Foreclosures are rising in many parts of the country, fueled by a slowdown in home sales, slumping real-estate prices and rising payments on adjustable-rate mortgages. Homeowners who have lost a job or faced another economic crisis are finding it hard to refinance or take out home-equity lines of credit to bail themselves out, analysts say.

The Detroit, Fort Lauderdale, Fla., and Denver areas posted the nation’s three highest foreclosure rates for the third quarter of 2006, replacing Indianapolis, Atlanta and Dallas, which had been the top three markets for the two previous quarters. The Indianapolis area was the only one of the three to see the high rate of foreclosure rates dip, edging down 2%. (more…)

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A banana republic is also characterized by a ruling class that curtails people’s personal freedoms and is moving towards a heavy-handed military dictatorship under the excuse of fighting guerrilla (or terrorist) opposition groups or enemies. Moreover, the fact that the ruling class or the elite comes from different political parties isn’t a relevant factor in classifying a country as a banana republic; what is relevant is the determination of the elite, irrespective of which party its members belong to, to shift wealth from the majority of the people (the masses) to themselves, usually through simply printing money and incurring chronic budget deficits, and frequently also through senseless warfare.

The third good news is that although there are ominous signs of the US drifting towards the status of a banana republic, the polarization of wealth isn’t due only to appreciating asset values, inheritances, and the disproportionate growth of the financial sector compared to the rest of the economy. The five richest Americans all made their money themselves, and while money managers, real estate moguls (including hotel and casino owners), and leverage buyout artists are very predominant on the Forbes list of the 400 richest people in America, there are also a large number of “new economy” entrepreneurs on the list, such as the founders of Yahoo, eBay, Amazon, and Google. (more…)

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It doesn’t make financial sense to pay for points to buy down the cost of a mortgage only to refinance the mortgage before reaping the advantage of the buy down. Apparently, however, that’s what virtually all home buyers do when they elect to include points to lower their interest rate with plans to save money over time, according to “Do Borrowers Make Rational Choices on Points and Refinancing?” a special mortgage study by Abdullah Yavas, an Elliott Professor of Business Administration at Penn State’s Smeal College of Business and Freddie Mac analyst Yan Chang.

Only a tiny fraction, 1.4 percent, of borrowers who bought points held their loans long enough to make them pay off. Of those who didn’t buy points, only 1.5 percent would have been better off purchasing them, according to the study an examination of 3,785 mortgages originated between 1996 and 2003. Each “point” is 1 percent of the value of the mortgage. That is, if your mortgage is $200,000, one point is $2,000. Some points are called origination points — charged for originating or writing your mortgage. (more…)

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Activity drops more than 14 percent as 30-year fixed-rate mortgage climbs to 6.12 percent, industry trade group’s weekly index says. Mortgage applications fell as interest rates rose across the board, an industry trade group reported Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended Dec. 22 fell 14.2 percent to 555.8, from 647.6 a week earlier.

The 30-year fixed-rate mortgage rose to 6.12 from 6.10 percent last week. The group’s seasonally adjusted refinance index fell 18.5 percent to 1604.6 from 1968.8 the previous week, and the purchase index decreased 10.6 percent to 390.2 from 436.5 one week earlier. The refinance share of mortgage activity decreased to 48.8 percent of total applications from 50.8 percent the previous week. Fixed 15-year mortgage rates increased to 5.84 from 5.82 percent. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.87 from 5.82 percent. (more…)

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Randy and Jennifer Rimstad of Minnetonka, Minn., refinanced their mortgage in 2004 to replace a 50-year-old furnace and pay for their youngest daughter’s wedding. In May, their interest rate jumped to 8.55% from 5.55%, pushing their monthly payment from $1,654.81 to $2,295.68, and the Rimstads buckled under an adjustable rate mortgage they say they didn’t understand and could ill afford. Then came the collection nightmare that tacked on another $700 or so in monthly payments.

Millions of other families in the U.S. could soon find themselves in the same dire straits. Some $1.2 trillion in adjustable mortgages will shift to higher rates in 2006 and 2007, more than half of which are to borrowers with less-than-perfect credit, or subprime borrowers, like the Rimstads. These loans already are defaulting at unprecedented rates. Lenders are in large part responsible because they sold risky and unsuitable mortgages to unsophisticated borrowers. In some cases, of course, careless borrowers shoulder some of the blame. But some say there’s another force at work: aggressive servicing tactics. (more…)

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As a weak housing market nudges the foreclosure rate higher, next year is looking promising for investors in distressed real estate. So far, the U.S. housing slump hasn’t produced a bonanza for such investors, but lenders stuck with foreclosed property are becoming more inclined to slash prices or sell properties through auctions, industry experts say. “We’re all going to have to be more creative in the next 12 to 24 months” in selling foreclosed homes, says Chad Neel, president and chief operating officer of Fidelity National Asset Management Solutions, a unit of Fidelity National Information Services Inc., Jacksonville, Fla. Mr. Neel’s company helps lenders manage and sell foreclosed homes.

In the first half of 2006, REO properties accounted for 3.1% of all U.S. home sales, up from 2.4% two years earlier, according to a study by First American Real Estate Solutions, a unit of First American Corp., Santa Ana, Calif. The study found that those homes sold at a median discount of 14% to their estimated value in the first half, compared with 12.5% two years before. The discounts reflect the gap between the actual sale price for the homes and the value estimated by a computer model, which takes into account sales of comparable homes nearby and price trends. It has taken a while for foreclosures to mount. The housing boom of recent years reduced foreclosure rates because most people who fell behind on their loans could refinance or quickly sell their homes for at least enough to pay off the loans. (more…)

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In good markets or bad, real estate broker Ralph R. Roberts reveals in “Flipping Houses for Dummies” how he acquires run-down houses, fixes them up, and then either “flips” (sells) them for a profit or holds for long-term investment. Roberts, a highly respected real estate author, trainer and broker, shares his techniques along with advice on how to minimize the tax bite on profits.

As a longtime real estate broker, Roberts knows all aspects of the home brokerage business and he doesn’t hesitate to share his insider secrets. For example, he says, “Nothing on the MLS (multiple listing service) is the gospel truth. Sellers and real estate agents alike often estimate room sizes or make mistakes when entering details. Approach all prospects with a discerning eye.” Even if you are not interested in “quick flip” real estate profits, this is a great book to study because the author shares so much of his real estate knowledge which he gained, starting at age 19, over more than 30 years in the real estate business. Maybe Roberts is getting a little “salty” in his old age, but he exposes secrets most Realtors would never share with their clients. Examples include how to obtain a “listing history” of a property, how to determine what the seller paid, how long the property has been on the market even with more than one listing, and if the property is difficult to “unload.” (more…)

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Scott Patterson, a college dropout-turned-real estate investor, flings open the door of a vacant bungalow in north Charlotte and shouts to scatter any vagrants who might linger inside. The run-down house emits a musty odor, its walls are grimy and rust covers the bathroom fixtures. Patterson likes what he sees. “You never know which house will be a moneymaker,” he says.

In a city remarkable for its can-do economy and penchant for business deals, Patterson and others like him fill a special — and risky — niche. They snap up dilapidated houses and duplexes for less than $100,000, long before the neighborhoods become popular with newcomers and urban pioneers. They renovate and sell the properties for more than $300,000 in some cases. “Everybody’s trying to predict what the next hot area will be,” said Mike Jaffa president of Graham Investment, which writes loans for some of the city’s biggest individual speculators. In some neighborhoods, real estate investors have reduced blight, raised property values and lured young professionals to long-neglected areas. But not everyone is thrilled. (more…)

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December is a time when most Americans will run up at least a little extra debt in order to celebrate the holiday season. Now, if we only saved up our money the other 11 months of the year, this wouldn’t be a problem. But we don’t. In fact, for the last two years, Americans as a whole have been spending more than we save. That hasn’t happened since the Great Depression. We are officially living on credit. Americans have become used to living on credit. We think nothing of whipping out the plastic to get those things we “need,” like iPods and flat-panel televisions.

Americans generally understand that we have a serious problem. They just don’t know how to fix it, or are unwilling to take the measures to fix it. It’s not easy. There are no quick, painless solutions. We simply need to stop spending the money we don’t have, and deal with the resulting economic fallout, which will be significant. We can’t stop the pain, but we can keep adding to it. For one thing, we should work to come up with an alternative energy source to oil, which will keep hundreds of billions of dollars from flowing to the Middle East, money that is used to fund wars against us, which further erodes our treasury. Not only could we stop the oil dollars from flowing out, we could reverse the process and export energy to the world. (more…)

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The easing market may be worrying those who invested in real estate this year, but to avoid facing even more financial pain at tax time, those investors should consider the following year-end tax strategies. Keep in mind that real-estate investment tax tips are a bit different from standard investment tax tips, given that real estate is not as liquid as other investments. “There are some things you can do, but for the most part real estate works a little bit differently than some of the other areas where you normally do year-end tax planning [such as] selling some dog stocks from your portfolio,” said Eric Kea, a director of the real estate taxation practice at BDO Seidman.

If you bought real estate this year, consider having an expert evaluate your property piece by piece in what’s called a cost-segregation or component-evaluation analysis. Each piece of your building is put into various categories, each with different depreciation timelines. If, instead, you depreciate your building and its contents as a whole, you’re forced to do that over 27-1/2 years for residential rental property and 39 years for a commercial property, Lechter said. By using a cost segregation analysis, you can “depreciate parts of the building over a much shorter lifespan. It greatly increases your depreciation deduction, therefore reducing your taxable income,” Lechter said. A professional cost-segregation analysis might be too expensive for a real-estate investor with just one small property. If that describes you, consider creating your own analysis based on your property-tax bill, said John Michel, a national real estate tax partner in the Cincinnati office of Grant Thornton, based in Chicago. (more…)

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