Income for Life

Do the due diligence!

You might not have seen this, but in early May, real estate website Zillow.com released the results of a survey on Americans' home loans.

The data showed that American consumers spend more time researching car purchases and as much time shopping for computers and vacations as they do shopping home loan products. The study showed that the average car purchase requires 10 hours of research and negotiating, and the home loan shopping takes only about five hours.

True, shopping for a mortgage product is not as much fun as buying a new car. But you would think that with all the problems mortgage products got us into during the real estate bubble, people would be at least a little more diligent in their home loan comparisons. It's a mistake not to spend time, read the fine print and get yourself the best mortgage loan you can.

During the real estate bubble, investors couldn't sign loan papers quickly enough. If you have multiple properties like I do, you know that when you found someone who would keep financing you, you generally signed on that dotted line. Now, you might be looking back at some of your loans and thinking "What was I thinking?"

Whether it's your primary residence or an investment property, chances are your mortgage payment will be one of your biggest expenses. Doesn't it make sense to get the best deal possible? Even if you are working with someone who has come recommended to you, ask them to give you some different options on loans. Go over all the papers, make sure you understand the terms and ask questions.

A home is a much bigger purchase than a car, and yet we are not as careful about buying a home as we are a car.

"The last few years should have driven home the lesson that understanding one's home loan is critically important, but mortgages continue to be something that most people don't want to spend time thinking about," said Zillow chief economist Stan Humphries in a press release. "Not understanding a home loan can have catastrophic consequences."

We've seen those consequences, with all the delinquencies and foreclosures of the past couple of years. If you have a loan -- or even multiple loans -- I am stressing to you that it is a good idea to revisit the terms. Is your payment going to go up soon? Could you refinance? Now that equity is returning to some markets, refinancing or securing a home equity loan at a low interest rate and paying down a high-interest loan might again be realistic strategies.

Even if you didn't spend time getting a mortgage that was the best deal, not spending time investigating possible alternatives now just makes the problem worse.  

Are all the foreclosure efforts worth it?

I don't know if you've read about it in the news recently, but a plan called the Hardest Hit Fund was hatched by the U.S. government in February. It calls for $2.1 in U.S. Treasury funds -- read: tax dollars -- to be distributed among 10 states, which then would provide assistance for unemployed and under-water homeowners.

The 10 states are: Arizona, California, Florida, Michigan, Nevada, North Carolina, Ohio, Oregon, Rhode Island and South Carolina.

The states have submitted, or will submit, to the feds proposals for the use of these funds. Some are sure to include using the funds to pay down principal balances or make monthly payments for those who are unemployed and/or under water.

And whether that's a good use of tax dollars is sure to be a hot debate.

On one hand, you could really help stem the tide of foreclosures. Statistics show that mortgage assistance in the form of principal paydown has a better record of success than simply lowering the interest rate or extending the loan term to make the monthly payment more affordable. Since the Obama administration seems to be all for principal balance reduction on loan modifications, you can bet that the states' plans for the funds will include helping reduce outstanding loan balances.

Some will argue that slowing the rate of foreclosure is a benefit to all. Sure, your tax dollars could be going to your neighbor to help him pay down his debt while you scrape your own payment together every month, but his avoiding foreclosure might help the whole neighborhood. It's hard to argue that a few foreclosures can affect an entire neighborhood.

Some might also feel that using tax dollars to directly help homeowners is better than using that money to incentivize banks to work with the homeowners on modifications. That, unfortunately, has met with mixed results. 

But are there bigger-picture issues when the government starts paying for people's homes? For example, aid to homeowners who are unemployed might not exactly be viewed as a good thing. If you're unemployed and either your state or your federal government -- or a combination of both -- is making your house payment, how eager are you going to be to find work? This welfate-state, government-will-bail-us-out mentality could pose a real threat to people's motivation to be self-sufficient. And in the long run, that could hurt the economy more than a few more foreclosures might.

It's a tough situation. As a real estate investor, it's sometimes hard to watch irresponsible borrowers get assistance for home loans, while those of us who have the same hardships but certainly don't get any breaks for our non-owner occupied homes.

At the same time, and I have written this before, the economy is not going to turn around completely until people are again in equity positions in their homes. That sense of financial security is what helps convince consumers to consume, and when consumers are again consuming, employers will again employ.

You have to think that principal buy-downs to underwater borrowers in the 10 hardest-hit U.S. states could improve the overall equity situation. But by how much? And at what cost, beyond the actual dollar figures?

I guess we're going to find out. 

It takes effort to win the 50-50 scenarios

I'm not really much of a sports fan, but I was reading an article about a recent NBA playoff game, and there was a term in the article I was kind of curious about. It was a coach calling certain situations "50-50 balls."

From the context, I took the term to mean loose-ball situations in which neither team had possession and each team had a "50-50" chance of getting to the ball. I did some quick internet research and found that it's a term in soccer, too. A "50-50" ball is one that neither team has, but each has a chance to get to.

It's cliche in sports, especially, but it would seem to me that situations like this come down to -- as the announcers might say -- "who wants it more?"

I would think that winning 50-50 balls is a hustle stat. A desire thing. When the ball is up for grabs, who will run harder, jump higher, dive further or sacrifice their body more to get it?

It occurred to me that there's a parallel between this kind of scenario in sports and in the rest of our lives. When there's a 50-50 ball, how bad do you want it? What kind of effort do you put forth to make sure more 50-50 balls go your way than don't?

I would think there are plenty of times in our businesses or careers, in family situations and with our investments that an outcome could go one way or another. What I wonder is how many people, when faced with a such a situation, let chance or luck determine which way it goes. I would think that successful people, when faced with such a situation, turn things up a notch and try to influence which way the outcome goes.

I know I do. I try to stack the deck in my favor every way I can. It takes effort -- just like diving for loose balls in sports. You sacrifice, you risk going out of your comfort level, so that you can affect the outcome postively. Unlike a coin flip, which truly IS a 50-50 proposition, other 50-50 scenarios aren't purely up to chance.

Coming in early or staying late to do a better job than the next guy could influence whether you get that promotion. An extra hour or two each week devoted to marketing in your business could determine whether you get those extra sales. Having that conversation with your child, even when you feel too tired to have it, could be the difference he or she needs right now.

Things like careers and family relationships -- they're too important to leave up to chance. When there are "50-50" scenarios in these aspects of our lives, we HAVE to be like the basketball or soccer players who use extra hustle and effort to win them. We can't simply expect things to go our way.

We need to run harder, dive on the floor and out-work the next guy, so that we MAKE more 50-50 scenarios go our way.

What are we supposed to think?

There's a news aggregation website I visit from time to time that collects links to different sorts of articles and posts them all in one place.

Recently, this site -- in two different places but close to one another -- posted links to articles with the following headlines:

"No 'frenzy' to beat homebuyer tax credit deadline"

"Selling frenzy as homebuyer tax credit nears end"

Those are conflicting headlines to say the least! So what's a reader supposed to think?

One headline, the first above, links to an article on CNNMoney.com. The article says that while the expiration of the tax credits on April 30 led to an uptick in home sales, there hasn't been a last-minute frenzy to get deals signed before the expiration.

As you might guess, the other article -- from the Associated Press -- says there HAS been a frenzy as buyers try to get deals done before the deadline.

The two very different messages illustrate a point that deserves our attention: The media during this time of economic recovery can confuse the average person. This is a glaring example of the mixed messages the public has been sent regarding the economy. When it comes to the housing market, people are unsure what to believe.

The result is a tendency not to believe anything we read. Or at least to simply take bits of information from what we read and form our own opinions.

For example, new home sales were up 27 percent in March from the month before, the biggest increase in 47 years, according to the AP article. Sales of existing homes were up a substantial 7 percent. Is that a "frenzy?" That depends on your own personal interpretation of the word, doesn't it?

And that's the point. If we make our decisions or shape our opinions based others' interpretation of events, we are on dangerous ground. It's part of why there is so much confusion surrounding real estate markets these days. So-and-so says it's a great time to buy; but this So-and-So says real estate is a horrible investment. It's no wonder potential buyers and investors are confused.

On one shoulder, they have a little bird telling them they have the buying opportunity of a lifetime. On the other shoulder, another little bird is telling them to take no action. What happens? The conflicting information causes paralysis.

The best advice is to take what information you can from each little bird and make form your own opinion. Let the media INFORM your decision, but don't let them MAKE it. Otherwise, because of the often-conflicting perspectives, you'll never get anywhere.