Refinance Free Credit

Freddie Mac shares tanked 23% on fears that the GSE will need to raise more capital.  The GSEs have been on a roller coaster on the stock market over the last few days as concerns about capital requirements have investors panicked about the future of the two massive mortgage buyers.

Is it just me or is it super-spooky watching two massive government entities that hold trillions in mortgage debt go through the same gyrations as Countrywide, IndyMac and New Century did in their final days?  I’m just saying….

From Market Watch:

Shares of Freddie Mac dove 23% in late afternoon trading on Wednesday, to $10.32, as the stock’s value gyrated for the third consecutive day. Concerns about the company’s possible need to raise capital has punished its shares and shares of its sister company Fannie Mae.

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Amid a growing clamor from consumer groups and some Congressional and local civic leaders about a perceived need to “do more” to stem a growing tide of residential foreclosure activity, Treasury Secretary Henry Paulson suggested Tuesday that many of the foreclosures now working through the nation’s housing system aren’t of the “preventable” variety. In remarks made [...]

St. Paul, Minn.-based Advantus Capital Management, an institutional asset manager with $19.2 billion under management, said Wednesday afternoon that it will look to actively take advantage of the downturn in the mortgage securities market to launch a high-yield mortgage investment strategy, and the firm has added a portfolio manager to oversee its efforts in the [...]

An awaited report on the conduct and process at key credit rating agencies in the wake of a historic upheaval tied to securities rated by the firms was released late Tuesday by the Securities and Exchange Commission — and the report was anything but kind to Fitch Ratings, Moody’s Investors Service, or Standard & Poor’s, [...]

Newly-installed Dept. of Housing and Urban Development secretary Steve Preston said in remarks Tuesday that a housing bill moving through the Senate could help contribute to the insolvency of the Federal Housing Administration if not amended before ostensibly heading to President Bush for signing. The Senate version of a housing package currently under consideration (HR 3221) [...]

In larger remarks about the need for risk-based pricing at the Federal Housing Adminstration, FHA commissioner Brian Montgomery peppered a speech yesterday on lending for low and moderate-income households with the suggestion that the current housing mess could have been avoided had Congress acted on Bush administration suggestions earlier. In his remarks at the FDIC-sponsored forum, [...]

If borrowers can pay their mortgage via credit card, will they? One company, San Francisco-based ChargeSmart LLC, is betting that the answer is “yes.” The company, whose service also targets auto and student loans as well as utility bills, said Wednesday morning that it will allow borrowers to pay their mortgage via a Visa or [...]

"Flipping" is the buzzword of the year in real estate - flipping books, flipping articles in the newspaper, and even flipping shows on TV! What is flipping, how does it work and how you can profit? Flipping simply means buying a property and reselling it quickly, as opposed to holding on to a property long term as a rental. Flipping comes in several varieties, most of which are legal and profitable, some of which are not.

Flip Strategy #1: Buy, Fix and Flip
Let's start with the most common form - the good, old "fix 'n flip". This process involves buying a property that needs work, fixing it up, then selling on the "retail" market, that is, to a person who will live in the property. This method is tried and true, and works very well. You can easily make $15 - $50k on one deal, depending on your market and how good you are at finding bargains. The danger in fix and flips is either paying too much or underestimating repairs. Be very conservative in your fix-up costs and length of time it may take to resell. Also, make sure you include in your analysis the cost of paying a real estate agent to sell the property

Flip Strategy #2: Buy, Refinance & Lease/Option
Rather than sell the fixed up property for all cash, sell for terms. Once you have completed the rehab, refinance the property at its new appraised value. If you did the math correctly, you should have little or no money in the deal. Sell the property on a lease with option to buy. The rent payment from your tenant/buyer should cover your mortgage payment (if not, consider an interest-only or adjustable rate loan that is fixed for 3 years). When your tenant exercises his option to purchase, you reap a larger profit, since you don't have to pay a broker's fee. If the tenant exercises his option after 12 months, you benefit from a lower capital gains tax rate.

Flip Strategy #3: Buy & Flip "As Is"
Don't like to do fix-up work? Consider selling the property "as is" as a light fixer upper. If the local real estate market is hot, you should be able to sell the property in poor condition just a little below market. This is especially the case with houses in "transitioning" neighborhoods. Make sure, of course, that you acquire the property sufficiently cheap enough that you can sell it below market quickly and still profit.

Flip Strategy #4: Wholesale
Strategy #1, the fix and flip, is very popular, which means there are a lot of investors looking for rehabs. You can buy the property cheap and sell it for just a few thousand dollars more to another investor without doing any work. You won't make nearly as much as the rehabber, but you will realize your profit quickly.

Flip Strategy #5: Pre-Construction
In very hot real estate markets, prices are appreciating as much as 2% per month. If you time things right, you can put a contract on a pre-construction house or condominium, then flip it to someone else when the development is complete. If it takes 12 months for the development to be complete, and the condo price is $500,000, you could make $100,000 or more in one year! Of course, the opposite is also true - you could end up losing money if the local economy tanks and you end up with a worthless condo that you can't sell for more than you paid. Use this approach very carefully.

Flip Strategy #6: Scouting
The Scout is an information gatherer, so not technically a property flipper. He is the "bird dog" who finds potential deals and sells the information to other investors. Many people get started as a Scout for other investors because it does not take any cash or prior knowledge to look for distressed properties. The Scout finds a property for sale, gathers the necessary information, and then provides this information to investors for a fee. The fee will vary depending on the price of the property and the profit potential. The Scout can expect to make five hundred to one thousand dollars each time he provides information that leads to a purchase by another investor.

Flip Strategy #7: Illegal Flipping
OK, I am not advocating this approach, because it is illegal. Illegal property-flipping schemes work as follows: unscrupulous investors buy cheap, run-down properties in mostly low-income neighborhoods. They do shoddy renovations to the properties and sell them to unsophisticated buyers at inflated prices. In most cases, the investor, appraiser and mortgage broker conspire by submitting fraudulent loan documents and a bogus appraisal. The end result is a buyer that paid too much for a house and cannot afford the loan. Since many of these loans are federally insured, the government authorities have investigated this practice and arrested many of the parties involved. As a result, the public perceives is flipping to be illegal.

The fact is, "flipping" - as I described in the beginning of this article - is not illegal. Loan fraud in the process of flipping is what is illegal, so don't confuse the two. The other six ways to flip are very legal, very ethical and very profitable!

Here’s a fun little graph I made (not to scale) of IndyMac’s stock price over the past 18 months.  I used a cool little tool called “Crappy Graphs” that is super fun.  Hat tip to the Phoenix Real Estate Guy for pointing it out to me.

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Let’s start with what’s (mostly) known at this point: Merrill Lynch & Co. (MER: 31.10, -5.10%) is likely to sell assets. After all, CEO John Thain has said the Wall Street firm will not need to raise additional equity, and it’s generally assumed that Merrill needs additional capital to weather the ongoing credit and mortgage [...]