputation and our identity. And all it takes is one fraudulent incident to ruin your prospects of getting a low interest rate on a new home or car loan.

Last week, we talked about three tactics to eliminate unwanted mail including, requesting to have your name removed from credit bureau marketing lists and List Brokers lists, and opting-out of mailings from members of the Direct Marketing Association (DMA). (If you missed last week’s article, visit www.christinadunham.weblog.com)

Here are some additional tips on how to remove your name from catalogue, sweepstakes and “resident/occupant” mailing lists, courtesy of Sid Kirchheimer from TodayShow.com’s website and www.fightidentitytheft.com.

• Advo, a direct mail company, prides itself in reaching about 90% of the nation’s households through its mailers, including “Shopwise” and “Missing Child” fliers. To remove yourself from Advo’s list and eliminate grocery circulars and resident/occupant mailers, visit http://www.advo.com/consumersupport.html.
• ValPak mailers, sent out by Cox Target Media to over 45 million households, claims that “nearly 9 in 10” consumers who open the ValPak envelope review every offer. If you prefer not to receive any of the ValPak coupons, opt-out by visiting http://www.coxtarget.com/mailsuppression/s/DisplayMailSuppressionForm.
• Did you know that when you fill out a “Change of Address Form” at the post office, your information is rented to 24 private businesses licensed by the US Postal Service? This is one of the ways that list brokers and credit bureaus secure your address information. In lieu of filling out this form, personally inform your family, friends, and anyone else you need to inform of your new address.
• To avoid having your name shared, sold or leased to advertisers after ordering something from a catalogue, making a donation, or renewing a magazine subscription, write to the companies directly utilizing this handy template from Fight Identity Theft - http://www.fightidentitytheft.com/junkmail_labels.html

These are just some ways to protect your identity and your credit reputation. Keep in mind that you might not start seeing results right away, as it may take as much as 5-8 weeks for the companies above to inform their members and clients. So the best time to start is TODAY to start seeing results by summertime.

Remember, each derogatory item – valid or inaccurate – will remain on your credit report for seven years. According to the Federal Trade Commission, identity theft victims typically don’t notice the issue for 12 months. It costs Americans an average of $1,500 and over 175 hours to recover from identity theft

Besides eliminating clutter and unwanted mail, thereby reducing your risk for identity theft, be sure to check your credit report regularly by visiting www.annualcreditreport.com. This is perhaps the best way to monitor credit activity and protect your credit reputation.

If you already have a copy of your credit report and need help making sense of all the information, feel free to email me at contact@christinadunham.com for a complimentary credit consultation.

‘Til next week, happy home loan shopping!

Christina Dunham is a real estate investor and Vice-President of Atlantic Bancorp, a mortgage banker funding over $4.9 Billion in real estate loans since 1989. Got a question? Email her at contact@christinadunham.com.

I recently had a consultation with a client who was interested in refinancing his home. He said that he was very diligent with his mortgage and credit card payments, and was confident that his credit score would be at least 700. He was over 100 points off – his FICO score was only 571.

Having paid everything on time, he couldn’t understand why his score had dipped so low. We reviewed his credit report together, and only then did he discover several accounts that did not belong to him. He had been a victim of identity theft.

According to the California Office of Privacy Protection, identity theft is one of the fastest growing crimes in the nation, accounting for 43 percent of all complaints received by the Federal Trade Commission in 2002.

The good news is that people seem to be getting smarter about protecting their identity. The 2006 Better Business Bureau Survey on Identity Theft indicates that the number of US adult victims of identity fraud decreased from 9.3 million in 2005 to 8.9 million in 2006.

Pre-Approved Credit Card offers are easy targets for identity thieves who steal your mail. Sid Kirchheimer, author of Scam-Proof Your Life, said on the Today Show that “each year, more than three million Americans discover that false credit accounts have been opened in their name. Of these, at least 400,000 can be attributed to the theft of incoming mail.”

Unfortunately, the burden of proof always lies with you. And whether or not a derogatory item on your credit report is valid or inaccurate, it still affects your credit score. In addition to the inconvenience of having to dispute the inaccuracies, your prospects for refinancing today is compromised, since the process of correction can sometimes take up to 6 months.

So if you are planning on refinancing or buying a home in the next 6 to 12 months, now is the perfect time to get started with protecting your credit. After all, an ounce of prevention is worth a pound of cure.

One of the easiest steps to protect your identity and your credit is to reduce – if not eliminate – unwanted mail. Monitor unusual mailings, emails and phone calls appearing to be from lenders or creditors requesting financial information. On the Today Show, Sid Kirchheimer suggested the following tactics to reduce unwanted mail:

§ Request to have your name removed from credit bureau marketing lists by calling toll-free 1-888-5OPT-OUT (888-567-8688) or online at www.optoutprescreen.com. Doing so will prevent credit bureaus like Experian, Equifax and TransUnion from selling your personal information to credit card and insurance companies.

§ Ask to be removed from List Brokers lists. These companies cull information from phone books and public records and sell them to direct marketers and telemarketers. For a complete list of List Brokers and templates of letters to use, visit http://www.fightidentitytheft.com/junkmail.html

§ Opt-out of mailings from members of the Direct Marketing Association (DMA) by visiting http://www.dmaconsumers.org/cgi/offmailing. The 5,200 members of the DMA typically sell their wares via telephone, catalogues and the Internet. Note that opting out will not remove your name from the lists of companies you currently buy from – your name will simply be made unavailable to other companies who wish to court your business.

Be cautious of giving out personal information to persons calling claiming to be from a company with whom you do business. And be sure to properly destroy financial solicitations and other financial documents before disposing of them. Invest in a home paper shredder for this purpose.

Protecting your credit reputation is easier than you think. You have to be pro-active, and you have to put in the time. If done correctly, you can reduce your junk mail and your risks for identity theft, and only get communications from companies you truly want to here from. Next week: more tips on how to remove your name from catalogue, sweepstakes and “resident/occupant” mailing lists.

‘Til next week, happy home loan shopping!

Filing for bankruptcy delivers a devastating blow to your credit and FICO score, but it doesn’t mean you have to wait 10 years before you can qualify for a mortgage. Borrowers can obtain mortgage loans as early as the day after discharge, although it is often at a higher rate and at a lower loan amount than their “A-Paper” counterparts.

According to the Administrative Office of the U.S. Courts, bankruptcy filings in the federal courts started a slow trend upwards from 1980 to 2005. Then between December 2005 to December 2006, bankruptcy filings steeply declined by 70%. By the end of 2006, 789,000 people had filed for bankruptcy. Of this, 597,965 were personal bankruptcies.

The leading cause of bankruptcy filing is job loss (about 67%) and 44% of those who file are couples. The average age of a filer is 38 years old. There are three types of bankruptcy proceedings:

• Chapter 7 – Involves liquidation of assets. This is the most familiar type of bankruptcy, in which many or all of the individual’s debts are wiped out completely in exchange for proceeds from the sale of non-exempt property (includes valuable clothing, electronic equipment, expensive car that’s been paid off and most of the equity in your house). The sale is called a liquidation proceeding and is handled by a trustee. The process takes anywhere from three to six months and commonly requires only one trip to the courthouse.
• Chapter 11 – Involves business reorganization. When a troubled business is no longer able to pay its creditors, it can “reorganize” in an attempt to stay in business. A bankruptcy court supervises the “reorganization” of the company’s contractual and debt obligations. The court can grant full or partial relief from most of these debts and contracts, so the company can start fresh. Often, if the company’s debts exceed its assets, the creditors end up with ownership of the newly organized business.
• Chapter 13 – Involves a reorganization of debt and a repayment plan. In this type of bankruptcy, debtors establish a payment plan to creditors from their future earnings for the next three to five years, giving them time to catch up and keep their property. Under this type of bankruptcy, certain debts may be discharged that would not otherwise be discharged under a Chapter 7. Only individuals with a regular source of income and owes less than $307,675 in unsecured debt and $922,975 in secured debt may file for Chapter 13 bankruptcy.

In the case of both Chapter 11 and Chapter bankruptcies, the borrower needs to demonstrate a good faith effort to repay the debts. The lender needs to know if the cause of the bankruptcy was an isolated case due to illness, divorce or job loss or an indication of chronically poor financial management.

It is important to note that lenders make a distinction between the two causes – extenuating circumstances and poor financial management. Extenuating circumstances are non-recurring, isolated situations beyond the borrower’s control that resulted in a sudden and significant financial hardship. Poor financial management is simply that – an inability to maintain on-time payments due to irresponsibility, indifference, or habitual over-spending.

A borrower who has had a bankruptcy but has shown the ability to re-establish and maintain good credit for at least the last 24 months will typically qualify for loans, especially if they have compensating factors such as credit scores above 680, ample assets or fully verifiable source of income.

Borrowers must provide a copy of the full discharge papers, including the schedule of discharged debts, along with a Letter of Explanation detailing the motivation for filing. These letters are then evaluated based on validity, sincerity and appropriateness.

For more tips on dealing with bankruptcies, visit www.atlantic-dunhamgroup.com/Bankruptcy. Or if you would like to find out more about mortgage home loans for borrowers who have had a bankruptcy in the past, please drop me an email at contact@christinadunham.com

Happy home loan shopping!