The biggest changes discourage piggybacking and penalizing infrequent delinquencies.

By Renuka Rayasam, Associate Editor, The Kiplinger Letter

December 12, 2008

By next spring, two of three credit reporting bureaus will use a new model. Fair Isaac, the developer of FICO scores, has made the biggest change to its mathematical credit score model since it was introduced in 1989. Scores will still be on a 350- to 800-point scale. But the company estimates that 40% to 50% of borrowers' scores could go up or down by more than 20 points because of how the new model fine-tunes the variables it uses to evaluate consumers' credit use behavior.

For creditors, the new FICO score promises to reduce the risk of defaults, improving the predictability of defaults by 5% to 15%. Delinquencies are at their highest rate since 1992, when the economy was also in a recession. The revised scoring method "has a few more gray areas fleshed out so it gives us confidence in credit scoring models," says Ginny Ferguson, a member of the board of the National Association of Mortgage Brokers.

Equifax and TransUnion will be the first credit reporting bureaus to roll out the changes over the next year. As credit tightens because of the financial crisis, FICO scores are becoming increasingly important for borrowers looking to qualify for favorable terms. That puts high scorers in "even a better position for pricing on loans" as the economy recovers, says Ferguson.

The timing of the new scores reflects more changes in the marketplace, says Careen Foster, senior product manager at Fair Isaac. "Lenders said they wanted a stronger predictive model, but didn't want to change how it is used," she adds.

Fair Isaac has increased the number of groups that customers fall into from 10 to 12, taking into more account the number and magnitude of credit problems. Infrequent problem borrowers will no longer be lumped in with habitual delinquents. With the new model, "there is more forgiveness around people in the middle," says Foster. "If you have one isolated missed payment you won't score as low as before." The new FICO model also focuses less on how many accounts a borrower has and more on the amount of balances carried.

Piggybacking -- upping a score on someone else's back -- won't be ruled out in the new FICO score. But it will make using that route to establishing credit harder and lengthier. The authorized user provision allows young adults to create a credit history by using and paying off accounts held by their parents. But it has also been subject to abuse, with high credit scorers selling their names to borrowers looking to improve scores. Fair Isaac estimates that 30% of U.S. credit card holders, or 60-75 million people, are authorized users. Credit.com says that many of those authorized users are women. Many of them rely on their husbands' FICO scores, and it will now take longer for those women to build up their own credit scores.

The election is behind us!  It may not have turned out the way most Oklahoman's voted on the Presidential election, but it is behind us and we have witnessed history being made.

Several of my friends and clients have called or emailed asking what I think this means for our local Real Estate market.  I'm hopeful that we will experience a rise in activity both in showings and contracts written between now and a few days before Christmas. 

Our local market condition can be much improved if our local buyers and sellers will simply realize that our market is simply not as bad as many think it is.  It really boils down to consumer confidence to a large degree.  Yes, there are some folks who find it difficult to get approved for financing, but there are many, I would assume, that can be approved, but don't realize it.

So, let me tell you what I'm doing and what I want you to do. 

I'm making some changes in my marketing to touch more buyers.  First, I'm changing our Feature Sheets from color to black and white.  I'm doing this to free up marketing dollars to spend on another marketing strategy designed to create buyer interest.  The second benefit of moving to black and white is that it will drive more buyers to our website to view color photos, where they will also see additional photos not on the Feature Sheet and the visual tours.

The new marketing strategy involves marketing to buyers a Free Foreclosed Home List.  Foreclosed homes is such a hot topic in the market, we are picking up buyer leads every day from people interested in learning more about foreclosed properties in our area.  Obviously your home is not a foreclosed home, but you'd be surprised how many opportunities I get to show our listings after a buyer has first thought they were interested in looking at foreclosed properties, but then opens their search to all available properties!

What can you do?  Between now and the middle of December I and my team will be holding Open Houses every weekend.  I will be picking the houses to hold open based upon several criteria, location, price, days on market, etc.  Obviously we can only do a finite number of Open Houses, so, if you can, hold open houses.  Between now and Christmas, please make the effort to do Open Houses as many weekends as you can!  If you can't hold Open Houses let me know and I'll do my best to do an Open House at your home.

Don't get discouraged!  It only takes one Buyer to see your home and decide it's the one for them.  Now that the election is over, lets re-set the counter...de-clutter again...clean like crazy...get the leaves out of the yard...and hold as many Open Houses as we can!!

I don't know about you, but I'm ready to vote.  Not so much that I'm excited about the election; no, I'm tired of it all!  If I see one more ad about one more candidate, I'll scream.  Below is an article from the Tulsa World by Associated Press that you might find helpful; I'm following its advice this weekend!

Make no mistake, I know for whom I'm voting and why.  It's just that I want to get past all the uncertainty and get back to normal life, whatever that is. 

I don't know how much impact the election is having on our business, but I suspect quite a lot.  Many of my REALTOR® friends have commented to me that they think people are waiting to see what the election does before they really start getting serious about buying or selling. 

Whether it's intentional or subconscious thinking, the end result is that the election is having some impact on our Real Estate market.  While the financial market condition, consumer confidence and public perception of lending requirements are larger factors in our local slow down, I'm hoping that getting the election behind us will help us turn the corner to a stronger Real Estate market.  Maybe then we'll take a more serious and attentive look at our situation and begin our recovery.

Yes, our showings are really slow right now, but let's get the election behind us next week and work towards getting back to more normal Real Estate conditions.

In the coming weeks I'll tell you about new Marketing Strategies I've rolled out to increase our contact with Buyers and how these strategies are working.  We'll look at what the feds are doing to turn the Real Estate Market around nationally and what impact that will have on us.

In the meantime, don't lose hope!  Don't let the stress get to you...go camping!

Election stress? Forget campaign, go camping

By Associated Press
10/30/2008
Last Modified: 10/30/2008  3:50 AM

Some advice for coping with the final days of the presidential election and life beyond:

Step away from the computer, TV and newspaper, and avoid vicious political arguments, says Gretchen Rubin, New York-based author of the forthcoming "Happiness Project."

Be pro-active instead of powerless by volunteering or otherwise making your voice heard, Rubin says.

Take care of yourself by getting enough sleep, eating right and exercising. You'll feel better while recognizing those things you can control, says Wilmette, Ill.-based psychologist Nancy Molitor.

Realize that no candidate is as good - or as bad - as you might imagine, Molitor says.

When all else fails, change the subject, says Lisa Miller, associate professor of psychology at Columbia University Teachers College in New York. "Turn to those things which are more eternal and more important, such as nature and family," she says. "It's a great time to go into nature. Go camping."

By Associated Press

I've heard from several people a statement that goes something like "I guess if you don't have a credit score in the 800's and 20% down, you're not buying a house".  While Fannie Mae and Freddie Mac have certainly tightened their lending guidelines for a conventional loan, the above statement couldn't be further from the truth!

First, not all mortgages are going through Fannie Mae/Freddie Mac.  In our area, many home purchases below approximately $271,000 are going through the Federal Housing Administration, FHA. For the Tulsa area, $271,000 is the maximum loan amount allowable through FHA.  While credit scores are important, FHA does not put as much emphasis on credit score as do Fannie and Freddie.  Bob Reidenbach, Mortgage Account Executive in Tulsa with MidFirst tells me that with manual underwriting and the right circumstances, FHA may approve loans with borrower credit scores as low as 580. 

As far as down payment is concerned, an FHA insured loan can be had with as little as 3% down.  Now, the 580 borrower should not expect to qualify for the 3% down, but many borrowers can.  Borrowers in the mid-600's and above should be able to qualify for the low 3% down payment.

What about loan amounts over $271,000?  For loan amounts between $271,000 and $417,000 Fannie/Freddie may be the most viable option.  But even going with a conventional Fannie Mae/Freddie Mac loan does not mean that the borrower must have over 800 scores and 20% down.

Fannie and Freddie require a borrower to have a minimum down payment of 5% but do not require the borrower to have a credit score over 800.  Many borrowers with credit scores in the mid-600's and above may qualify for the minimum 5% down payment. 

Reidenbach says that Fannie/Freddie have recently instituted what they call Loan Level Pricing.  Loan Level Pricing grades the borrower's credit score and may require additional closing costs in the form of Origination Fees, typically .5% to 1.5% of the loan amount.  This fee is collected at closing and sent to Fannie/Freddie.  So, while a borrower with less than best credit scores may have additional closing costs to pay to Fannie/Freddie, the borrow may still qualify and not be required to have a sizable down payment.

What does this all mean?  Put this in the category of perception becomes reality.  While mortgage guidelines are tighter than they were just a few months ago, many people can still qualify for home loans.  My fear is that many potential buyers are staying out of the market now, not because the guidelines are too restrictive, but because they perceive the mortgage guidelines are too restrictive, excluding them from the home buying process.  For many, many buyers this is simply not the case.

So, do what I'm doing.  Spread the word!  Tell everyone you know that before they make assumptions about their ability to purchase a home in today's market, talk to a qualified, reputable mortgage loan officer.  They may find out that they in fact can qualify!

Mortgage rates see record jump

As people wait for the federal government's various bailouts and rescues to trickle down and stabilize the economy, they got more bad news: The cost of financing or refinancing a home purchase has gotten more expensive.

The average interest rate on a 30-year fixed-rate mortgage jumped to 6.74% (6.4% for a 15-year), the biggest weekly increase in 21 years, according to Bankrate.com's survey of lenders. Last week's Bankrate benchmark was 6.2%.

According to Bankrate, the new rate means the monthly payment on a $200,000 mortgage would be $1,295.87, about $70 more than it would be for a buyer who locked in a rate last week. 

So we're right where we were eight weeks ago. Why is this happening? Weren't we  supposed to see help for the housing market?

Part of the reason is that the price of Treasury bonds is falling, which drives interest rates up. Investors are no longer flocking to uber-safe Treasury notes as other opportunities open up. Mike Larson of Interest Rate Roundup also says that investors are dumping Treasury bonds now because the government is going to have to borrow billions of dollars to pay for its bailout commitments. Larson explains:

That means a mammoth flood of Treasury debt is going to wash over the market in the coming year or two. Bond traders know that all of that bond supply will overwhelm bond demand. So they're not sticking around. They're selling bonds NOW, driving prices down and rates up.

Time adds that Uncle Sam's decision to semi-nationalize banks has made bank debt seem even safer than the super-safe bonds of Fannie Mae and Freddie Mac, so people are selling those too.

Lower prices (and thus higher interest rates) for Fannie and Freddie bonds make it more expensive for the government mortgage guarantors to borrow, and that means that Fannie and Freddie have less money to purchase home loans. Which means a lower supply of capital available for mortgage issuers. The result is higher mortgage rates for the average American.

Of course, higher interest rates mean that fewer people can afford to buy a house or refinance a mortgage. That, in turn, hurts a housing market in need of life support. Add to that job losses and the other ills that accompany a recession, and housing values will likely continue to fall.

How high will interest rates go? Nobody really knows, although the figure most often tossed around is 7%. Some good news is that just over half of the experts on a Bankrate panel expect mortgage rates to drop down again within weeks.

Our perspective...

It is important to keep in mind that the sale of your home should be a decision based on good business principals, not emotional issues.  We often hear sellers say, "I need to get this much money from the sale of my home."  Your home value is not determined by how much you need.  You may or may not be able to realize all the money you "need."  Don't blame your home, and please don't blame your real estate agent.  Your home is worth today what a buyer is willing to pay for it today. 

Even if your home is priced correctly for the current market, it still may not sell.  You want to look more appealing than the others and that is best accomplished by pricing your home below the competition.   It is no longer sufficient to price your home at the same level as the competition; yours needs to stand out as a real value.

The good news is, while overall sales are down, homes are still selling. We recommend competitive pricing from day one. Don't over-inflate your price to leave too much "room to negotiate".  Bottom line: if you need to sell, now is the time but you must price it right.  If you don't need to sell for at least a couple years, you may want to stay put. 

Opportunities:  The good news is now is a good time to move up to a newer home.  There are great buys on new construction.  Builders are already offering sizable bonuses in the form of free upgrades, lender fees paid, and other perks, on top of reduced prices.  Remember that we can represent you on new home purchases as well as existing resale properties.  If you're moving up, it can make sense to sell your home below market as you can make it up on the saving you negotiate on the move up home.

What marketing program do we recommend?  We adjust our recommendations as market conditions warrant.  Currently we recommend that if your home has been on the market under our "Direct To Buyer" program for more than 30 days, you should consider taking advantage of our "MLS for Less!" program. The MLS selling commission is an additional 3%.  Remember, even when your home is listed under this program, we are still trying to sell it and if we find the buyer, the fee reverts back to the low flat rate. 

Please don't misinterpret this letter. We are not trying to be negative or discouraging.  We are being honest.  We are committed to selling your home for top dollar.  You need to know the truth about what to expect in today's competitive market.  We are pleased to be able to provide you with an accurate portrayal of the market while others still are trying to figure out what is going on.  This gives you a tremendous advantage.  If you don't feel comfortable with what we are saying, please call us to discuss your personal situation.

With a little extra effort, you can improve the chances that your home will sell quickly and for top dollar.  Get potential home buyers off the street and into your home with these tips:

* Make your home sparkle.  With so many new houses on the market, buyers often expect a resale home to be in "like new" condition.

* Consider staging.  Professionally decorated model homes have set high expectations for how a home should look.  If you can afford to stage your home, you should.  Staging is proven to benefit sellers both in price and speed of sale.

* Enhance curb appeal.  Make sure your landscaping is neat and weed-free.  Keep the grass cute, trim bushes and trees, rake leaves, and get rid of yard clutter.  Fix sagging gutters, replace missing shingles, and paint areas that are faded or peeling.  Finally, add some bright flowers around the entrance.

* Avoid being labeled a "fixer-upper."  Take care of all the pesky things you've been meaning to fix but haven't gotten around to.  Fix leaky faucets and loose floor boards.  Replace broken light bulbs and cracked electrical panels.  Patch holes in the wall and cracked ceilings. 

* Clean and de-clutter, and then clean and de-clutter again.  Throw away old newspapers and magazines.  Organize closets.  Clean the attic and cellar.  Dust the furniture, vacuum the rugs and straighten wall hangings. 

* Make your home light and bright.  Take advantage of natural light by keeping the curtains open.  Make sure the windows are clean.

* Focus on the kitchen and bathrooms.  These are the most important rooms in the house so make sure they are renovated and up to date.  You can also make small changes to keep them looking fresh and new.  Put nice handles on less expensive cabinets and replace old light fixtures with more modern ones. 

* Get rid of all that stuff.  Box up as much as you can and stack it neatly in the garage, not in the closets.  The house will appear larger and potential buyers will be able to picture themselves living there. 

* Paint.  This is an inexpensive way to make your home pop.  Painting the family/living room and the master bedroom will have the biggest impact.  Be sure to fix problem areas like chips and water stains.  Take down outdated wallpaper and touch up the baseboards.

* Air it out.  If you have pets, get rid of as much hair and dander and pet odor as possible.  Make sure your home doesn't have any other smells that might turn off potential buyers.

Today's buyers expect a lot.  The Internet has made them more educated, wiser and more demanding when it comes to their next home.  Sellers need to educate themselves as well.  An experienced, reliable real estate agent should help sellers understand current market trends.  They should also supply home sellers with pertinent information about their home, like the tips listed above, that will enable a faster sale at the best price possible.

Here's an article that ran in the Wall Street Journal on June 12 & the Chicago Tribune on June 15^th.

It deals with the topic of price reductions in sluggish or slow markets. Not everything in the article is 100% accurate for our Tulsa market, but the basis topic is definitely applicable. 

June 8, 2008 - Making the cut

Five signs that it is time to trim the asking price on your house

A seller's reality check may come after the listing produces very few showings or a prospective buyer is lost to a competing -- and lower-priced -- home down the block.

"It's a very price driven market," said Mike Golden, co-founder and co-principal of @properties, a Chicago-based real-estate brokerage. No longer are buyers letting their emotions interfere when they decide to buy a home -- they're looking for deals, he said.

Many sellers whose homes are sitting on the market without a buyer in sight had unrealistic expectations from the start, real-estate agents say.

"We still have sellers who are in denial of the market and don't want to price properties where they need to," said Susan Jacobs, broker/owner of an Assist-2-Sell brokerage in Manassas, Va. Her clients are often shocked to learn how much prices have fallen.

How can sellers tell if their homes are overpriced? Look for the following signs:

1. Not enough showings

A home is likely overpriced if it doesn't get any showings in the first couple of weeks it's on the market, Jacobs said.

Even more proof a price cut is needed: people are interested enough to take information from brochure boxes in front of the home and there have been a substantial number of hits on its Web site listings but buyers still aren't scheduling showings, she said. A real-estate agent will often have access to data on how many hits an Internet listing gets.

If a home doesn't make a buyer's "showing cut," and people don't think it's worth the time, hassle or gas to deserve a look, it's likely overpriced, said Dave Crumby, broker/owner of another Assist-2-Sell brokerage in Tempe, Ariz.

"If you can't get people into your home, it's highly unlikely that it will sell," he said.

2. Some showings, but no contract

Perhaps the number of showings isn't a problem, yet there still have been no offers.

"If you're getting showings but not getting a contract, that means you're still not quite low enough," Jacobs said. "You're close, but there's so much competition out there."

Consider this guideline from Becky Flores, a real-estate agent at a San Antonio-based Keller Williams brokerage: "10 showings and no offer or two weeks with no showings, you are probably overpriced for the current market. This is true especially in this very competitive market," she said in an email.

3. Similar homes are now selling for less

In markets where the median price is falling, it's important to regularly monitor what homes are selling for, Golden said. Real-estate agents should provide clients with up-to-date information on the market to determine whether the home is still priced correctly.

"Historical data isn't quite so powerful anymore. You have to look at what is selling now, and what it is selling for," Golden said.

In Phoenix, there's a big difference between the average price for active listings and the average price for pending sales, Crumby said. Monitor pending sales daily, and make sure your home is competing well with the homes that buyers are taking action on, he added.

4. Repeated negative feedback

If buyers who do walk through the home have the same negative reactions to it, that could be another red flag that the price needs to be dropped, Jacobs said.

Buyer feedback, collected from a real-estate agent, may reveal that other houses in the same price range have updated kitchens or bathrooms and the home in question hasn't kept up with the times. To address the disparity, sellers can either remodel or cut the price.

"You can sell anything anywhere. If the price is right it will sell," Jacobs said.

5. You've cut the price, but not by enough

If a price cut is in order, don't cut by small increments. Several smaller decreases could make a seller look desperate, but a larger decrease will generate more interest, Flores said.

"A $2,000 price reduction is nothing in the grand scheme of things. Even on a $100,000 house, I'd lower by $5,000 at least, if it isn't moving," she said.

Again, a big mistake is pricing the home too high from the start, real-estate agents said.

Not only could overpricing lengthen the time on the market, but it could also cause the home to sell at a greater discount in the end, agents said. That's because prospective buyers often get the impression that there's something wrong with stale listings or, worse, buyers assume the seller is desperate and willing to accept a much lower price.

"Your first three weeks are critical -- you'll have your most showings with the most potential, qualified buyers, those that are out there waiting for something that matches their needs to come on the market," Flores said. "Don't blow it by overpricing."

With the uncertainty in today's financial market, many home buyers are nervous and confused. Since August, we have seen the overall activity within the Tulsa market decline.  

It's important that we take advantage of all of our marketing tools. So, now is a good time to do as many open houses as you can.  While it is true that you may not get tons of traffic, do not let this keep your from holding an open house. Any exposure to potential buyers is positive.

Open Houses are inexpensive and easy to do. My last closing, the Buyers found their home by attending an open house. This helped remind me of just how important open houses are in our overall marketing strategy.

Let's get it sold.

Staging your home is to make your home look its best and most appealing to the majority of home buyers.

Staging is not hard and doesn't cost a lot, but it can be difficult because it is hard to see something objectively when you love it.

CLEAN - Make your home sparkle! Getting your home professionally cleaned could be a good investment. Get your windows professionally cleaned inside and out too.

ELIMINATE CLUTTER - A good rule of thumb is to eliminate the clutter in your home by at least half.  This is probably the hardest rule of all!  Everyone loves their stuff, it is your memories, hobbies and values.  But it doesn't sell your house. Clutter makes homes seem smaller and disorganized. 

• Remove objects that your potential buyers may not identify with. 
• Remove knickknacks.
• Remove area rugs.
• Remove throw blankets and pillows (you can replace with "designer" pillows). 
• If your houseplants look anemic, remove them. It will look better if you replace them with silk plants. 
• Keep wastebaskets empty. 
• Remove enough items from closet so the hanging garments do not touch the garment next to it.
• Leave all lights on. 
• Take a good look at your carpet. Replacing your carpet can be a good investment.
• If possible, send your pets to a family member or friend.  Pets can be a major negative distraction for potential buyers.
• Leave home before buyers arrive.

You may want to consider renting a small storage space or a POD to hold the stuff that you are removing.  Assist-2-Sell has an agreement with POD for a 10% discount.  Let us know if you are interested.

When you de-personalize your home it can help potential buyers make an emotional connection with your home and see themselves in it.

FIX that dripping faucet, or cracked tile, etc.  You do not want to send the wrong message to potential buyers.

NEUTRAL COLORS SELL.  It's a fact. You want to present an image of quality and neutrality so that when potential buyers are walking through your home they can see themselves as the owners. Stay with high quality, but neutral is safest.

CURB APPEAL - First impressions are usually formed within 30 seconds. What potential buyers see when they pull up to your house will be their first impression.  Spend a little extra time and money by planting flowers, pulling weeds, trimming bushes, repaint your front door, get a new neutral color door mat, keep the walk & porch swept clean and park your car somewhere else.

THE ENTRANCE - Your entryway should be as bright and lit up as possible.  You want to present a positive, uplifting feeling when potential buyers come into your home.  Leave all the lights on in the house. Remove all area rugs. Limit your cooking to plain foods with no lingering odors (such as onions and garlic).  On the other hand, fresh baked cookie smells are good!

KITCHEN - Kitchens sell homes, so your kitchen must be appealing. Clean and de-clutter! Everything on the counters or floor space must go. Anything displayed on the refrigerator should be removed.  There are a few inexpensive facelifts that you can do, such as counter knobs that are out of date or resurfacing cabinets. Get a touchup stick and fill in any nicks and/or scratches. Pantry shelves should appear orderly and very spacious. Put any extra items up and out of the way (or in your storage space).

BATHROOMS - Clean and de-clutter! You must get rid of any soap scum, mildew or mold. Soap scum remover and mildew remover work wonders. Don't display personal items.  Put deodorant, toothbrushes, mouthwash, etc in the cabinet. Get a high quality set of towels and display them.  Put up all rugs and bath mats. Keep soap dishes clean, and keep a new bar of soap displayed.

THE REST OF THE HOUSE - Clean, repair, de-clutter and de-personalize!

Remember, these are just ideas.  You can also visit a decorated model home that has been completely furnished by the builder.  Decorating a model home is expensive, but builders know that the cost can be worth it because a well staged home sells!  You can profit from this knowledge and turn your home into a model home.