Monday, January 21, 2008

There Is No Substitute For Good Advice

By Joel Persinger
YourRealEstateDude.com

King Solomon once wrote that “plans fail for lack of council, but with many advisors they succeed”. In the constantly changing environment of today’s economy and real estate market, a truer statement could not be found. Just when it seems that some new tax law, relief bill, lending product or government action has solved all the problems that the real estate market is facing, some expert sifts through the details and finds that the fix doesn’t apply to everyone. Often times the "everyone" it doesn’t apply to includes you and me. Hence the reason for getting lots of advice.

The problem I have run into recently is that some folks unwittingly seek advice from people who are not qualified to give it. This is one of the issues that King Solomon was trying to deal with when he suggested the use of “many” advisors. In the past, my wife and I have gotten excellent financial advice from people whose kids (we couldn’t help noticing) were disasters looking for places to happen. While we were grateful for the terrific financial advice, there was not the chance of an ant on a New York City sidewalk during rush hour that we would ever have asked those same people for advice about raising our children.

Keeping this in mind, it should be noted that real estate agents have a limited ability to give quality advice when it comes to… well… real estate. For example: in most cases, real estate agents are not attorneys, tax professionals, CPAs or builders. Therefore, although they may be great sources for advice about the process of selling or buying a home, the vast majority of real estate professionals are not the best people to ask about legal, tax or construction issues. In fact, it has been my experience, particularly where legal and tax issues are concerned, that most real estate agents know just about enough to be dangerous and not one bit more. Frankly, I can’t say that I’m much different. Even though I started in real estate in 1990, am the CEO of my firm, manage several agents and pride myself on keeping up with what’s happening in the real estate industry, I am by no means qualified to give legal or tax advice.

In a market in which many folks are facing the loss of their homes through foreclosures or having to sell their homes in other than ideal circumstances, it is of vital importance that they know where to get the advice they need. When it comes to determining the risks of legal action, estimating potential damage to credit ratings or preparing for the possible tax consequences of losing a home, your real estate agent, no matter how much you may like and trust that person, is most likely not qualified to offer advice. So, as your real estate dude, the best advice I can give you about getting advice is this: first, make sure the person from whom you are soliciting advice is qualified to give it, and second, make sure you have selected an advisor who will tell you the truth, not just tell you what you want to hear. If you follow these simple rules, the advice you receive is more likely to be the advice that you need.

Monday, January 14, 2008

B of A buys Countrywide Home Loans. Is that good?

By Joel Persinger
YourRealEstateDude.com

It has long been suspected among those in the housing and mortgage industry that Countrywide Home Loans has had one foot in the grave and the other on a banana peal. As far as many were concerned, it was only a matter of time before the company slipped and fell into its tomb, never to be seen or heard from again. In fact, it was only about a week ago that there was wide spread speculation that Countrywide was on the verge of filing bankruptcy.

It all began when the sub-prime lending market started going to pot. The company was quickly overwhelmed by the sudden influx of home-loan delinquencies and foreclosures followed by a loss of investor funds. Money which had previously been available from government agencies and investment firms through the secondary money market began to dry up. This meant that Countrywide did not have money with which to fund new loans and had to incur additional debt in order to stay in business. According to MarketWatch.com, “The company borrowed more than $10 billion from banks and started funding a lot of its loans with retail deposits from its thrift unit, Countrywide Bank. It also borrowed a lot of money from the government through the Federal Home Loan Bank of Atlanta… But those lifelines began dwindling in recent months.” This left Countrywide stripped of support from investors. Stock prices came crashing down by over 80% in the last year, leaving many investors wondering why they had ever chosen to invest in the company in the first place. The only answer seemed to be some sort of “bail-out.”

This past week, Bank of America came to the rescue by purchasing Countrywide Home Loans for an estimated $4 billion in stock. That is less than one third of Countrywide’s estimated book value. It appears to be quite a deal for B of A. But, it is important to remember that along with Countrywide’s assets come its liabilities. Among the baggage that B of A will have to contend with are the many Countrywide loans which have gone bad as well as the tsunami of sub-prime mortgage litigation which may be heading Countrywide’s way.

All that having been said, this seems to be the right acquisition at precisely the right time. B of A swooped in and purchased Countrywide for a song and can easily solve the company’s funding problems. Bank of America’s retail deposit base is the largest in the United States. There will obviously be some bumps in the road for Bank of American, but all in all, this should bode well for all of the parties involved, particularly homeowners and the mortgage and housing industry as a whole. Countrywide is a huge player in the home lending industry. When huge players go down in flames just about everybody gets burned to one degree or another. Keeping the company viable by selling it to a giant like B of A can be nothing but positive.