Real estate news continues to dominate our headlines- both locally and nationally. Many of you have expressed your enjoyment of my market update and "feel smarter after reading it". On that note, let's take a look at some of the recent events in real estate...

1) Fannie Mae and Freddie Mac- are government sponsored enterprises (GSEs) and they have recently been taken control of by the US government. Who is Fannie Mae? Only America's second largest corporation in term of assets- sorry but no funny story behind the Mae and Mac- they are just creative pronunciations of the company’s acronyms. Fannie and Freddie serve a vital role in the lending industry through buying or insuring home loans that meet their requirements/standards. Without getting too complex about the internal workings of the secondary mortgage market, let's just say that without Fannie and Freddie getting a home loan at a reasonable interest rate would be nothing like the process it is today. This government takeover is not only rare, given the size of Fannie and Freddie, but also points to how bad the situation really was. Lehman Brothers Holding Company collapsed last week but they weren't "bailed out" because the federal government felt the markets were ready for this news. However, a collapse of Fannie and Freddie would have had unimaginable consequences, so the government stepped in. What does this mean for you? Two things: first, as an American, you now own a piece of Fannie and Freddie (it was your tax dollars that were used as bail out money) and secondly, a nice reduction in mortgage interest rates as investor confidence has been temporarily restored.

2) American International Group Inc- America’s largest insurer of assets was also bailed out by the government with an 85 billion dollar loan. Their stock was trading at $70/share in Oct of 2007...it opened below $2 last Tuesday. Starting to get the picture here? The government has had to do a lot of saving lately- IndyMac bank, Fannie and Freddie, and AIG. It begs the question, how much involvement should the government have when privately held companies fail? Are you okay with your tax dollars being used to save companies that might have brought some of this distress upon themselves?

3) Foreclosures- California led the nation with 72,285 foreclosure filings in July, a 5 percent increase from June and an 85 percent increase from July 2007. And our first piece of good news in this newsletter comes with default notices- the first phase in foreclosure proceedings, which have declined 4 percent from June. Hopefully this means less people are getting in trouble with their payments or better yet, those who had trouble have already cycled through the market.

4) Lending- For the first time in a long time, I have had some issues getting my clients approved for home loans. The lending industry has really tightened their guidelines and, in my opinion, over corrected. I am not alone; the California Association of Mortgage Brokers (CAMB) is calling for more lenient guidelines to allow borrowers with good credit and sizeable down payments to qualify for a home loan, regardless of proof of income. Now I don't think a return to the days of "blind lending" is necessary but the strict lending standards has resulted in some quality buyers not qualifying due to their inability to prove their income. Often, these borrowers are self-employed, public-sector employees, such as firefighters or teachers, or have a large portion of their income paid by way of bonuses. Hopefully rates stay low and this may give the mortgage industry some time to work out a fair set of guidelines for all borrowers.

5) Short sales- ask any active buyer about short sales and watch their face fill with frustration. It is not a fun process but I have started to see more and more banks willing to go this route with trouble homeowners and avoid a full blown foreclosure. In fact, my last 3 escrows have all been short sales. It is still an excellent opportunity to get a great deal on a home but you need more patience than you can imagine.