What is a Loan Modification Program and Who Is at Risk? This is the “question of the day” as many homeowners are faced with some very difficult decisions. As a result of a number of financial issues, including sub-prime loans some two to three years ago, some homeowners are now dealing with increased adjustable rate mortgage payments, or a loss of a job by one of the wage-earners, or a change in their personal circumstances that is causing an unexpected move out of their home. What was thought to be a “good deal” a short time ago is now turning into a “nightmare” for some, and they are earnestly seeking ways to resolve their immediate situation. One option is a loan modification program that has been on the national news just this week. What is a Loan Modification Program (LMP)? This is a program that is designed to change the mortgage payment and terms agreement that the homeowner entered into when they took out the loan. How can you change a note, a contract, and an agreement that was agreed upon and signed by all parties, one may ask? Legally, the only way is to change the terms with all parties agreeing, and that is exactly what happens with a LMP. What is the process? It starts with understanding how the original loan was made. In many cases in this area, a homeowner would go to a local lender, such as a bank, a mortgage broker, or a mortgage representative and get a loan. This loan application and approval was handled by the mortgage maker (bank, mortgage company, etc) and after the close of escrow, this loan was “sold” by this lender to a larger “investor”, such as Fannie Mae, Freddie Mac, or one of the many Wall Street money firms, such as Lehman Brothers. This parent group, if you will, then invested the money and all were happy. This process was fine as long as the value of the security (the home) would continue to keep or grow in value. What happened though, starting about four years ago, was that the housing industry on a nationwide scale, thanks to the unprecedented availability of money, starting building homes at an alarming rate, especially in the larger metro areas and suburbs around those areas. The result was a huge increase in the inventory of available homes, and then supply and demand set in. The supply grew faster than the demand, and prices started leveling and in some cases dropping and the result was the value of the home security was reduced. The investor got worried, and decided to sell the security, and this went on for awhile until the basic security dropped even lower in value, making the security harder to sell. Before long the investor had a bad investment. Our economy is based on moving dollars from one arena to another, and this process, in the housing industry, just stopped. Compounding all of this was the adjustable rate mortgage, whereby mortgage payments start increasing after the first year of the loan. As the housing industry slowed down, so did all of the associated industries, such as lumber, flooring materials, plumbing, etc. With a slowdown, comes a loss of jobs, and the resulting income. Many two income earner families saw their incomes drop, but at the same time their mortgage payments were going up. Not a good situation. The immediate effect was that homeowners said, “we cannot afford this home, so let’s sell”. Due to the inventory and dropping prices, the homeowner is eventually faced with not making the payment and walks away from the home and all of the obligations that go with the home. The investor is left with an empty home that is losing value daily with no income at all coming from that investment. Not good. The rest is history, as it becomes a downward spin for all involved. Instead of addressing this situation some two years ago, many lenders, driven by greed and not fully appreciating the magnitude of what was actually happening, refused to negotiate with the homeowner in an effort to “save the deal”. The result was the highest percentage of mortgage foreclosures in our history, and it is still going on. And, here comes the federal government to the rescue, just way too late. The problem is now of huge proportions, for national housing investments have continued to plummet and many of the investor’s securities are almost worthless. After trying to bail out Wall Street, the government decided to try and help the homeowner, and brings up Loan Modification Programs. Again, too late to help such a huge problem, but at least an attempt. The problem is, how does the government decide who to help and how much help to provide, and this is where the federal program will bog down. A few years ago, some foresighted financial folks saw what was happening and decided to address the issue head on, and we saw an increase in the number of debt resolution companies, initially directed toward credit card debt. Some decided, as the housing market declined, to address the mortgage loan issue, and that is where we are today. This Thursday night, November 20, 2008, at 7 PM, at the Redding Main Library, we will be conducting a Mortgage Loan Modification Seminar for all that are at risk or are thinking that they might be at risk in the near future. This is an information dissemination seminar and the various options will be explained by the Largent Team at Keller Williams Realty who will be joined by a national debt resolution firm that has a 97% success rate with loan modification programs. The process outlined above will be explained in more detail, questions will be answered, and hopefully options will be offered that can help homeowners as they deal with the possibility of “losing their homes”. Reservations can be made for the free seminar by calling 530-248-5601.

Study the commercial property market. This is critical, for you may not be ready to get into this aspect of real estate. The commercial field is made up of many different elements, from income producing property, such as apartments, to industrial storage and manufacturing properties. Look at all of the options and then decide if this is what you want to get into versus investing in the stock market, mutual funds, etc. Just because you hear that someone "made a fortune" in commercial real estate does not mean that you will, so study the market first, before you jump in. Know your cash situation to buy commercial property. Generally, most commercial property opporutunities will take approximately 20% of the purchase price in a down payment. There are very few "no down" deals, as we hear on TV. Often you will need at least 20% plus closing costs, loan fees, and misc. charges. We usually quote at least 3% of the purchase price, and this could go up depending on the loan points. And, if you do not have enough cash to make the 20% down, look long and hard at getting "hard money" to help you. First, the lender may not allow it, and 2nd, it is really costly. And, don't think that every seller will "carry back" some of the purchase price. Again, the lender may not allow it. So, see a couple of commercial lenders and talk with them about what you have in mind, and then go from there, and listen to their advice. It might not be the right time for you to buy. Know the Commercial Property Inventory, and what is out there. If you are looking to buy a commercial building, how many buildings of the size you want are on the market where you want to be. And, look at the number of buildings that are on the market and vacant, and-or leased. Then look at what the costs of these properties are. An apartment building at $50,000 a unit, or door, may look great until you find out that an adjoining building just sold for $40k a unit. If you are looking for specialty properties, such as a convenience store, a mobile home park, or a self-mini storage complex, see how many are available, and then compare the prices. As in any shopping, comparing properties is just a smart thing to do, and to do this, you have to know the inventory. In all of the above, a good commercial real estate agent will take you through each of these steps. Take your time, don't get too anxious, and rely on the judgement and opinions of the agent you are working with. If the agent is trying to force the issue and hurry you, probably the wrong agent.

Thanks, and good luck.

Ron Largent    Keller Williams Realty in Redding, CA

www.ronlargent.com

Is Stillwater Park Our Future? Should it be? What about Recreation and Tourism?

We recently read that Turtle Bay “delivers $9.6 million” to the County last year. Not bad for a Park that receives $350,000 from the City each year to attract visitors from near and far. So, how do the “experts” come up with $9.6 mil? A complicated formula, no doubt, but seems to be based on the theory that the income that Turtle Bay generates is equivalent to 233 full time jobs in the area. These jobs would then provide income that would in turn be spent on living expenses here in Redding, which would in turn generate sales tax, property taxes, and a lot of other jobs that would create income, and on and on.

OK, I’ll buy that, to a degree. However, what does this “income” really tell us? It tells me that “tourism pays”. So, why aren’t our City leaders looking at ways to increase tourism/recreation dollars? In fact, maybe the tourism/recreation “industry” would be a good fit for Shasta County? Maybe even as logical to pursue as big industry coming to Stillwater Business Park. 

Since my theory of “tourism/recreation” as our major industry will be discussed, down-played, and dismissed by smarter folks, I broadened my thinking to include all of the other sources of recreation/tourism dollars that flow into the City. There is the hotel-motel tax that is paid for every room occupied. Taxes are paid by Win-River and the 3 movie complexes. From Water World to Shasta Caverns, folks pay for this recreation and part of what they pay flows in as tax income to the city. How about the gas tax that is paid to the City, a good portion of that coming from out of town “tourists”. And so it goes. We are talking some “big bucks”, and yet, what are we doing to increase this “industry” if you will?

Stillwater broke ground a few weeks ago, and there was an excitement in the air that we would start seeing new businesses announce they were coming to Redding. We are all hopeful that they will, but will they? Over the past few years, a number of the new businesses, some in manufacturing and hi-tech have come, and gone. My thought is that it could be that we are not looking at the “right business or industry for our area”. Maybe we might consider going after industry that is related to what we seem to be doing pretty well, the recreation and tourism “industry”. Think about it: boats used on our lakes and rivers are built in Oregon, and the equipment used in fishing and water sports is a big business and made someplace, but not Redding. Ski equipment for both water and snow sports are manufactured in various parts of the country, but not in Redding. Bikes for many uses are sold in a number of local stores and come from all over the world, but not from Shasta County. RV’s are sold and repaired here, but are built in Montana or Mississippi. Even swimwear and snow attire could be made here, and the list of recreation/tourism related products goes on. It might be very interesting to be able to go visit the plant where your boat was being built, or see how snowboards or skateboards are made. And, of course, when one company finds that we have a great work force, a reasonable cost of living, and an exceptional quality of life, the word will spread.

Wishful thinking or naivety? Maybe. But the fact that we have all of the uses for these various products within a short distance does make a lot of sense to a manufacturer if only from the shipping and transportation aspect. Certainly makes sense to me to seriously look into this potential industry, especially when we don’t have many others lined up at the gate to get into Stillwater Park. But, just my view. 

Thanks,
Ron Largent    Keller Williams Realty in Redding, CA
www.ronlargent.com

The State of the State, of sorts!

Last week about 80 of us gathered to hear one of the most enlightening speakers in California, Dan Walters. Dan has been a journalist for more than 40 years, spending all but a few of those years working for California newspapers. At one point in his career, at age 22, he was the nation's youngest daily newspaper editor.

Dan joined The Sacramento Union's Capitol bureau in 1975, just as Jerry Brown began his governorship, and later became the Union's Capitol bureau chief. In 1981, Mr. Walters began writing the state's only daily newspaper column devoted to California political, economic and social events and in 1984, he and the column moved to The Sacramento Bee. He has written more than 6,000 columns about California and its politics and his column now appears in more than 50 California newspapers. He has written about California and its politics for a number of other publications, including The Wall Street Journal and the Christian Science Monitor. In 1986, his book, "The New California: Facing the 21st Century," was published in its first edition. He is the founding editor of the "California Political Almanac," the co-author of a book on lobbying entitled "The Third House: Lobbyists, Money and Power in Sacramento," and is a frequent guest on national television news shows.

He came to Redding to give our group, Shasta Voices, his views on where California has been over the past 40 years, and where we are now headed economically, socially, and culturally. A most interesting time, as he gave us a “walk through time” from the 1960’s through today. In case we have forgotten what California, and Redding, was like “back then”, here are some of his points.

Traditionally, California was primarily an agricultural and manufacturing state.  Santa Clara County was a leading producer of various crops, located right in the middle of what is now Silicon Valley. Fishing played a big part in the state economy from Eureka to Santa Barbara and Ventura County. Logging was a big part of the north state and the Sierra’s, including Redding. Large auto manufacturing areas, like Ford in Fremont and GM in Southern California employed thousands, and the Oakland Shipyard was one of the largest in the nation. Fontana had the largest steel plant on the west coast, and airplanes were built from San Diego to the Bay area. After Korea and Vietnam, the nature of the California economy started to change. Oil fields closed, tire plants in the Central Valley relocated out of state, and chemical plants shut their doors due to environmental concerns. California had some tough years in the late ‘70’s and early ‘80’s.

To fill this economic void, and address the changing nature of the state, cities and counties, and the State, reacted by encouraging a “new economy’, and companies like Hewlett Packard, Intel, and Apple Computer emerged, joined by a whole new kind of “industry” called Healthcare. Almost overnight, where there were factories and orchards, we saw housing developments, with all of the trades and services involved with this industry, along with a new group of employees called immigrants. They came from all over to the land of opportunities, bringing with them their culture and traditions, and California started absorbing these folks at a record pace. Jobs were created and the economy was rapidly changing. Overnight, biotech and hi-tech companies sprang up, like Gentech in Vacaville and Google and Yahoo in Mountain View. What had been referred to as “Kansas on the West Coast” was quickly becoming the largest “melting pot in the world”, with population groups like Russians moving to Sacramento and Vietnamese to Orange County. This changing culture caused California to change its education strategy, for languages almost unheard of 10 years before were now being taught in the schools. Change would be, and is,  the future of California. like it or not.

Today, California needs to create 250,000 jobs a year, just to keep pace with the growth. Every aspect of our lives, from water to transportation, to land use to healthcare is now an “issue” for the State. How the State deals with change, such as the graying of the baby boomers”, will affect each of us. Every service we receive, from good highways to good healthcare will be a ballot item, and each of us  must realize that now, as in the 1800’s, California is still the “destination of choice” for many. The Gold Rush is still with us. Are we ready, is the question. Stay tuned.

Ron Largent

July 20, 2008