The Outrage Of BPO’s In Real Estate

A new income opportunity has appeared on the horizon recently for down-and-out real estate agents who are in desperate need of income and this has led to one of the biggest scams in the real estate industry today. A broker price opinion (BPO) is ordered by the bank or mortgage lender who is looking at doing a short sale on a property where the borrower is upside-down on their mortgage and they cannot qualify for (or the bank is not prepared to do) a loan modification. The BPO is done by the Realtor for $40 – $60 (almost doesn’t cover their gas and car expenses) and is used as the basis (for the bank) to negotiate with potential new buyers.

These Realtors are obviously not making money selling real estate and are often some of the most inexperienced individuals in their profession trying to make a buck or two. They sometimes are hoping to create a connection with the bank so that the can get their REO listings for themselves, which are really the only deals being closed right now. So from the getgo they are trying to please the bank which results more often than not in the BPO coming in at a much higher price than the real market value of the property.

The Realtor marketing the property for the owner then gets offers based on the real market price , which in almost all cases is much lower than the infamous BPO. They try and negotiate with the bank, get nowhere, there is no short sale, the bank then forecloses on the property, thinking they can get more than the offer. These important financial decisions being based on a $40 BPO done by someone that is inexperienced.

The property value declines even further as the banks don’t maintain the properties at all after the foreclosure or the original owner, angered by the bank’s posture regarding the short sale, strips the property of all it appliances, the pool pump, the ceiling fans, the water heater and even sometimes the air conditioning unit and wall cabinets, so the house is no longer marketable as no lender will finance properties in this condition.

Can you blame the homeowner? Maybe, but they are going to have to fight for the next 10 years with a foreclosure on their record even though the bank got offers at the real market price. A price calculated by a very experienced professional – the buyer’s Realtor – and often backed up by a real appraisal performed again by a professional appraiser at a cost of around $350. But the bank blindly looks at the $40 BPO!

Here is an example of how such a transaction looks financially:

BPO Value $200,000
Buyer’s Realtor Estimate $165,000 – $175,000
Highest offer submitted $172,000
REO Price 6 months later $125,000
REO sale $115,000

So the bank gets $57,000 less than the original offer six months later. They have the costs of foreclosure (at least $15,000) and then the upkeep of the home they now own (HOA fees, taxes, general maintenance etc.). So all in all they lose approximately $75,000 compared to the original offer all based upon their faith in the unprofessional BPO. Everyone I know in the industry, Realtors, loan officers and appraisers,  are all shaking their heads in disbelief. They are also losing money as the deals they are working with fall through and  don’t pay them a dime but they still have invested their costs.

And yet the government is pumping billions of dollars into these financial institutions, which is coming from the taxpayers who are in turn being screwed and put out on the street by the same banks. HELLO, ANYONE HOME? To make things worse the REO homes that are now in terrible shape are being bought for cash from wealthy investors and not the poor homeowners who now have a foreclosure on their record and cannot get a loan (from the same bank that just screwed them!).

Some of my more savvy clients are looking at some form of recourse against the bank that hardballed them on the sale of their property based upon a $40 BPO. In my view, the government should impose a substantial fine on the banks, which can be based on the difference between the highest original offer the bank chose to decline and the REO price the bank finally receives. At least, the bank should be forced to remove the foreclosure filing with the credit agencies and give some sort of restitution to the original homeowner.

Or the owners of the banks should fire the management that manage this mess and put in people that at least have some semblance of a brain in their head. Oh, yes, but the bank owners are now the government. So should we fire the government?

Author – Colin Buckingham
Global Internet Entrepreneur

Network Marketing Comes Home To Roost

With the markets crashing and boomers’ retirement income vanishing before their very eyes, boomers are being forced to look around for ways how they can create more income in their retirement years. Unfortunately, they will be too old for most traditional “jobs” and becoming a greeter at Walmart doesn’t have the allure most people are looking for. In the past six months we have been witnessing a resurgence of the direct marketing approach where companies use the “word of mouth” approach backed up with an Internet distribution system to reduce costs while increasing sales without having to spend money on expensive advertising and inventory tied up in retail stores.

The Multi-Level Marketing (MLM) industry has a bad wrap here in the US. The reasons are many but the biggest problem has been smaller companies starting low-cost businesses and not making it, destroying many dreams they created of making fortunes in their “pyramid” schemes. But let’s forget those for the moment and focus on the success stories. Queststar (formerly Amway) is still one of the largest consumer durable distribution companies in the US. Avon and Mary Kay are at the top of the list of cosmetic companies. Prepaid Legal, a 35-year old American Stock Exchange company, has been using MLM to sell legal insurance. Primerica has been one of the most successful financial services companies in the nation in the last 15 years.

The model just makes sense. Use the marketing method that we have all used anyway for hundreds of years (word of mouth), combine that with a communication method that is taking over from all other conventional methods (the Internet) and back it up with a centralized warehouse facility for shipping to replace the expensive local retail model. Voila! Now we have the future of consumer and small business marketing. This whole model also allows companies to go global from day one. All that is needed is a website in different languages and a department that takes care of the issues of licensing and compliance.

Come back to this page often to see future analyses of specific companies and ones we would recommend both from a product or an income standpoint, or both. If you would like to receive advanced notice of these reports, send us an email at opportunities@freepoint.com.

Market Indices At 12-Year Lows

NEW YORK (CNNMoney.com) — Stocks slumped Monday morning, with the Dow falling below 7,000 for the first time in more than 11 years after insurance company AIG posted the biggest quarterly loss in U.S. history.

The Dow Jones industrial average (INDU) lost 140 points, or 2%, over an hour into the session. The Dow dropped as low as 6895.67, its lowest trading level since May 1, 1997.

The S&P 500 (SPX) index lost 16 points, or 2.2%. Earlier, it fell as low as 716.82, its lowest level since Dec. 17, 1996.

The Nasdaq composite (COMP) lost 22 points, or 1.6%. The tech-fueled Nasdaq has held up better than the other major averages this year and remains above its session low of 1295.48 from Nov. 21, 2008.

AIG reported a $62 billion fourth-quarter loss, the largest in U.S. corporate history, on turmoil in the credit markets and massive restructuring costs. For the full year, AIG lost $99 billion after reporting a profit of $9.3 billion in 2007.

To keep the company from collapsing and infecting the broader financial market, the government is revising its bailout for the third time and committing another $30 billion in exchange for cumulative preferred stock. The rescue plan now totals $162.5 billion. (Full story)

AIG dragged on other financial stocks, including Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), Morgan Stanley (MS, Fortune 500), Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500). The KBW Bank (BKX) sector index lost 4.8%.

Adding to the weakness was Billionaire investor Warren Buffett’s annual chairman’s letter, in which he talked about the tough 2008 his Berkshire Hathaway company experienced. The influential investor admitted that he “did some dumb things in investments” during the year.

Stocks tumbled Friday after the government said it will control as much as 36% of Citigroup’s common stock. Also in play: a report showing the economy shrank at its sharpest pace in 26 years in the fourth quarter of 2008.

Unemployment Benefits At Record High

WASHINGTON (Reuters) – The number of U.S. workers drawing unemployment aid jumped to a record high in early February, according to data on Thursday that highlighted the deterioration in the labor market as a 13-month recession deepened.

A separate report showed that a rebound in energy costs drove up prices received by U.S. producers last month, breaking a five straight month declining trend. The number of people remaining on the benefits rolls after drawing an initial week of aid surged 170,000 to 4.99 million in the week ended Feb 7, the Labor Department said.

That was the highest reading on records dating back to 1967 and took the insured unemployment rate to 3.7 percent, the highest since 1983. It also outstripped analysts’ estimates for the so-called continued claims, which had been forecast to rise to 4.86 million from 4.82 million the prior week.

“They are consistent with a very quick sharp rise in the unemployment rate and that’s going to continue for the next few months because production data are correcting very sharply,” said Steven Wieting, economist at Citigroup in New York.

The grim data restrained U.S. stocks, which were last trading largely flat. In the Treasury debt market, worries about looming supply to fund the government’s massive efforts to rescue the economy depressed prices. The U.S. economy, in recession since December 2007, is buckling under a heavy burden of rising unemployment as companies try to slash costs to deal with sagging demand.

The aggressive layoffs and the accompanying insecurity over jobs mean that households, whose net worth has already been eroded by the collapse of the housing and stock markets, will cut spending further and create a vicious cycle. Washington has put forward an array of measures, including a $787 billion stimulus package, to revive the bleeding economy.

Consumer Spending Lowest Since 1961

NEW YORK (CNNMoney.com) — Consumers continued to retrench in December, capping off the worst year for consumer spending since 1961, according to a government report released Monday. A Commerce Department report showed spending by individuals fell 1% last month, after dropping a revised 0.8% in November. Economists surveyed by Briefing.com had forecast a 0.9% drop.

“The report shows that consumers are in a mood to rebuild their savings but not to go out and spend,” said Mark Vitner, economist at Wachovia. “Generally that’s a good thing, but not when everyone does it at the same time.”

December marked the sixth-straight month in which consumers cut back on their spending, a decline that accelerated dramatically in the last three months. For the fourth quarter, spending fell a record 8.9% – the worst quarter for spending since the Commerce Department began tracking that statistic in 1947. Spending for the full year rose just 3.6%, the lowest level in 47 years.

That’s a particularly troubling sign for the economy, because consumer spending accounts for more than two-thirds of the nation’s gross domestic product. Accordingly, the Commerce Department said GDP fell by 3.8% in the fourth-quarter, the sharpest decline in 26 years. As a result, the Senate is set to vote this week on an $888 billion stimulus plan, including about $275 billion in tax cuts aimed at boosting consumer spending.

The report also included the so-called core PCE deflator – a key reading closely watched by the Federal Reserve that measures prices paid by consumers for goods and services other than food and energy. It showed a 1.7% rise from year-earlier levels, below the 1.9% posted in November.

Half of December’s consumer spending declines were due to falling prices as inflation continues to moderate – especially on falling oil and gas prices. But Vitner said as gas begins to creep up in price, consumer spending may actually rise in the coming months as well.

Personal income falls

Personal income fell 0.2% in December, following a revised 0.4% drop in the previous month. Economists had forecast another 0.4% decline.

“It’s somewhat surprising that income was not down by that much, given how much job loss there has been,” Vitner said. “What that indicates is that given all the headlines about big businesses cutting jobs, we could be looking at even a bigger problem at small businesses.”

Still, the drop in prices far outpaced the decline in personal income, leading to a modest 0.3% rise in real income in the period.

Also because income fell less than spending fell, consumers posted a savings rate of 3.6%. That means the average household saved $3.60 on every $100 of after-tax income, compared with $2.80 in November. The American savings rate had been near zero for quite some time, but has been creeping up since the summer as consumers curtailed their spending.

UK Cuts Rates To 1.5%

The Bank of England cut interest rates by half a percentage point on Thursday to the lowest level in its 315-year history.

The decision, which comes at the end of the monetary policy committee’s two-day meeting, was in line with City expectations and leaves the base rate at 1.5 per cent. However, some market participants believe that economic conditions are now so strained that an even larger cut would have been warranted.

“Business surveys suggest that the pace of contraction in activity increased during the fourth quarter of 2008 and that output is likely to continue to fall sharply during the first part of this year,” the Bank said in a statement accompanying the historic decision. “The outlook for business and residential investment has deteriorated,” it added.

The Bank also suggested that the dramatic series of rate cuts in the last three month of 2008 were having a limited impact and that the monetary authorities may have to use other measures to encourage lending to business and consumers.

The Alternative To The Common Job

With the effects of recession now really upon us, one of the questions that becomes a reality is; What shall I do if I lose my job and I cannot find any other employment? Collecting your social security unemployment benefit comes to mind but that will never cover all of your monthly costs, many of which are fixed. Faced with this situation there are only two things you can do. Cut expenses and/or create new income. Maybe now is a good time to sit down and create a monthly budget, probably something most of us have never done. There are many good Microsoft Excel templates, which can make this task a lot easier and I promise you, you will be shocked where the money is going each month. A good start is to print off all of your bank and credit card statements and go through them line-by-line. You will be amazed at the things you will find that you really don’t need.

The next thing to consider is your income. If finding another job is not an option, maybe because of your age, your skill set or just the industry you have been in, then what are the alternatives? Working as a consultant in your field of expertise can sometimes work if you are able to get out there and sell yourself. Another alternative is to consider the field of direct or relationship marketing. This is a simple way to get into business for yourself with very little cost and overhead and can produce a substantial income if you find the product or service that you believe in. In fact, those that got involved a while ago are probably recession proof as their income is now residual whether they work hard at the business or not. All those “Amway” types that we used to despise now don’t have the same problem we have and are sitting pretty. Many experts are saying the era of network marketing has now arrived as many are looking at a way that can just make some more money. In another blog we take a close look at that industry and some of the better options available.

Boomers And Retirees Need A New Plan

If we look back and see what has happened to the economy and the stock market since April 2000, it is clear that boomers and retirees can no longer stick their savings in the stock market and watch their retirement assets grow each an every year. April 2000 signaled the first significant stock market pull-back in a decade and since then it has gone nowhere. In fact, if you were invested in some sectors of the economy you are probably back to the levels of the mid-nineties! Even those riding the boom overseas are hurting as other countries have now caught the American economic cold.

The rise in the fortunes in the stock market since the early 80’s has been fueled by the boomers investing their savings when 401(k)’s were introduced. This funneled trillions of dollars into stocks. Now the same boomers are reaching the point when they need access to these same investments to retire. Now the same trillions will gradually be extracted from the market and spent in retirement. The key question here is, what will this do to the future value of the stock market? Logic tells us that what goes up must come down, eventually. I have long been a proponent of managing retirement assets outside of the stock market, especially if you are in retirement or withing 5-10 years of leaving the workforce. We can no longer expect the 10 – 12% historical returns that financial advisors used to use for their forward projections of future growth.

Mortgage Rates Hit 40-Year Lows

If you have been on the fence for some time about refinancing and accessing the dead equity in your home, then now is the time. With fixed rates at or close to 5% and some interest-only rates at the same level, your mortgage payment could be reduced drastically. In a time when many people have a real problem with their mortgage, this is probably the only good news out there. Unfortunately, those of us that are upside down (property value less than the mortgage balance) cannot take advantage of this opportunity. But those of us that can, should talk to a mortgage professional to see if we can benefit from refinancing. The best rates will be found for the traditional 15 or 30-year fixed loans but a recent drop in rates has also brought done the cost of some of the interest-only loans. Of course, the lending guidelines have tightened up so to get the lowest rate a good credit score is needed (720+). For those with poor credit an FHA loan is the best alternative and these rates have also dropped dramatically.