Aiding clients in difficult home markets
She has company, too.
Waller, chairman of Waller & Wax Advisors LLC and an affiliate of Raymond James Financial Inc., and advisers like her have designed detailed strategies to help stressed clients deal with falling real-estate values in recent months. Approaches range from arranging more favorable loans than banks offer for buyers of large properties, to calculating whether a client should just sell at a loss and move on.
Firms say that advisory and brokerage clients generally have enough assets to avoid the tales of bankruptcy and foreclosure currently afflicting some middle- and lower-class homeowners, particularly those with subprime mortgages. Still, advisers say even rank-and-file millionaire clients aren't immune to fallout from current real-estate market woes. Investment properties and second homes have been hit particularly hard.
Take, for example, a wealthy client of Michael Charleton, a financial adviser affiliated with Cadaret Grant & Co.
"He came to me with about $3 million" about four years ago, Charleton says. The client subsequently invested in 21 individual million-dollar condominiums in Cape Coral, Fla., planning to resell them.
The client had kept the risk of his investments manageable before, Charleton says, "because he always put 20 percent down." A sizable down payment can give investors time and terms to more comfortably hold properties that don't sell as quickly or for as much money as projected.
But this time around, says Charleton, all the foreclosures in Cape Coral -- which devalue his client's property -- are killing him.
"It's a perfect storm," he says, "and he just has to wait it out."
While clients like Charleton's may have the capacity to batten down the financial hatches for months or even years, the holding costs of mortgage payments, taxes, insurance and maintenance can spring a substantial leak in a client's portfolio and overall net worth.
To stem the flow, advisers like Waller are helping clients decide whether to sell their holdings at low prices, or carry their properties until demand from buyers returns.
When clients face the choice of taking modest losses in selling or shelling out ongoing carrying costs, it might be time to "take your losses and move on," says Thomas Balcom, an investment adviser at Foldes Financial Management Inc.
Otherwise, "you're basically depleting your portfolio to carry these things," he says.
One challenge, says Darlene McConnell, a senior vice president and retail lending manager at Raymond James Bank, a unit of Raymond James Financial, is some clients' frustration when faced with the reality of losses in property value.
"Every client thinks that their house is worth X amount," she says. "That's the sensitive part of the market that we're in right now."
When clients decide to wait out the storm, advisers report using a variety of strategies to minimize investment losses and, when possible, reduce their clients' stress.
For starters, says McConnell, advisers should determine the terms and rates of a client's outstanding mortgages.
Advisers say even when clients need to refinance, "jumbo loans" of more than $417,000 -- loans larger than Fannie Mae can repurchase on the secondary market -- are now in tighter supply. With investors scared by growing foreclosures, bigger loans can be seen as carrying bigger risk.
While conventional loans of less than $417,000 are readily available, says Marc Savitt, president-elect of the National Association of Mortgage Brokers, when it comes to jumbo loans, "they're a different story."
The jumbo loans now available, says Savitt, typically charge an additional one percentage point in interest than conventional loans -- expensive terms for even well-heeled clients.
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