Maria Bacallao's Real Estate Blog

I read this today on MSN and I thought you would find it interesting.

It has been a difficult year for mortgage lenders.

The subprime market went into a tailspin in February and March. A classic credit squeeze developed in late July, brought on by fears that jumbo and nontraditional mortgages might end up having higher-than-expected delinquency rates. Investors in mortgage-backed securities suddenly realized they didn't know exactly how much their investments were worth -- but they suspected that they had overpaid.

The nation's biggest mortgage lender, Countrywide Financial (CFC, news, msgs), was caught up in the uncertainty. An analyst for Merrill Lynch (MER, news, msgs) on Aug. 15 wrote that Countrywide might face so much financial pressure that it might lead to "an effective insolvency."

(On Monday, the Wall Street Journal reported that Countrywide had begun laying off staff, citing an internal e-mail sent Friday to employees of a Countrywide division that handles many Alt-A customers, who typically cannot qualify for a traditional prime-rate loan. The company employs 61,000 people.)

"If liquidations occur in a weak market, then it is possible for Countrywide to go bankrupt," wrote Merrill Lynch analyst Kenneth Bruce.

When the words "Countrywide" and "bankrupt" appear in the same sentence -- even as a hypothetical -- people take notice. (Countrywide didn't respond to a request for comment.)

What sort of problems does Countrywide have?

For the most part, Countrywide doesn't keep the mortgages it underwrites to borrowers. The lender sells the mortgages to investors who form the loans into pools, then issue bonds called mortgage-backed securities. When Countrywide sells closed mortgages, it gets the cash it needs to lend to additional borrowers. That's how it can pump out $39 billion or more in loans every month -- by selling its loans and keeping the money flowing in. The flow of money is called liquidity.

In the last few weeks, investors have pretty much stopped buying loans from Countrywide because investors lost confidence in their own ability to figure out how much the loans are worth. Defaults and foreclosures are rising, making it difficult to price loan pools correctly.

Countrywide services my mortgage. Should I worry?

"I don't think anybody should worry about where they're sending their check," Lepre says. "Worrying about who you send your payments to -- that's meaningless."

An economist for a large mortgage-industry player agrees. "Customers shouldn't really encounter any major issues," he says.

Countrywide's servicing rights are worth a lot of money. If Countrywide were to seek bankruptcy protection, it's possible that creditors would insist that it sell some or all of its mortgage-servicing rights. If the entire portfolio of servicing rights were sold, it could turn into a logistical nightmare. Buyers of servicing rights would receive tractor-trailers packed with paper and reel-to-reel tapes. They would have to match Countrywide's data on the tapes to their own databases.

"This is uncharted territory," Cruise says. "This is Columbus leaving the coast of Spain, headed for India -- and America comes up."

This all sounds alarming. Should I be alarmed?

Don't be fearful. Be watchful. Countrywide has been well managed over the years, or else it wouldn't have grown into the biggest mortgage lender. Even if it were to declare bankruptcy -- a big if -- that doesn't mean it would shut its doors. It probably would continue to operate while it got its affairs in order.

This article was reported and written by Holden Lewis for Bankrate.com.

2007 Sales Tax Holiday planned for summer

Governor Crist and the Florida Legislature have approved Senate Bill 1456, which provides that the 2007 Tax Free Days for Sales Tax will begin at 12:01 a.m., Saturday, August 4, 2007, through midnight, Monday, August 13, 2007.

Senate Bill 1456 provides for a sales tax holiday on:

Clothing and related items with a sales price of $50 or less

Books with a sales price of $50 or less

School supplies with a sales price of $10 or less

The Department of Revenue (DOR) has developed a Tax Information Publication (TIP # 07A01-07) to provide specific information on the Sales Tax Holiday. The TIP was mailed to all active registered sales tax dealers the last week of June.

Here is the latest:

Gov. Charlie Crist signed a historic $15.6 billion property tax cut yesterday, but many Floridians expecting major savings may be disappointed.

While Crist promised the new law "will make property taxes drop like a rock," legislative analysts said the measure passed by state lawmakers last week will save the average taxpayer just $174 on this fall's tax bill.  And that sum could vary greatly depending on where people live and what their home is worth.

The new tax-cut law requires cities and counties to hold tax rates at 2006 levels – and then cut up to another 9 percent, depending on how much they raised taxes over the past five years. Those that raised the most will have to cut the most. Broward County government is expected to face a 5 percent cut, while Palm Beach County will undergo a 9 percent reduction.

It is estimated that Florida taxpayers, including permanent residents, snowbirds, owners of second homes and business owners, will save $15.6 billion over five years.  State leaders say they hope to ignite the state's sluggish real estate market and economy by making it more affordable for Floridians to stay in their homes and encouraging new homebuyers.

Some cities that are in financial distress or have kept their taxing rate below the state average will face no extra cuts. But special taxing districts, like the North Broward Hospital District and the South Florida Water Management District, will have to cut by 3 percent.

The tax cut bill was only one part of the Legislature's two-pronged attack on rising property taxes, with the second coming in January. If voters approve a change in the state's constitution to increase the homestead exemption for permanent residents only, legislative analysts estimate the average Florida homeowner could see a $1,300 drop in annual property taxes by the fall of 2008.

It will take 60 percent of the voters to approve the measure, which would exempt 75 percent of the first $200,000 of a home's value from property taxes. Homes valued between $200,000 and $500,000 would get an additional 15 percent exemption. The $500,000 limit would grow at the same rate as personal income and could be changed by a two-thirds vote of the Legislature.

Info courtesy of Homebanc

TAX & INSURANCE REFORM

Since this is the topic I am getting the most questions about, here are some updates on what is transpiring regarding tax & insurance reform:

The House, Senate and the Governor are divided on tax reform as follows:

GOVERNOR CRIST: Wants to cut current rates by 12.1% in year 1 ultimately scaling tax cuts up to 25% by year 5 while rolling back local government tax collections to their 2003 level by year 3 and increasing the Homestead Exemption from $25,000 to $50,000 over the same period. He also wants to give first-time buyers a tax break of more than 25%.

SENATE: Wants to roll back property taxes to 2005-06 levels, double the Homestead Exemption to first-time buyers and allow homeowners some portability of the savings accrued under the Save Our Homes tax cap when they move to a new home. The driving force here is Senate President Ken Pruitt of Port St. Lucie.

HOUSE: Has a two part plan (1) forcing cities and counties to roll back their property tax collections to inflation-and- growth-adjusted 2000-01 levels then (2) ask voters to approve a constitutional amendment to wipe out property taxes on primary homes in favor of a higher sales tax of as much as 2.5 cents a dollar. The driving force here is House Speaker Marco Rubio.

The Governor and Senate want more targeted relief claiming that their plans ensure that local governments aren't crippled by radical tax restructuring. Meanwhile the House states that their plan would remove the inequities of the Save Our Homes tax cap which results in neighbors with similar houses paying vastly different rates depending on how long they lived in their homes.

No agreement was reached during the regular 60-day session which ended on May 4, 2007. A special session has been called for June 12-22, 2007.

Governor Crist has vowed to be "aggressive" and to use everything in his arsenal to reconcile the ideological differences between the House and the Senate.

His biggest weapon is the veto pen which he can use on the 312 bills he has yet to take up, including the state's $72 billion budget which is loaded with hometown spending projects legislators dread losing. He is considering whether to delay the signing of the budget until the 10 day special session ends in order to have leverage over the legislators to pass property tax reform.

Crist's back up plan is to leave the tough decision about restructuring taxes to the Tax and Budget Reform Commission, a little known group that meets once a decade to propose constitutional changes to taxes that are then put before voters. However Crist has said that he hopes the Commission would have "as little as possible" to do on those issues.

On the local level there is tremendous fighting with the claim that local officials are fighting against ANY and ALL tax relief proposals. Commissioners have used soaring appraisals to boost the property tax-financed portion of the county budget by 55 percent since 2004. The bottom line, true relief means cutting taxes for property owners so local governments get less money than they collect now which may effect local services.

INSURANCE REFORM: Florida homeowners shouldn't count on big property insurance savings. On June 1, when lower rates are supposed to take effect, many South Floridians will still pay hundreds or thousands more for coverage because the state gave insurers approval for sharp price increases in 2006. Statewide, the average increase of insurers in 2006 was 26.6 percent, while the average proposed cut this year is 10.6 percent i.e.. IT IS A DECREASE IN THE INCREASE.

Homeowners could end up paying more if the 2007 hurricane season is more like 2004 and 2005 because the rate savings are based on changes the legislature recently made to the Florida Hurricane Catastrophe Fund. If a large hurricane or a series of small storms hit Florida this year and insurers draw from the catastrophe fund, Floridians will have to pay even more on their insurance premiums to replenish the Fund.

Governor Crist succeeded in his effort to make Citizens more competitive - a move he believes will further drive down rates but industry officials say will simply pressure private insurers to leave the state.

Homeowners

Many of you always ask me for some more information as to what is happening and what is going to happen with our current real estate market. Below you will find a study from the Mortgage Bankers Association which may shed some light as to what the real estate market may reveal to us in the upcoming months and years.

Mortgage Bankers Association Study

    There is approximately 9 Trillion in mortgage debt in the USA

• 83 Billion in loans adjusted upwards in 2005 = 1% of the total market
• 300 Billion in loans adjusted upwards in 2006 = 3% of the total market

In 2007 1 Trillion loans are expected to adjust upwards

In 2008 1 Trillion loans

In 2009 1 Trillion loans

Of all of this 40% of the adjustable rate loans were created in South Florida

Buyer Mindset:

Housing was traditionally seen as a "Necessity" and for the long haul....a home to raise our families and to grow old. With the incredible boom in appreciation it became a product to be "Flipped" and make a quick buck. What has happened over time as predicted by Harry Dent, author "The Next Great Bubble Boom Ahead".

The Mindset of the Seller throughout the last few years:

Euphoria 2000-2005

Denial 2005 ....summer "Hurricane Wilma saga" thru...........2006

Concern 2007......negative media, foreclosures, additional loan adjustments "15-18 months"

Capitulation - Severe drop

Maria's Summary

One of the reasons many homes are on the market is due to the influx of new property listings that have come on the market from buyers that purchased a home during the boom at very high prices and had an adjustable or negative amortized loan. Once these loans become adjustable many homeowners can no longer afford their homes. In 2006 $300 billion worth of loans adjusted upwards, this accounts for a large percentage of homes that are being sold. The estimates for the upcoming months and years are quite surprising, the mortgage industry expects over $1 trillion worth of loans to adjust upward this year and for the next two.

What does this mean for you? Due to the large number of adjustable mortgages adjusting upward, we expect many more homes coming on the market as well as many more desperate sellers dropping prices to sell their homes right away to avoid foreclosure. Many will not be able to sell and will actually go into foreclosure. Prices will continue to drop dramatically.

What do you need to do if selling? Be priced right!! In today’s market pricing your home according to comparable sales is not enough. Are you priced within the lowest 3 in your community? Are you range pricing to attract more buyers? Sell now at the best price you can get for your home NOW. It is very likely you will not be able to get that price for your home in the next few months. Don’t forget staging, condition and marketing also take part in selling your home, but price is the most important factor.

What do I need to know if buying in this market? If you are looking to buy, this market is full of opportunities. You will be able to buy a house for a lot less than you would two years ago and still take advantage of some of the lowest interest rates our country has seen. My recommendation is that the home you are buying you are either going to use it as a primary home or have a cash-flowing rental property and always call me when buying. I have all the tools and resources you need in order to negotiate the best price for you. Remember this is the kind of market that many real estate investors take advantage of.

Are you interested in real estate investing information? If so, please contact me so that I can put you on my weekly invitation for a conference call with some of the country’s best real estate investors giving their advice on building wealth with real estate. Yes, real estate is still a wise investment for long term wealth building. Recommended reading: “Millionaire Real Estate Investor” by Gary Keller (NY Times Bestseller). If you need a copy please contact me.

I hope you have found this information incredibly helpful. If you have any questions, please do not hesitate to contact me. It is always a pleasure to speak with you and to educate you so that you may make the right real estate decision.

If you happen to know of someone who is thinking of buying or selling a home, please don’t hesitate to call me. I promise I will follow up with them and provide the kind of service that makes you proud to have referred them to me.

Sincerely,

Maria Bacallao

Cell: 305-733-0571

Fax: 866-405-9825

Email: sold@mariabacallao.com

Website: mariabacallao.com

2000 NW 150th Avenue, Suite 2000

Pembroke Pines, FL 33028