By Holden Lewis • Bankrate.com
The housing rescue bill, signed into law July 30, 2008, is full of goodies and not-so-goodies for homeowners and those who aspire to be homeowners. Here are some highlights.
First-time homeowner tax credit
The law will extend a tax credit of up to $7,500 to first-time homebuyers. A first-time homebuyer is defined as someone who hasn't owned a home in three years.
The tax credit is for 10 percent of the purchase price, up to $7,500, but phases out for higher-income homeowners. Homeowners are eligible for the tax credit if they bought after April 8 of this year and before July 1, 2009.
This is a tax credit, not a deduction. It reduces the homeowners' tax bill by up to $7,500 for the tax year in which the purchase was made. If you buy a house this year, you get the tax credit for the 2008 tax year -- the one with a filing deadline of April 15, 2009. If you buy a house next year by the end of June, you get the tax credit for the 2009 tax year. It's a one-time credit; you don't get to keep taking it year after year.
There is a catch, and that is that the money has to be repaid over 15 years, starting two years after you buy the house. That makes the tax credit an interest-free loan. If you take the full $7,500 tax credit, your income tax bill will increase by $500 a year for 15 years. If you sell the house before then, you'll have to pay Uncle Sam the remaining balance.
Complex issues, such as divorce, death, sale of the house at a loss and conversion of the house into a vacation home are accounted for in the law.
Forgiveness to allow refinancing into FHA
A lot of people have fallen behind on their mortgage payments after the rates went up on their adjustable-rate mortgages, or ARMs. And they can't refinance into fixed-rate loans because their homes have lost value, and they owe more than their houses are worth.
The housing rescue law seeks to help these people get out of trouble. It encourages lenders to forgive some of their debt so they can refinance at lower amounts into mortgages insured by the Federal Housing Administration, or FHA.
It works like this: The lender has to forgive all the debt above 90 percent of the home's current appraised value. If that leaves you scratching your head, here is a hypothetical example, using round numbers:
Sometime before Jan. 1 this year, you bought a house for $125,000 and got an ARM for $110,000 after making a $15,000 down payment. But the house lost value. Now it's worth $100,000, based on an appraisal. Meanwhile, the ARM's rate went up and you can't afford the full payment every month.
Under this law, the lender would forgive everything you owe above $90,000. Let's say that you owe $105,000 of that original $110,000 loan. The lender would forgive $15,000, and let you pay off the loan for $90,000. The lender would not be allowed to seek any of that $15,000 later.
That allows you to find another lender who would underwrite a $90,000 mortgage to be insured by the FHA. That loan amount would include the upfront FHA insurance premium of roughly $2,700.
Again, there is a catch. If you take refuge in this program, you'll have to share your home-price appreciation with the FHA. If you sell the house (or refinance the loan) less than a year after refinancing into the FHA loan, the FHA gets all of the house price appreciation. The FHA's cut decreases over the next five years -- but never goes below 50 percent.
What does this mean to the borrower? Take the example above. You refinanced when the house was appraised at $100,000. A little over two years later, you sell the house for $120,000. You split that $20,000 difference with the FHA. In this case, because it's between two and three years later, the FHA gets 80 percent. The FHA would get $16,000 and you would get $4,000.
The equity-sharing arrangement goes like this: If you refinance or sell less than a year after getting the FHA loan, the government gets 100 percent of the home price appreciation. If it's more than a year but less than two years, the FHA gets 90 percent. The FHA's cut then decreases by 10 percent until the five-year mark. Anytime after that, the FHA gets half of the appreciation, no matter how long you have the loan or own the house.
This arrangement will encourage homeowners to keep their FHA-insured mortgages for at least five years, but to refinance before home prices zoom upward again.
Working with home equity debt
The government has been trying all year to encourage lenders to forgive debt so homeowners can refinance their loans for lesser amounts and remain in their houses. Lenders have been reluctant to forgive the debt. The FHA-refinance plan is another way of encouraging debt forgiveness.
Among the sticking points: Many homeowners have home equity lines of credit or home equity loans. In most cases, these lenders will lose that entire loan balance under the FHA-refinance plan. The new law is low on specifics, but it gives the FHA permission to give second lienholders a cut of the home price appreciation proceeds that the FHA collects.
Down payment assistance soon to be a thing of the past
The new housing rescue law bans down payment assistance programs such as the ones offered by Nehemiah and AmeriDream. The ban goes into effect Oct. 1.
Down payment assistance programs took advantage of a loophole in the way the FHA treats down payments. To get an FHA-insured mortgage, the homeowner has to make a down payment of at least 3 percent. Homeowners don't have to save even that much; the 3 percent can come as a gift from family members or nonprofit organizations.
Regulations don't allow the home seller to provide the down payment money. That's where down payment assistance programs come in. They are nonprofits. That allows the seller to give the 3 percent down payment money to Nehemiah or AmeriDream, and then Nehemiah or AmeriDream can turn around and "give" the down payment to the homebuyer as a "donation."
Fannie Mae and Freddie Mac don't allow sellers to indirectly give down payments to buyers. But the FHA has allowed this type of transaction for years. The FHA has long complained that down payment assistance programs artificially inflate house prices, and that loans using down payment assistance are more likely to default. But prominent congressional democrats have protected the down payment assistance programs on the grounds that they allow many minority families to become first-time homebuyers.
House Democrats wanted to keep the loophole open, and Senate leaders wanted to close it. With this law, the Senate won.
Property tax deductions for all homeowners
Under current law, you can deduct your property taxes from federal income tax -- but only if you itemize deductions on Schedule A. That leaves out people who don't have enough deductions to warrant filling out Schedule A. They have to take the standard deduction -- and that means they can't deduct their property taxes.
The housing law changes that. For homeowners who pay property taxes, it increases the standard deduction by $500 for single filers and $1,000 for couples filing jointly. This will be a boon to people, such as retirees, who own their houses outright, and therefore don't pay any mortgage interest, so they can't itemize.
You can't increase the standard deduction by more than the property-tax bill. So if you're married filing jointly and you pay $800 in property taxes, you get an $800 deduction, not a $1,000 deduction.
Loan limits extended permanently
There are maximum amounts for loans that the FHA will insure, and that Fannie Mae and Freddie Mac will guarantee. Those limits were raised temporarily this year. The new law raises limits permanently.
For FHA-insured mortgages, the new limit will be 115 percent of the median home price in that area, up to $625,500. That provision will affect loan limits in higher-cost areas. In lower-cost areas, the current FHA limits won't decrease.
For conforming mortgages -- those eligible to be bought by Fannie Mae and Freddie Mac -- the conforming limit will remain at least $417,000 for a single-family home. It can be higher than that. Starting next year, the new limit is either $417,000 or 115 percent of the area's median home price, whichever is higher -- up to $625,500. After that, the limits go up or down according to a price index.
More regulations on reverse mortgages
A reverse mortgage is an advance against home equity. It's for homeowners age 62 or older, and the reverse mortgage doesn't have to be repaid until the borrowers die or move out.
Because reverse mortgages are for elderly borrowers, there is concern that dishonest lenders and brokers take advantage of borrowers. Borrowers are required to get counseling first, to learn the pros and cons of reverse mortgages. The law will result in strengthened qualifications for counselors.
The law bars insurance salesmen from originating reverse mortgages and prohibits originators from requiring homeowners to buy annuities or insurance products. (There's one big exception: The FHA insures reverse mortgages, and borrowers will buy that coverage.)
Finally, the law limits origination fees on reverse mortgages. They can't exceed 2 percent of a reverse mortgage of up to $200,000. For a reverse mortgage amount above that, the limit is $4,000, plus 1 percent of the loan amount above $200,000. Origination fees can't exceed $6,000 in any case. In future years, this upper limit is indexed to inflation.
Manufactured housing
FHA-insured loans for manufactured houses are limited to a maximum of $48,000 -- a limit that has been in effect since 1992. That limit finally will be increased to about $70,000 and will be indexed to inflation. These are the limits for loans in which the borrower is buying only the manufactured home and not the land under it.
According to the Manufactured Housing Institute, the raised limit will make a big difference to thousands of families. Under the $48,000 limit, a lot of families can afford only single-section homes. The increased limit will allow more people to buy double-section homes -- what are colloquially known as double-wides.
The law directs Fannie Mae and Freddie Mac to come up with new products and flexible underwriting standards for manufactured houses.
Veterans
Service members returning from active duty abroad will be given breaks, effective immediately now that the bill has been signed into law.
Some protections apply to service members whose military obligations affect their ability to repay debts -- primarily, reservists and members of the National Guard who are called to active duty. They have to leave their jobs and, in many cases, take pay cuts.
For these service members, there are protections having to do with foreclosures and interest rates. If a service member had a mortgage before entering active duty, a lender can't start foreclosure proceedings until nine months after the service member returns from active duty. Formerly, the protection period was 90 days.
Also, when someone with a mortgage is called up to active duty, the interest rates on all previously existing debt are capped at 6 percent. That goes for mortgages -- and for home loans, that 6 percent cap extends until one year after the service member returns from active duty.
The Defense Department will be required to provide foreclosure-prevention counseling upon request to service members who are returning from active duty abroad.
Miscellaneous
Other provisions of the law:
~~~ It will establish an Office of Housing Counseling, which coordinate all federal housing counseling functions, as well as produce booklets that will be given to people applying for mortgages.
~~~ It will require licensing and registration of all mortgage brokers. Several states have begun to license mortgage brokers and share the information through the Conference of State Bank Supervisors; this law extends that initiative nationally.
~~~ It won't ask questions about tornadoes. An earlier version of the bill would have commissioned a study into how to "mitigate the risks to manufactured housing residents and communities resulting from tornados." The inquiry into this head-scratcher will have to wait for another bill; it was deleted in the final version that passed into law.
Wednesday, July 30, 2008
Saturday, July 26, 2008
'Stealth' Housing Bailout: It's Bigger Than You Think
'Stealth' Housing Bailout: It's Bigger Than You Think
By Steve Liesman, CNBC Senior Economics Reporter | 25 Jul 2008 | 02:55 PM ET
With Congress on the eve of passing a historic bill [passed on 26 July] that would give the Treasury a blank check to lend money to Fannie Mae and Freddie Mac, it’s worth looking at how much money the government has already pumped into the system during the housing crisis.
The numbers are staggering and likely to get much larger. What we have here is, through a variety of programs, a stealth bailout where more than a trillion dollars of taxpayer guarantees have been extended to the housing market, both to keep it going and to clean up the mess from the past.
I looked at the changes over the past year to the balance sheets of four governmental and quasi-governmental agencies—the Federal Reserve, the Federal Home Loan Banks, the Federal Housing Administration and Fannie Mae and Freddie Mac. The objective was to see how much additional financing they have provided to the housing market. The total: $1.43 trillion.
I’ll walk you through the numbers in a minute, but it’s worth pointing out this is not an actual expenditure of taxpayer money—not yet anyway. It’s a tally of how much financing those organizations have put out into the marketplace that's largely related to the housing crisis. The costs to the taxpayer will be directly related to how bad the housing crisis gets from here, how much of a buffer in the way of capital these organizations have to absorb losses, and how good their underwriting is for the new loans or collateral. Which is to say: We can count the exposure, but we can’t yet tally the losses.
The Fed: $446 billion
A simple way to look at how much financing the Fed has pumped into the housing market is to look at the change in the weekly balance sheet. What you’ll see immediately is that the total amount of Treasurys on its books has fallen by $311 billion compared with a year ago. This has been replaced by $150 billion in collateral from the Fed’s Term Auction Facilities, in which it is taking in a variety of collateral, much of which is presumed to be housing-related. Another $29 billion is on its books in the form of collateral from Bear Stearns, which greased the wheels of that firm's buyout by JPMorgan Chase. Add to that $14 billion in discount window lending to banks and $88 billion in repurchase agreements, which the Fed has always done, but not in such great amounts or for such periods. These repos are now from 15 to 90 days. There’s another $65 billion in swap lines to the European and Swiss central banks that designed to allow European banks to borrow dollars and finance their illiquid assets.
We should also count the $100 billion of Treasurys the Fed loans out through another new facility designed to pump liquidity into the market. Through that system, the Fed loans Treasurys and takes in collateral—again, some of it housing-related. The Fed doesn’t debit its Treasury line item for this because it says it’s only loaning out the securities, but those loans are backed up, in part, by a variety of assets, including some from housing.
So the total for how much new financing the Fed has made available to markets: $446 billion.
Fed officials have said they've never lost a penny on such lending in the past and they deal only with sound financial institutions. (If you’re not sound, you can’t borrow from the Fed, and staying current with the Fed is a good way to stay sound.) They add that they have protection through haircuts or discounts, so that $100 of bonds could get only $95 of financing. In addition, to some extent, as the Fed has made more financing available to real estate-related securities, it’s made less financing available elsewhere. But overall, it’s opened up the spigots to finance real estate in a big way.
Note that the Fed won’t provide values of the types of collateral it holds against its loans.
Federal Home Loan Banks: $274 billion
This is an easier calculation than for the Fed. The 12 Home Loan Banks provide financing to its 8,000-plus banks that, in turn, is used to fund mortgages. The amount of what FHLB calls “advances” to member banks has risen by $274 billion, to stand at $914 billion for the second quarter of 2008.
The FHLBs say existing capital and member banks will absorb losses if they occur. But there is an implicit government guarantee, on that Treasury Secretary Henry Paulson reiterated recently. The legislation in front of Congress allows Treasury to increase lending to FHLB.
Fannie Mae and Freddie Mac: $621 billion
Another easy calculation. Just go look at the balance sheets of Fannie and look at the increase in outstanding mortgage-backed securities. That number tells you how much more mortgage guarantees the two giants have out there. Combined, the figure is up by $582 billion. Add in a $39 billion increase in Fannie Mae’s portfolio to get to $621 billion. But note that this is comparing 2007 with 2006. The numbers are almost certainly larger now.
Federal Housing Administration: $90 billion
Officials there tell me they have added $90 billion or so of insured loans since October. Moreover, they have added loans from people they formerly did not lend to: Now they're doing refinancings and funding delinquent borrowers, folks they previously wouldn't deal with.
They say the phone is ringing off the hook as subprime borrowers look to FHA to help them get out of onerous loans. This is a place where there could be real losses, and where losses are expected to grow. The legislation in front of Congress authorizes up to $300 billion of FHA lending.
© 2008 CNBC.com
By Steve Liesman, CNBC Senior Economics Reporter | 25 Jul 2008 | 02:55 PM ET
With Congress on the eve of passing a historic bill [passed on 26 July] that would give the Treasury a blank check to lend money to Fannie Mae and Freddie Mac, it’s worth looking at how much money the government has already pumped into the system during the housing crisis.
The numbers are staggering and likely to get much larger. What we have here is, through a variety of programs, a stealth bailout where more than a trillion dollars of taxpayer guarantees have been extended to the housing market, both to keep it going and to clean up the mess from the past.
I looked at the changes over the past year to the balance sheets of four governmental and quasi-governmental agencies—the Federal Reserve, the Federal Home Loan Banks, the Federal Housing Administration and Fannie Mae and Freddie Mac. The objective was to see how much additional financing they have provided to the housing market. The total: $1.43 trillion.
I’ll walk you through the numbers in a minute, but it’s worth pointing out this is not an actual expenditure of taxpayer money—not yet anyway. It’s a tally of how much financing those organizations have put out into the marketplace that's largely related to the housing crisis. The costs to the taxpayer will be directly related to how bad the housing crisis gets from here, how much of a buffer in the way of capital these organizations have to absorb losses, and how good their underwriting is for the new loans or collateral. Which is to say: We can count the exposure, but we can’t yet tally the losses.
The Fed: $446 billion
A simple way to look at how much financing the Fed has pumped into the housing market is to look at the change in the weekly balance sheet. What you’ll see immediately is that the total amount of Treasurys on its books has fallen by $311 billion compared with a year ago. This has been replaced by $150 billion in collateral from the Fed’s Term Auction Facilities, in which it is taking in a variety of collateral, much of which is presumed to be housing-related. Another $29 billion is on its books in the form of collateral from Bear Stearns, which greased the wheels of that firm's buyout by JPMorgan Chase. Add to that $14 billion in discount window lending to banks and $88 billion in repurchase agreements, which the Fed has always done, but not in such great amounts or for such periods. These repos are now from 15 to 90 days. There’s another $65 billion in swap lines to the European and Swiss central banks that designed to allow European banks to borrow dollars and finance their illiquid assets.
We should also count the $100 billion of Treasurys the Fed loans out through another new facility designed to pump liquidity into the market. Through that system, the Fed loans Treasurys and takes in collateral—again, some of it housing-related. The Fed doesn’t debit its Treasury line item for this because it says it’s only loaning out the securities, but those loans are backed up, in part, by a variety of assets, including some from housing.
So the total for how much new financing the Fed has made available to markets: $446 billion.
Fed officials have said they've never lost a penny on such lending in the past and they deal only with sound financial institutions. (If you’re not sound, you can’t borrow from the Fed, and staying current with the Fed is a good way to stay sound.) They add that they have protection through haircuts or discounts, so that $100 of bonds could get only $95 of financing. In addition, to some extent, as the Fed has made more financing available to real estate-related securities, it’s made less financing available elsewhere. But overall, it’s opened up the spigots to finance real estate in a big way.
Note that the Fed won’t provide values of the types of collateral it holds against its loans.
Federal Home Loan Banks: $274 billion
This is an easier calculation than for the Fed. The 12 Home Loan Banks provide financing to its 8,000-plus banks that, in turn, is used to fund mortgages. The amount of what FHLB calls “advances” to member banks has risen by $274 billion, to stand at $914 billion for the second quarter of 2008.
The FHLBs say existing capital and member banks will absorb losses if they occur. But there is an implicit government guarantee, on that Treasury Secretary Henry Paulson reiterated recently. The legislation in front of Congress allows Treasury to increase lending to FHLB.
Fannie Mae and Freddie Mac: $621 billion
Another easy calculation. Just go look at the balance sheets of Fannie and look at the increase in outstanding mortgage-backed securities. That number tells you how much more mortgage guarantees the two giants have out there. Combined, the figure is up by $582 billion. Add in a $39 billion increase in Fannie Mae’s portfolio to get to $621 billion. But note that this is comparing 2007 with 2006. The numbers are almost certainly larger now.
Federal Housing Administration: $90 billion
Officials there tell me they have added $90 billion or so of insured loans since October. Moreover, they have added loans from people they formerly did not lend to: Now they're doing refinancings and funding delinquent borrowers, folks they previously wouldn't deal with.
They say the phone is ringing off the hook as subprime borrowers look to FHA to help them get out of onerous loans. This is a place where there could be real losses, and where losses are expected to grow. The legislation in front of Congress authorizes up to $300 billion of FHA lending.
© 2008 CNBC.com
Thursday, July 24, 2008
How to Buy a Foreclosed Home
By June Fletcher
July 21, 2008 3:21 p.m.
www.wsjonline.com
For anyone wanting to take advantage of today's buyer's market, distressed properties offer the best chance to make a killing. But you need good credit or ready access to cash, and a taste for the hunt.
As I've mentioned in previous columns, searching for a foreclosure can be maddeningly frustrating. Newspaper notices of foreclosure sales are disorganized; foreclosure-listing Web sites charge hefty monthly fees; lenders post only minimal information on the properties they've taken back. And many real estate agents have little experience with these sorts of transactions, and don't want to be bothered with them.
That means foreclosure buyers must be willing to do more sleuthing on their own to find the best deals. Here are some tips to get started:
• Focus on one neighborhood: Although distressed properties are found everywhere these days, not every one is a good deal, especially if the seller bought at the top of the market or if the entire neighborhood is undergoing a decline. It's best to concentrate on places where there are relatively few distressed properties and good job growth. These areas will revive quickly once housing returns to normal. Once you've targeted and studied property values in a particular neighborhood, drive around and look for properties that aren't as well-kept as the ones around it -- then start ringing doorbells. You may be able to buy directly from an owner who's in financial trouble even before the loan defaults.
• Research the property: Although major real-estate Web sites and portals for both agent-listed and for-sale-by-owner properties list foreclosures these days, most provide minimal information and refer you to a subscription-based foreclosure listing site. Some lenders also list the properties they've taken back, though information on these properties is also sparse.
• Once you've targeted a property, check out the local assessor's office: Web sites for these offices often list the owner of the property, tax information, assessed value, square footage and aerial pictures. Most importantly, they reveal what the seller paid for the home, which could be more or less than the property is worth now. The best deals generally come from sellers who have owned their homes for a long time and have built up some equity.
• Learn what the seller wants: Knowing what motivates the seller gets you the best deal. If monthly carrying costs are high, you'll score if you can settle quickly. Or if a lender is trying to minimize losses on a foreclosed property which no longer is worth the unpaid loan amount, you might be able to negotiate a very good deal on financing by agreeing to pay a close-to-market price.
• Find an experienced broker: While it makes sense to gather as much information yourself as you can, and to deal directly with sellers whenever you can, some lenders refuse to deal directly with buyers. If that's the case with the property you've targeted, find an agent with ample recent experience with distressed and foreclosed properties. Ask the agent to explain the details of the deals: How much was offered compared to the asking price, how long it took for the seller or lender to accept the offer, and any concessions the agent was able to negotiate. Pay attention not just to the answers, but to the emotions the agent expresses. Foreclosure deals are often complex and time-consuming; you don't want an agent who lacks diplomacy, patience and perseverance.
[Call Ray Kutylo and the SCV Home Team at Keller Williams Realty at 661-290-3750]
July 21, 2008 3:21 p.m.
www.wsjonline.com
For anyone wanting to take advantage of today's buyer's market, distressed properties offer the best chance to make a killing. But you need good credit or ready access to cash, and a taste for the hunt.
As I've mentioned in previous columns, searching for a foreclosure can be maddeningly frustrating. Newspaper notices of foreclosure sales are disorganized; foreclosure-listing Web sites charge hefty monthly fees; lenders post only minimal information on the properties they've taken back. And many real estate agents have little experience with these sorts of transactions, and don't want to be bothered with them.
That means foreclosure buyers must be willing to do more sleuthing on their own to find the best deals. Here are some tips to get started:
• Focus on one neighborhood: Although distressed properties are found everywhere these days, not every one is a good deal, especially if the seller bought at the top of the market or if the entire neighborhood is undergoing a decline. It's best to concentrate on places where there are relatively few distressed properties and good job growth. These areas will revive quickly once housing returns to normal. Once you've targeted and studied property values in a particular neighborhood, drive around and look for properties that aren't as well-kept as the ones around it -- then start ringing doorbells. You may be able to buy directly from an owner who's in financial trouble even before the loan defaults.
• Research the property: Although major real-estate Web sites and portals for both agent-listed and for-sale-by-owner properties list foreclosures these days, most provide minimal information and refer you to a subscription-based foreclosure listing site. Some lenders also list the properties they've taken back, though information on these properties is also sparse.
• Once you've targeted a property, check out the local assessor's office: Web sites for these offices often list the owner of the property, tax information, assessed value, square footage and aerial pictures. Most importantly, they reveal what the seller paid for the home, which could be more or less than the property is worth now. The best deals generally come from sellers who have owned their homes for a long time and have built up some equity.
• Learn what the seller wants: Knowing what motivates the seller gets you the best deal. If monthly carrying costs are high, you'll score if you can settle quickly. Or if a lender is trying to minimize losses on a foreclosed property which no longer is worth the unpaid loan amount, you might be able to negotiate a very good deal on financing by agreeing to pay a close-to-market price.
• Find an experienced broker: While it makes sense to gather as much information yourself as you can, and to deal directly with sellers whenever you can, some lenders refuse to deal directly with buyers. If that's the case with the property you've targeted, find an agent with ample recent experience with distressed and foreclosed properties. Ask the agent to explain the details of the deals: How much was offered compared to the asking price, how long it took for the seller or lender to accept the offer, and any concessions the agent was able to negotiate. Pay attention not just to the answers, but to the emotions the agent expresses. Foreclosure deals are often complex and time-consuming; you don't want an agent who lacks diplomacy, patience and perseverance.
[Call Ray Kutylo and the SCV Home Team at Keller Williams Realty at 661-290-3750]
Kudlow: The Media Are Missing the Housing Bottom
Posted By: Larry Kudlow, www.cnbc.com
Media reports painted a pessimistic picture of today’s release on existing home sales, which fell 15 percent from a year ago and recorded higher inventories. But inside the report was an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery.
For example, the median existing home price has increased four consecutive months and is up 10 percent since February. Yes, it’s down 6 percent over the past year. But the monthly numbers show a gradual rebound. Actually, this median home price is $215,000 in June, compared to $196,000 last winter.
And there’s more. One of the hardest hit regions is the West, including California, Arizona, and Nevada. The other two bad states are Florida and Michigan. However, existing home sales in the western region are up four straight months, and are 17 percent above the low in October. At the same time, prices in the West have increased three straight months.
Meanwhile, overall national existing home sales are basically stabilizing at just under five million. And in the first and second quarters of 2008, these sales dropped slightly by 3 percent in each case, which is a whole lot better than the roughly 30 percent sales drops of the prior three quarters.
It’s a pity the mainstream media keeps searching for more and more pessimism. The reality is a possible upturn in the housing trend, and at the very least we are getting a bottom. Stocks sold off 165 points largely on media reports of terrible home sales and prices. But I am hoping the market comes to its senses and realizes the data are a whole lot better.
And on top of all that, just as housing may be on the mend, Congress is about to ratify a huge FHA-based bailout that could total $42 billion. Congressional solons are putting up $300 billion to refinance and insure distressed loans through the Federal Housing Administration. But this dubious government agency, with a whole history of bad portfolio management, may wind up taking in the very worst loans on the books.
Of course, taxpayers are on the hook. More government semi-socialism.
Media reports painted a pessimistic picture of today’s release on existing home sales, which fell 15 percent from a year ago and recorded higher inventories. But inside the report was an awful lot of very good new news, which appear to be pointing to a bottom in the housing problem; in fact, maybe the tiniest beginnings of a recovery.
For example, the median existing home price has increased four consecutive months and is up 10 percent since February. Yes, it’s down 6 percent over the past year. But the monthly numbers show a gradual rebound. Actually, this median home price is $215,000 in June, compared to $196,000 last winter.
And there’s more. One of the hardest hit regions is the West, including California, Arizona, and Nevada. The other two bad states are Florida and Michigan. However, existing home sales in the western region are up four straight months, and are 17 percent above the low in October. At the same time, prices in the West have increased three straight months.
Meanwhile, overall national existing home sales are basically stabilizing at just under five million. And in the first and second quarters of 2008, these sales dropped slightly by 3 percent in each case, which is a whole lot better than the roughly 30 percent sales drops of the prior three quarters.
It’s a pity the mainstream media keeps searching for more and more pessimism. The reality is a possible upturn in the housing trend, and at the very least we are getting a bottom. Stocks sold off 165 points largely on media reports of terrible home sales and prices. But I am hoping the market comes to its senses and realizes the data are a whole lot better.
And on top of all that, just as housing may be on the mend, Congress is about to ratify a huge FHA-based bailout that could total $42 billion. Congressional solons are putting up $300 billion to refinance and insure distressed loans through the Federal Housing Administration. But this dubious government agency, with a whole history of bad portfolio management, may wind up taking in the very worst loans on the books.
Of course, taxpayers are on the hook. More government semi-socialism.
Legislation Won't Cure Housing Woes, Band-Aid Helps Stop Bleeding
Cash-strapped homebuyers and borrowers facing foreclosure will get some relief from a housing bill passed by the House on Wednesday but the bill won't solve the deep-rooted ills of the U.S. housing market.
The bill was widely praised by real estate industry groups but doubts remain about how much real-world impact it will have for consumers.
"This isn't going to be the catalyst for a better housing market," said Mark Zandi, chief economist at Moody's Economy.com.
"It may staunch some of the downturn, but it's going to have a very modest positive impact."
The vote on the bill came after months of negotiations between House and Senate lawmakers and the Treasury Department.
President Bush initially opposed it but now could sign as early as this week.
The highlights include: $300 billion to provide more affordable mortgages to troubled homeowners, nearly $4 billion in grants to help communities fix up foreclosed properties and a $7,500 tax credit for first-time homebuyers.
Andrew Lenz, a 27-year-old first-time buyer in Minneapolis, said the tax credit won't affect his decision to make an offer soon on a foreclosed townhome, but added, "Every little bit helps."
And plenty of first-time buyers won't get help.
The tax break only applies for homeowners who purchase between April 9, 2008 and July 1, 2009.
The full amount of the credit also is only available for individuals with incomes under $75,000 or couples earning less than $150,000.
Moreover, it will have to be paid back, interest-free, over 15 years.
In Baltimore County, Md., where foreclosure filings between January and March were running at nearly four times last year's levels, Liz Glenn was grateful to see the provision in the bill for $3.9 billion in grants to help local governments buy and fix up empty homes.
The money "would enable us to acquire and rehab more homes and offer them at an affordable price," said Glenn, a community planning official.
The county, which surrounds Baltimore's city limits, currently works with nonprofit developers to fix and sell up about 20 homes a year -- nowhere near enough.
Maryland estimates it could receive about $30 million in funding as part of the bill, said Carol Gilbert, a state housing official.
Homeowners, who are spending more than 31 percent of their income on their house payment, may qualify for a new, more-affordable loan backed by the Federal Housing Administration under the bill.
Lenders, however, would have to agree to take a loss on the existing loans, and would walk away with at least some payoff and avoid the costly foreclosure process.
Lender participation is also voluntary.
"The industry really has to step up and use it," said Bruce Dorpalen, director of housing counseling for Acorn Housing.
In addition, homebuyers who purchase a property with an FHA loan will no longer be able to receive financial assistance from the sellers.
The bill closes a loophole that let sellers channel money to buyers through charities.
While critics say defaults from these no-money down loans are rising to such an extent that they threaten to put taxpayers on the hook, supporters say many borrowers with good credit but without enough money saved up for a down payment will be locked out of the market.
"That's going to cause a lot of people not to be able to buy a house," said Mike Davis, a Realtor in West Des Moines, Iowa.
"That's really going to hurt."
In a move to shore up mortgage finance companies Fannie Mae, the bill allows the government to buy stock in them and extends a line of credit to the companies.
Over the past week, investor fears about the health of Fannie and Freddie, which buy or guarantee about half of the nation's mortgage loans, have rippled through the market, causing a sharp rise in mortgage rates since late last week.
Rising rates mean more trouble for the housing market as fewer borrowers are able to afford the higher monthly payments.
Average rates on 30-year fixed rate loans under $417,000 have soared to more than 6.8 percent -- the highest rates in a year, according to data publisher HSH Associates.
Besides worries about Fannie and Freddie's future, rising rates reflect an effort by banks recapture money lost on mortgages made in 2005 and 2006.
Keith Gumbinger, a senior vice president with HSH Associates, said, "You have to offset those losses some way or another."
[This article from AP on the www.cnbc.com website]
The bill was widely praised by real estate industry groups but doubts remain about how much real-world impact it will have for consumers.
"This isn't going to be the catalyst for a better housing market," said Mark Zandi, chief economist at Moody's Economy.com.
"It may staunch some of the downturn, but it's going to have a very modest positive impact."
The vote on the bill came after months of negotiations between House and Senate lawmakers and the Treasury Department.
President Bush initially opposed it but now could sign as early as this week.
The highlights include: $300 billion to provide more affordable mortgages to troubled homeowners, nearly $4 billion in grants to help communities fix up foreclosed properties and a $7,500 tax credit for first-time homebuyers.
Andrew Lenz, a 27-year-old first-time buyer in Minneapolis, said the tax credit won't affect his decision to make an offer soon on a foreclosed townhome, but added, "Every little bit helps."
And plenty of first-time buyers won't get help.
The tax break only applies for homeowners who purchase between April 9, 2008 and July 1, 2009.
The full amount of the credit also is only available for individuals with incomes under $75,000 or couples earning less than $150,000.
Moreover, it will have to be paid back, interest-free, over 15 years.
In Baltimore County, Md., where foreclosure filings between January and March were running at nearly four times last year's levels, Liz Glenn was grateful to see the provision in the bill for $3.9 billion in grants to help local governments buy and fix up empty homes.
The money "would enable us to acquire and rehab more homes and offer them at an affordable price," said Glenn, a community planning official.
The county, which surrounds Baltimore's city limits, currently works with nonprofit developers to fix and sell up about 20 homes a year -- nowhere near enough.
Maryland estimates it could receive about $30 million in funding as part of the bill, said Carol Gilbert, a state housing official.
Homeowners, who are spending more than 31 percent of their income on their house payment, may qualify for a new, more-affordable loan backed by the Federal Housing Administration under the bill.
Lenders, however, would have to agree to take a loss on the existing loans, and would walk away with at least some payoff and avoid the costly foreclosure process.
Lender participation is also voluntary.
"The industry really has to step up and use it," said Bruce Dorpalen, director of housing counseling for Acorn Housing.
In addition, homebuyers who purchase a property with an FHA loan will no longer be able to receive financial assistance from the sellers.
The bill closes a loophole that let sellers channel money to buyers through charities.
While critics say defaults from these no-money down loans are rising to such an extent that they threaten to put taxpayers on the hook, supporters say many borrowers with good credit but without enough money saved up for a down payment will be locked out of the market.
"That's going to cause a lot of people not to be able to buy a house," said Mike Davis, a Realtor in West Des Moines, Iowa.
"That's really going to hurt."
In a move to shore up mortgage finance companies Fannie Mae, the bill allows the government to buy stock in them and extends a line of credit to the companies.
Over the past week, investor fears about the health of Fannie and Freddie, which buy or guarantee about half of the nation's mortgage loans, have rippled through the market, causing a sharp rise in mortgage rates since late last week.
Rising rates mean more trouble for the housing market as fewer borrowers are able to afford the higher monthly payments.
Average rates on 30-year fixed rate loans under $417,000 have soared to more than 6.8 percent -- the highest rates in a year, according to data publisher HSH Associates.
Besides worries about Fannie and Freddie's future, rising rates reflect an effort by banks recapture money lost on mortgages made in 2005 and 2006.
Keith Gumbinger, a senior vice president with HSH Associates, said, "You have to offset those losses some way or another."
[This article from AP on the www.cnbc.com website]
Wednesday, July 23, 2008
Housing Bill: The New And The Old Of It All
[from Diana Olick's blog, Realty Check, at www.cnbc.com]
In a vote of no confidence in the housing market, President Bush this morning revoked his threat to veto the housing rescue bill, which is making its way to a vote on the House floor today.
He is still opposed to the $4 billion in community block grants to buy foreclosed properties that’s included in the bill, but, as White House Press Secretary Dana Perino said in an unscheduled call to reporters, “This is not the time for a prolonged veto fight.”
Tell me about it. Apparently Treasury Secretary Henry Paulson had to convince Mr. Bush to drop the fight. “This is a very important message that we are sending to investors around the world,” he told reporters today. Yep, no worries there.
The housing rescue bill is enormous, especially since it just got a whole new provision to backstop Fannie mashed into it last week. It would allow the Treasury to open up a new line of credit to the two as well as buy equity in them. Yesterday the Congressional Budget Office estimated that if F and F had to use all that Treasury cash, it could cost you and me about $25 billion.
The bill still has the same old other stuff in it that lawmakers have been arguing over for eons:
- Allows the FHA to guarantee and additional $300 billion in new loans for at-risk subprimers
- Overhauls Fannie and Freddie oversight
- Overhauls the FHA
- Sets the conforming loan limit at $625,000 (up from $417,000)
- Creates an affordable housing fund from Fannie and Freddie dollars
- 10% tax credit for first-time home buyers
- and a whole bunch more tax provisions
We’re told that the House chiefs have been negotiating all this with the Senate chiefs as well as the Treasury Secretary, so clean passage at this point is more likely than it has been in the past. Notice how I couched that, given that any lawmaker can throw any wrench into it at any time. Who was that old Russian comedian who always said, “I love this country!”
[The Real Blog's take on the market gyrations, interest rate hikes, and this huge housing relief bill...
Housing is in a world of hurt, and you would have to be living in the Santa Clara riverbed with no access to the media not to know that. Oh, that's right, there are some living there as a direct result of a very personal housing crisis, so they know it too!
In every market, there is opportunity. Home prices have come down a lot, and there is still attractive home interest rates that make a purchase rational. So far, there are FHA programs that make it REALLY attractive for some first time home buyers to buy right now. Investors are looking for long term wealth creation and looking to scoop up some residential deals to be rentals. There are the usual seller motivations that come up (relocation, divorce, death, economic change either for the good or the bad).
There are challenges, of course. People in the housing market have gotten really used to artificially low interest rates. Those same really low interest rates have been one of two primary reasons for the housing bubble in the first place. The second reason being lax loan oversight and underwriting, which allowed people to buy homes based on no verification of income, debt, or ability to repay the loan.
It's going to take some time for the housing system to work through the excesses. Since this is an election year, you can depend on bad policy being voted on and passed at the governmental level. Stay tuned.
~~ Ray
In a vote of no confidence in the housing market, President Bush this morning revoked his threat to veto the housing rescue bill, which is making its way to a vote on the House floor today.
He is still opposed to the $4 billion in community block grants to buy foreclosed properties that’s included in the bill, but, as White House Press Secretary Dana Perino said in an unscheduled call to reporters, “This is not the time for a prolonged veto fight.”
Tell me about it. Apparently Treasury Secretary Henry Paulson had to convince Mr. Bush to drop the fight. “This is a very important message that we are sending to investors around the world,” he told reporters today. Yep, no worries there.
The housing rescue bill is enormous, especially since it just got a whole new provision to backstop Fannie mashed into it last week. It would allow the Treasury to open up a new line of credit to the two as well as buy equity in them. Yesterday the Congressional Budget Office estimated that if F and F had to use all that Treasury cash, it could cost you and me about $25 billion.
The bill still has the same old other stuff in it that lawmakers have been arguing over for eons:
- Allows the FHA to guarantee and additional $300 billion in new loans for at-risk subprimers
- Overhauls Fannie and Freddie oversight
- Overhauls the FHA
- Sets the conforming loan limit at $625,000 (up from $417,000)
- Creates an affordable housing fund from Fannie and Freddie dollars
- 10% tax credit for first-time home buyers
- and a whole bunch more tax provisions
We’re told that the House chiefs have been negotiating all this with the Senate chiefs as well as the Treasury Secretary, so clean passage at this point is more likely than it has been in the past. Notice how I couched that, given that any lawmaker can throw any wrench into it at any time. Who was that old Russian comedian who always said, “I love this country!”
[The Real Blog's take on the market gyrations, interest rate hikes, and this huge housing relief bill...
Housing is in a world of hurt, and you would have to be living in the Santa Clara riverbed with no access to the media not to know that. Oh, that's right, there are some living there as a direct result of a very personal housing crisis, so they know it too!
In every market, there is opportunity. Home prices have come down a lot, and there is still attractive home interest rates that make a purchase rational. So far, there are FHA programs that make it REALLY attractive for some first time home buyers to buy right now. Investors are looking for long term wealth creation and looking to scoop up some residential deals to be rentals. There are the usual seller motivations that come up (relocation, divorce, death, economic change either for the good or the bad).
There are challenges, of course. People in the housing market have gotten really used to artificially low interest rates. Those same really low interest rates have been one of two primary reasons for the housing bubble in the first place. The second reason being lax loan oversight and underwriting, which allowed people to buy homes based on no verification of income, debt, or ability to repay the loan.
It's going to take some time for the housing system to work through the excesses. Since this is an election year, you can depend on bad policy being voted on and passed at the governmental level. Stay tuned.
~~ Ray
Home Foreclosures and Abandoned Swimming Pools A Major Public Health Concern in 2008
Mosquito season is back and this year brings new public health concerns for Los Angeles County residents as West Nile virus positions itself to resurge due to ideal ecological conditions. But, there is also another force impacting resurgence. The explosion of home foreclosures has not only pushed the State’s economy to the brink, it has vector control agencies working over-time to control the proliferating populations of potential disease-carrying mosquitoes breeding in abandoned swimming pools.
This year, the number of homes headed towards or in foreclosure has risen dramatically. The statistics are a shocking wake-up call to the housing sector, but offers residents little information about the looming public health crisis.
Empty houses can hide un-maintained swimming pools, spas, fountains, and bird baths, which can provide the stagnant water needed for mosquitoes to complete their life cycle.
Within the 1,330 square miles serviced by the Greater Los Angeles County Vector Control District, there are thousands of out-of-service swimming pools that require routine mosquito treatment. The number is climbing every day, as abandoned swimming pools from vacant homes are reported.
This increase in backyard breeding sources may lead to a rise in West Nile virus transmission. West Nile virus is spread through the bite of infected mosquitoes and may lead to debilitating health conditions such as encephalitis, paralysis, coma and even death.
In 2007, 380 human cases of West Nile virus were reported in California resulting in 21 deaths. There were a total of 43 human infections and 3 fatalities in Los Angeles County alone. The deaths were the first in the County since the major West Nile virus outbreak in 2004.
So far this year, West Nile virus activity has already been detected in 19 counties in California including Los Angeles, Orange County, and Riverside. The California Department of Public Health predicts the virus will again pose a serious public health threat in 2008.
The best defense against disease transmission is being proactive and taking precautions to protect from mosquito bites. Follow these simple steps to protect yourself and your family:
• Avoid outdoor activities between dusk and dawn when mosquitoes are most active.
• Wear long-sleeve shirts and pants when engaging in outdoor activities during these hours.
• Apply approved insect repellents containing active ingredients such as DEET, Picaridin, or oil of lemon eucalyptus.
• Keep tight-fitting screens on doors and windows to prevent mosquitoes from entering your home.
• Eliminate all sources of standing water around your home and property and properly maintain ornamental ponds, pools, and spas.
• Contact the Greater Los Angeles County Vector Control District at (562)944-9656 (Santa Fe Springs Headquarters) or (818)364-9589 (Sylmar Branch) to report any significant mosquito problems in your neighborhood or visit online at www.glacvcd.org.
Real estate professionals who encounter vacant homes with potential mosquito breeding sources should submit a service request to the Greater Los Angeles County Vector Control District. Vector Control Specialists can treat the pool for mosquito breeding and reduce the risk of West Nile virus transmission.
Frequently Asked Questions About Green Swimming Pools
How do I keep mosquitoes from breeding in my pool?
You can prevent mosquito breeding by properly maintaining your pool using chlorine and a filter system. Prevent the growth of algae by using appropriate chemicals. Consult a pool professional for further instructions.
Will I get cited if my pool is green?
The California State Health and Safety Code authorizes public health agencies to levy fines up to $1,000 a day if the pool is declared a public health risk.
I drained my pool a few years ago. What can I do with rain water that puddles at the bottom of the pool?
Treat the accumulated water with chlorine and other approved chemicals to prevent mosquito breeding. Upon request, the District will also deliver free mosquitofish to residents for placement in backyard swimming pools, ponds, and fountains.
My city has instituted mandatory water conservation measures which prohibit me from adding any water to my pool. What can I do to prevent mosquito breeding?
Follow the steps above to prevent mosquito breeding and be sure to notify the Greater Los Angeles County Vector Control District if mosquito control services are required.
Where can I go for more information?
You can contact the Greater Los Angeles County Vector Control District by calling (562)944-9656 (Santa Fe Springs) or (818)364-9589 (Sylmar Branch). You can also visit our website at www.glacvcd.org. The California Department of Public Health is also a great source for up-to-date information on West Nile virus. Visit www.westnile.ca.gov or call the department’s toll-free hotline to report a dead bird or squirrel at 877-WNV-BIRD
[from the Southland Regional Association of Realtors website, www.srar.com]
This year, the number of homes headed towards or in foreclosure has risen dramatically. The statistics are a shocking wake-up call to the housing sector, but offers residents little information about the looming public health crisis.
Empty houses can hide un-maintained swimming pools, spas, fountains, and bird baths, which can provide the stagnant water needed for mosquitoes to complete their life cycle.
Within the 1,330 square miles serviced by the Greater Los Angeles County Vector Control District, there are thousands of out-of-service swimming pools that require routine mosquito treatment. The number is climbing every day, as abandoned swimming pools from vacant homes are reported.
This increase in backyard breeding sources may lead to a rise in West Nile virus transmission. West Nile virus is spread through the bite of infected mosquitoes and may lead to debilitating health conditions such as encephalitis, paralysis, coma and even death.
In 2007, 380 human cases of West Nile virus were reported in California resulting in 21 deaths. There were a total of 43 human infections and 3 fatalities in Los Angeles County alone. The deaths were the first in the County since the major West Nile virus outbreak in 2004.
So far this year, West Nile virus activity has already been detected in 19 counties in California including Los Angeles, Orange County, and Riverside. The California Department of Public Health predicts the virus will again pose a serious public health threat in 2008.
The best defense against disease transmission is being proactive and taking precautions to protect from mosquito bites. Follow these simple steps to protect yourself and your family:
• Avoid outdoor activities between dusk and dawn when mosquitoes are most active.
• Wear long-sleeve shirts and pants when engaging in outdoor activities during these hours.
• Apply approved insect repellents containing active ingredients such as DEET, Picaridin, or oil of lemon eucalyptus.
• Keep tight-fitting screens on doors and windows to prevent mosquitoes from entering your home.
• Eliminate all sources of standing water around your home and property and properly maintain ornamental ponds, pools, and spas.
• Contact the Greater Los Angeles County Vector Control District at (562)944-9656 (Santa Fe Springs Headquarters) or (818)364-9589 (Sylmar Branch) to report any significant mosquito problems in your neighborhood or visit online at www.glacvcd.org.
Real estate professionals who encounter vacant homes with potential mosquito breeding sources should submit a service request to the Greater Los Angeles County Vector Control District. Vector Control Specialists can treat the pool for mosquito breeding and reduce the risk of West Nile virus transmission.
Frequently Asked Questions About Green Swimming Pools
How do I keep mosquitoes from breeding in my pool?
You can prevent mosquito breeding by properly maintaining your pool using chlorine and a filter system. Prevent the growth of algae by using appropriate chemicals. Consult a pool professional for further instructions.
Will I get cited if my pool is green?
The California State Health and Safety Code authorizes public health agencies to levy fines up to $1,000 a day if the pool is declared a public health risk.
I drained my pool a few years ago. What can I do with rain water that puddles at the bottom of the pool?
Treat the accumulated water with chlorine and other approved chemicals to prevent mosquito breeding. Upon request, the District will also deliver free mosquitofish to residents for placement in backyard swimming pools, ponds, and fountains.
My city has instituted mandatory water conservation measures which prohibit me from adding any water to my pool. What can I do to prevent mosquito breeding?
Follow the steps above to prevent mosquito breeding and be sure to notify the Greater Los Angeles County Vector Control District if mosquito control services are required.
Where can I go for more information?
You can contact the Greater Los Angeles County Vector Control District by calling (562)944-9656 (Santa Fe Springs) or (818)364-9589 (Sylmar Branch). You can also visit our website at www.glacvcd.org. The California Department of Public Health is also a great source for up-to-date information on West Nile virus. Visit www.westnile.ca.gov or call the department’s toll-free hotline to report a dead bird or squirrel at 877-WNV-BIRD
[from the Southland Regional Association of Realtors website, www.srar.com]
7% of Renters Ready to Buy
High home prices, the lack of a down payment, and concerns over the economy were the major obstacle blocking some people from buying a home.
However, as many as 7 percent of renters plan to jump into the market within the next 12 months to take advantage of current market conditions.
As many as three out of four American believe the housing market has yet to finish its current readjustment, but nearly half think conditions will improve once a new president is elected. Those were findings of a recent poll conducted by Harris Interactive and reported on Inman News.
When it comes to choosing a place to live, the poll found the most important factors to be local crime rates (56 percent), proximity to daily conveniences such as stores and services (47 percent), and concerns over high property taxes (46 percent).
Many people are waiting for economic conditions to improve before entering the home buying market, Realtors reported.
"People are waiting for the market to hit bottom and, then, lo and behold, all of a sudden it's in the rearview mirror," said Pat "Ziggy" Zicarelli, a director of the Southland Regional Association of Realtors and a Realtor in Tarzana. "You can never buy at the lowest and sell at the highest, unless you just happen to be lucky."
True, the market is relatively quiet, he said in a recent Realtor magazine article, but lower home prices, short sales, and bank-owned properties offer fabulous opportunities for buyers.
[from the Southland Association of Realtors website, www.srar.com]
However, as many as 7 percent of renters plan to jump into the market within the next 12 months to take advantage of current market conditions.
As many as three out of four American believe the housing market has yet to finish its current readjustment, but nearly half think conditions will improve once a new president is elected. Those were findings of a recent poll conducted by Harris Interactive and reported on Inman News.
When it comes to choosing a place to live, the poll found the most important factors to be local crime rates (56 percent), proximity to daily conveniences such as stores and services (47 percent), and concerns over high property taxes (46 percent).
Many people are waiting for economic conditions to improve before entering the home buying market, Realtors reported.
"People are waiting for the market to hit bottom and, then, lo and behold, all of a sudden it's in the rearview mirror," said Pat "Ziggy" Zicarelli, a director of the Southland Regional Association of Realtors and a Realtor in Tarzana. "You can never buy at the lowest and sell at the highest, unless you just happen to be lucky."
True, the market is relatively quiet, he said in a recent Realtor magazine article, but lower home prices, short sales, and bank-owned properties offer fabulous opportunities for buyers.
[from the Southland Association of Realtors website, www.srar.com]
Sunday, July 20, 2008
The World Will Not End
"Housing starts rose 9% and the market cheerleaders proclaimed that we have seen a bottom. But not if you look at the actual numbers. New unemployment claims were OK, but not if you look at the actual numbers. And inflation was simply ugly, no matter what numbers you look at. However, oil is down and there is reason to think it may have further to go on the downside. We cover all this and more, as we first look at why the world is not going to end."
So begins John Mauldin's current investor essay, one of many that we follow regularly [if you haven't subscribed to his FREE newsletter yet, please click here:
http://www.frontlinethoughts.com/subscribe.asp ]. Folks, the world will not end even though the media is full of tough news. In the housing market, it's always a great market... for somebody. It just isn't a great market for everyone at the same time.
Right now, investors are swarming over the foreclosure market, seeing an opportunity to build long-term wealth. First-time buyers are looking at condos, townhomes, and low-priced fixers and using attractive FHA financing with down payment and costs paid by the seller. The usual motivations for sellers can still be in play, whether down or up-sizing, relocation, divorce, or homes put in probate.
There are sales of homes, and purchases of homes, being made every day in our local area. Whether you as an individual buy or sell is a choice for you to make. However, people are making moves and if it might be something you are considering, you should call us at 661-290-3750 and let's get started.
So begins John Mauldin's current investor essay, one of many that we follow regularly [if you haven't subscribed to his FREE newsletter yet, please click here:
http://www.frontlinethoughts.com/subscribe.asp ]. Folks, the world will not end even though the media is full of tough news. In the housing market, it's always a great market... for somebody. It just isn't a great market for everyone at the same time.
Right now, investors are swarming over the foreclosure market, seeing an opportunity to build long-term wealth. First-time buyers are looking at condos, townhomes, and low-priced fixers and using attractive FHA financing with down payment and costs paid by the seller. The usual motivations for sellers can still be in play, whether down or up-sizing, relocation, divorce, or homes put in probate.
There are sales of homes, and purchases of homes, being made every day in our local area. Whether you as an individual buy or sell is a choice for you to make. However, people are making moves and if it might be something you are considering, you should call us at 661-290-3750 and let's get started.
Saturday, July 12, 2008
Gas Prices Hitting Home? I Don't Think So (Do The Math)
Wednesday, 25 Jun 2008
By: Diana Olick, Realty Check at CNBC.com
New home sales in May fell 2.5 percent, and everyone is now wondering if rising gas prices are adding fuel, so to speak, to the meltdown in housing. A big article in the New York Times today features a few families who claim it just isn't worth living in the suburbs anymore.
The drive now costs far more as do the utility bills to heat and cool the larger home. Cities are taking advantage by investing more money in metro and downtown amenities and everyone is flocking back to city-center. Home builder/developers who bet on the "ex-urbs" might as well have bet on Mars.
Hogwash. Sit down with a pencil and paper and calculate exactly how much more you are spending a week on gasoline as compared to what you spent five years ago. Say you drive 50 miles a day to and from your office even, which is 250 miles a week. Say you get 15 miles to the gallon on average. You're using about 17 gallons a week for your work commute. If you were paying two dollars a gallon five years ago that's $34/week. Now you're paying twice that, so it's $68/wk. If your suburban house is big, you probably have higher utility costs now too, but your home is likely pretty new, and more energy efficient.
Now let's talk about the city. Your property taxes will be higher. Your supermarket and restaurant costs will be higher. You will likely live in an older house that will leak hot/cold air like a sieve and require more repairs. Basic services like the dry cleaner, the tailor, the liquor store, the bagel bakery, will cost slightly more because they're all paying higher rent. Urban school systems, like here in DC, can't hold a candle to those nice sprawling green suburban schools, and you might feel forced to send your kids to private school (try $15-20,000/yr per kid).
If you work, which you probably do, since you're commuting so much, then you'll need after school activities for your kids, which will of course cost far more in an urban setting than out in the 'burbs. And since you're living in the city, you probably don't want your kids just "hanging out" because you don't have a big house or a big yard, and so they'll want to hang out somewhere you probably don't want them to be.
I could go on and on. The reason today's new home sales numbers are down has nothing to do with real gas prices. If anyone is opting for an urban home over a new development, it's either because they know they'll see better appreciation or because they have some psychological fear of energy prices that is not based on real numbers.
By: Diana Olick, Realty Check at CNBC.com
New home sales in May fell 2.5 percent, and everyone is now wondering if rising gas prices are adding fuel, so to speak, to the meltdown in housing. A big article in the New York Times today features a few families who claim it just isn't worth living in the suburbs anymore.
The drive now costs far more as do the utility bills to heat and cool the larger home. Cities are taking advantage by investing more money in metro and downtown amenities and everyone is flocking back to city-center. Home builder/developers who bet on the "ex-urbs" might as well have bet on Mars.
Hogwash. Sit down with a pencil and paper and calculate exactly how much more you are spending a week on gasoline as compared to what you spent five years ago. Say you drive 50 miles a day to and from your office even, which is 250 miles a week. Say you get 15 miles to the gallon on average. You're using about 17 gallons a week for your work commute. If you were paying two dollars a gallon five years ago that's $34/week. Now you're paying twice that, so it's $68/wk. If your suburban house is big, you probably have higher utility costs now too, but your home is likely pretty new, and more energy efficient.
Now let's talk about the city. Your property taxes will be higher. Your supermarket and restaurant costs will be higher. You will likely live in an older house that will leak hot/cold air like a sieve and require more repairs. Basic services like the dry cleaner, the tailor, the liquor store, the bagel bakery, will cost slightly more because they're all paying higher rent. Urban school systems, like here in DC, can't hold a candle to those nice sprawling green suburban schools, and you might feel forced to send your kids to private school (try $15-20,000/yr per kid).
If you work, which you probably do, since you're commuting so much, then you'll need after school activities for your kids, which will of course cost far more in an urban setting than out in the 'burbs. And since you're living in the city, you probably don't want your kids just "hanging out" because you don't have a big house or a big yard, and so they'll want to hang out somewhere you probably don't want them to be.
I could go on and on. The reason today's new home sales numbers are down has nothing to do with real gas prices. If anyone is opting for an urban home over a new development, it's either because they know they'll see better appreciation or because they have some psychological fear of energy prices that is not based on real numbers.
Friday, July 11, 2008
New Law Affects All California Residential Mortgage Foreclosures
From the Insolvency Law Committee - Business Law Section of the State Bar of California
July 9, 2008
Dear Insolvency Law Committee Constituency List Members:
Governor Schwarzenegger signed legislation on July 8, 2008, effective immediately, regarding all California residential mortgage foreclosures.
Civil Code sections 2923.5, 2923.6, 2924.8 and 2929.3 and Code of Civil Procedure section 1161b are added to the California Codes to address the influx of mortgage foreclosures in California.
Requirements to Contact Borrower re Workout Options Prior to Foreclosure and to Provide Declaration re Same with Notice of Default and/or Notice of Sale
Civil Code section 2923.5 applies to loans initiated from January 1, 2003 to December 31, 2007 secured by residential real property for owner-occupied residences. Owner-occupied means it is the borrower’s principal residence.
The section provides that a mortgagee, beneficiary or authorized agent, which can be the prospective foreclosure trustee (collectively hereafter “beneficiary”), may not file a Notice of Default under section 2924 until 30 days after contacting the borrower as prescribed below or a diligent effort as described below is made to contact the borrower.
The beneficiary shall contact the borrower in person or by telephone to assess “the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” During the initial contact, the beneficiary must:
1. Advise the borrower that he or she has the right to request a subsequent meeting to be scheduled by the beneficiary within 14 days; and
2. Provide the borrower with the toll free number made available by the US Dept of Housing and Urban Development to find a HUD certified housing counseling agency [(800) 569-4287].
The Notice of Default must now include a declaration from the beneficiary that it has contacted the borrower or conducted due diligence to do so unless the borrower has surrendered the property to the beneficiary. If the Notice of Default was recorded before July 8, 2008, a declaration must accompany the Notice of Sale when it is recorded, stating that the borrower was contacted to assess the financial situation and explore options to avoid the foreclosure or list the efforts made to contact the borrower if no contact was made.
Diligent efforts to contact the borrower shall “require and mean:”
1. Sending a first class letter that includes the toll free HUD number; and
2. Attempting to contact the borrower, after the letter has been sent, at least three times by telephone call to the primary number on file at different times on different days—an automated system is ok so long as a live representative connects if the borrower answers, and the telephone requirements are met if after trying the contact, the number is disconnected; and
3. Two weeks after the telephone contact attempts are satisfied, if the borrower does not respond, the beneficiary must send a certified letter that includes a toll free number to contact a live representative; and
4. The beneficiary has posted a “prominent” link on the homepage of its internet website, if any, with the following information:
a. Options may be available to borrowers who cannot afford their mortgage and the instructions on how to explore the options;
b. A list of financial documents borrowers should collect to discuss options with the beneficiary;
c. A toll free number to discuss the options; and
d. The HUD toll free counseling number;
Contacting the borrower or diligent efforts to do so are not required if:
1. The borrower surrenders the property by turning over the keys or by sending a letter to the beneficiary; or
2. The borrower has contracted with a person or organization whose primary business is advising how to extend the foreclosure process and how to avoid contractual obligations; or
3. The borrower has filed bankruptcy.
Duty of Servicing Agents to Enter into Workouts or Modifications
Section 2923.6 provides that servicing agents for loan pools owe a duty to all parties in the pool so that a workout or modification is in the best interests of the parties if the loan is in default or default is reasonably foreseeable, and the recovery on the workout exceeds the anticipated recovery through a foreclosure based on the current value of the property.
Notice to Tenants Living in Foreclosed Property of Extended Eviction Period
Section 2924.8 applies to residential real property when the billing address is different than the property address, i.e. there are potentially tenants living in the property. It provides for an additional notice to be mailed and posted with the Notice of Sale, addressed to “Resident of property subject to foreclosure sale.” The notice shall say in English and other languages as required by Civil Code section 1632, if the agreement was negotiated in another language:
Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights you may have.
Maintenance of Foreclosed Properties and Fines for Failure to Do So
Section 2929.3 applies to vacant residential real property purchased at a foreclosure sale and requires the purchaser to maintain the property. Failure to maintain means failure to care for the exterior of the property and includes, but is not limited to:
1. Letting the foliage grow so that it diminishes the property values;
2. Failing to take action to keep squatters and trespassers off the property; and
3. Failing to abate mosquito larvae growth or other public nuisances.
The local governmental entity must provide a 14-day notice to the property owner with 30 days to complete the remediation. Thereafter, the governmental entity may impose $1,000 per day fines until the situation is rectified. The section provides for a hearing to contest the fines and requires the governmental entity to take into account good faith efforts to remedy the problem. If the condition threatens public health of safety, the compliance period may be shortened.
60-Day Eviction Notice for Tenants in Foreclosed Properties
Finally, Code of Civil Procedure section 1161b provides that tenants in foreclosed properties must be given a 60-day eviction notice. The section does not apply if any party to the foreclosed note remains a tenant, subtenant or occupant in the property.
These materials were written by Donna T. Parkinson, Chair of the Insolvency Law Committee.
Best regards,
Ellen Friedman
Friedman Dumas & Springwater LLP
efriedman@friedumspring.com
Insolvency Law Committee, Co Vice Chair
The Insolvency Law Committee of the Business Law Section of the California State Bar provides a forum for interested bankruptcy practitioners to act for the benefit of all lawyers in the areas of legislation, education and promoting efficiency of practice. For more information about the Insolvency Law Committee, please see the committee's Web site: www.calbar.org/buslaw/insolvency.
July 9, 2008
Dear Insolvency Law Committee Constituency List Members:
Governor Schwarzenegger signed legislation on July 8, 2008, effective immediately, regarding all California residential mortgage foreclosures.
Civil Code sections 2923.5, 2923.6, 2924.8 and 2929.3 and Code of Civil Procedure section 1161b are added to the California Codes to address the influx of mortgage foreclosures in California.
Requirements to Contact Borrower re Workout Options Prior to Foreclosure and to Provide Declaration re Same with Notice of Default and/or Notice of Sale
Civil Code section 2923.5 applies to loans initiated from January 1, 2003 to December 31, 2007 secured by residential real property for owner-occupied residences. Owner-occupied means it is the borrower’s principal residence.
The section provides that a mortgagee, beneficiary or authorized agent, which can be the prospective foreclosure trustee (collectively hereafter “beneficiary”), may not file a Notice of Default under section 2924 until 30 days after contacting the borrower as prescribed below or a diligent effort as described below is made to contact the borrower.
The beneficiary shall contact the borrower in person or by telephone to assess “the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” During the initial contact, the beneficiary must:
1. Advise the borrower that he or she has the right to request a subsequent meeting to be scheduled by the beneficiary within 14 days; and
2. Provide the borrower with the toll free number made available by the US Dept of Housing and Urban Development to find a HUD certified housing counseling agency [(800) 569-4287].
The Notice of Default must now include a declaration from the beneficiary that it has contacted the borrower or conducted due diligence to do so unless the borrower has surrendered the property to the beneficiary. If the Notice of Default was recorded before July 8, 2008, a declaration must accompany the Notice of Sale when it is recorded, stating that the borrower was contacted to assess the financial situation and explore options to avoid the foreclosure or list the efforts made to contact the borrower if no contact was made.
Diligent efforts to contact the borrower shall “require and mean:”
1. Sending a first class letter that includes the toll free HUD number; and
2. Attempting to contact the borrower, after the letter has been sent, at least three times by telephone call to the primary number on file at different times on different days—an automated system is ok so long as a live representative connects if the borrower answers, and the telephone requirements are met if after trying the contact, the number is disconnected; and
3. Two weeks after the telephone contact attempts are satisfied, if the borrower does not respond, the beneficiary must send a certified letter that includes a toll free number to contact a live representative; and
4. The beneficiary has posted a “prominent” link on the homepage of its internet website, if any, with the following information:
a. Options may be available to borrowers who cannot afford their mortgage and the instructions on how to explore the options;
b. A list of financial documents borrowers should collect to discuss options with the beneficiary;
c. A toll free number to discuss the options; and
d. The HUD toll free counseling number;
Contacting the borrower or diligent efforts to do so are not required if:
1. The borrower surrenders the property by turning over the keys or by sending a letter to the beneficiary; or
2. The borrower has contracted with a person or organization whose primary business is advising how to extend the foreclosure process and how to avoid contractual obligations; or
3. The borrower has filed bankruptcy.
Duty of Servicing Agents to Enter into Workouts or Modifications
Section 2923.6 provides that servicing agents for loan pools owe a duty to all parties in the pool so that a workout or modification is in the best interests of the parties if the loan is in default or default is reasonably foreseeable, and the recovery on the workout exceeds the anticipated recovery through a foreclosure based on the current value of the property.
Notice to Tenants Living in Foreclosed Property of Extended Eviction Period
Section 2924.8 applies to residential real property when the billing address is different than the property address, i.e. there are potentially tenants living in the property. It provides for an additional notice to be mailed and posted with the Notice of Sale, addressed to “Resident of property subject to foreclosure sale.” The notice shall say in English and other languages as required by Civil Code section 1632, if the agreement was negotiated in another language:
Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights you may have.
Maintenance of Foreclosed Properties and Fines for Failure to Do So
Section 2929.3 applies to vacant residential real property purchased at a foreclosure sale and requires the purchaser to maintain the property. Failure to maintain means failure to care for the exterior of the property and includes, but is not limited to:
1. Letting the foliage grow so that it diminishes the property values;
2. Failing to take action to keep squatters and trespassers off the property; and
3. Failing to abate mosquito larvae growth or other public nuisances.
The local governmental entity must provide a 14-day notice to the property owner with 30 days to complete the remediation. Thereafter, the governmental entity may impose $1,000 per day fines until the situation is rectified. The section provides for a hearing to contest the fines and requires the governmental entity to take into account good faith efforts to remedy the problem. If the condition threatens public health of safety, the compliance period may be shortened.
60-Day Eviction Notice for Tenants in Foreclosed Properties
Finally, Code of Civil Procedure section 1161b provides that tenants in foreclosed properties must be given a 60-day eviction notice. The section does not apply if any party to the foreclosed note remains a tenant, subtenant or occupant in the property.
These materials were written by Donna T. Parkinson, Chair of the Insolvency Law Committee.
Best regards,
Ellen Friedman
Friedman Dumas & Springwater LLP
efriedman@friedumspring.com
Insolvency Law Committee, Co Vice Chair
The Insolvency Law Committee of the Business Law Section of the California State Bar provides a forum for interested bankruptcy practitioners to act for the benefit of all lawyers in the areas of legislation, education and promoting efficiency of practice. For more information about the Insolvency Law Committee, please see the committee's Web site: www.calbar.org/buslaw/insolvency.
A reminder to all...
Back in September of 2005, on the first day of school, Martha Cothren, a social studies school teacher at Robinson High School in Little Rock , did something not to be forgotten.
On the first day of school, with the permission of the school superintendent, the principal and the building supervisor, she removed all of the desks out of her classroom. When the first period kids entered the room they discovered that there were no desks.
Looking around, confused, they asked, 'Ms. Cothren, where're our desks?'
She replied, 'You can't have a desk until you tell me what you have done to earn the right to sit at a desk.'
They thought, 'Well, maybe it's our grades.'
'No,' she said.
Maybe it's our behavior.' She told them,
'No, it's not even your behavior." And so, they came and went, the first period, second period, third period. Still no desks in the classroom.
By early afternoon television news crews had started gathering in Ms.Cothren's classroom to report about this crazy teacher who had taken all the desks out of her room.
The final period of the day came and as the puzzled students found seats on the floor of the deskless classroom. Martha Cothren said, 'Throughout the day no one has been able to tell me just what he/she has done to earn the right to sit at the desks that are ordinarily found in this classroom. Now I am going to tell you.'
At this point, Martha Cothren went over to the door of her classroom and opened it.
Twenty-seven U.S. Veterans, all in uniforms, walked into that classroom, each one carrying a school desk. The Vets began placing the school desks in rows, and then they would walk over and stand alongside the wall.
By the time the last soldier had set the final desk in place those kids started to understand, perhaps for the first time in their lives, just how the right to sit at those desks had been earned.
Martha said, 'You didn't earn the right to sit at these desks. These heroes did it for you. They placed the desks here for you. Now, it's up to you to sit in them. It is your responsibility to learn, to be good students, to be good citizens. They paid the price so that you could have the freedom to get an education. Don't ever forget it.'
By the way, this is a true story. You can verify this by clicking on http://www.snopes.com/glurge/nodesks.asp
God Bless America - and Our Veterans
What Is A Veteran?
A 'Veteran' -- whether active duty, discharged, retired, or reserve -- is someone who, at one point in his or her life, wrote a blank check made payable to 'The United States of America,' for an amount of 'up to, and including his life.' That is honor, and there are way too many people in this country today, who no longer understand that fact.
[Thanks to our Team Leader Frank Crandall for forwarding this message to me. This is a reminder of a fact that should always be remembered whether we are sitting at a classroom desk, or at an office desk while posting a message to The Real Blog.]
On the first day of school, with the permission of the school superintendent, the principal and the building supervisor, she removed all of the desks out of her classroom. When the first period kids entered the room they discovered that there were no desks.
Looking around, confused, they asked, 'Ms. Cothren, where're our desks?'
She replied, 'You can't have a desk until you tell me what you have done to earn the right to sit at a desk.'
They thought, 'Well, maybe it's our grades.'
'No,' she said.
Maybe it's our behavior.' She told them,
'No, it's not even your behavior." And so, they came and went, the first period, second period, third period. Still no desks in the classroom.
By early afternoon television news crews had started gathering in Ms.Cothren's classroom to report about this crazy teacher who had taken all the desks out of her room.
The final period of the day came and as the puzzled students found seats on the floor of the deskless classroom. Martha Cothren said, 'Throughout the day no one has been able to tell me just what he/she has done to earn the right to sit at the desks that are ordinarily found in this classroom. Now I am going to tell you.'
At this point, Martha Cothren went over to the door of her classroom and opened it.
Twenty-seven U.S. Veterans, all in uniforms, walked into that classroom, each one carrying a school desk. The Vets began placing the school desks in rows, and then they would walk over and stand alongside the wall.
By the time the last soldier had set the final desk in place those kids started to understand, perhaps for the first time in their lives, just how the right to sit at those desks had been earned.
Martha said, 'You didn't earn the right to sit at these desks. These heroes did it for you. They placed the desks here for you. Now, it's up to you to sit in them. It is your responsibility to learn, to be good students, to be good citizens. They paid the price so that you could have the freedom to get an education. Don't ever forget it.'
By the way, this is a true story. You can verify this by clicking on http://www.snopes.com/glurge/nodesks.asp
God Bless America - and Our Veterans
What Is A Veteran?
A 'Veteran' -- whether active duty, discharged, retired, or reserve -- is someone who, at one point in his or her life, wrote a blank check made payable to 'The United States of America,' for an amount of 'up to, and including his life.' That is honor, and there are way too many people in this country today, who no longer understand that fact.
[Thanks to our Team Leader Frank Crandall for forwarding this message to me. This is a reminder of a fact that should always be remembered whether we are sitting at a classroom desk, or at an office desk while posting a message to The Real Blog.]
Thursday, July 10, 2008
Summertime... and We are Busy!
Hello everyone,
I haven't written much in terms of analysis of the local housing market lately. We have been pretty busy with some listings, and even more buyers than usual. As we have always maintained, it's always a great housing market, just not for everyone at the same time.
Right now investor buyers are coming out and picking off the weak ones. The bank-owned properties (REOs, foreclosures) are leading the market, with the banks taking the financial hits Big Time. Between the Wall Street Journal and CNBC there is plenty of cautionary words out there for housing, and the periphery of our immediate market area is in a world of hurt. If you are in Palmdale/Lancaster or the Inland Empire, you know what I'm talking about. Locally it is a rare neighborhood that has not been touched by at least one foreclosure sale, and signs of property deterioration like unwatered lawns, or lots of RVs parked on the street, can be a sign of problems to come.
For the regular seller, this housing environment can be challenging. Between the fallen home prices now on the market, and the closed sales of home foreclosures used by appraisers as comparable sales data, this can be pretty tough row to hoe for your average seller who is moving up, moving down, or moving out. Shrinking equity positions sometimes introduce a sense of panic in sellers, who for some months try to hold the line on their list prices, only to have to bend to larger market forces later on with home price reductions much more severe than many had thought possible.
Unfortunately, this is an old lesson that is being re-learned. Home prices go up. Home prices go down. The only constant is change itself.
For home sellers, 'following the market down' has never been a winning selling strategy in a weak market. If you have to sell, take the hit and then try to make it up on your subsequent purchase. If you have to sell and then won't be buying for a while, again, take the hit and price at the very lowest end of the market, and go on with life afterwards. We all know (even us Realtors) that you don't want to 'give your home away'. But the market reality is that in this housing market, you probably won't be happy with the price you do eventually get. However, if you want to sell you have to just bite the bullet and move on.
Buyers.
You are my friends in this market environment.
Buyers have lots of choices, and if serious about buying, can come out with some terrific deals. However, buyers must understand that no one is going to give them a house. Getting a loan is harder than it has been in six or seven years, and the underwriting guidelines for approving a loan are tough. Liars loans are gone, as are the no doc loans that brought out the liar in far too many people. The lenders just don't want to give you a pile of money anymore on your say-so that you can pay it back. Yes, it's a different environment. The slick schemes just aren't available.
But as long as the buyer has some down payment and good credit, there are deals to be made!
Have to run out for an appointment, so that's it for now. This Fannie and Freddie situation will have to be watched. If the government further federalizes the housing industry with a bailout of these quasi-governmental guarantors, we could be in for lots of negative ramifications including an immediate addition of more than $5 Trillion Dollars in federal debt in one fell swoop. Both political parties will be responsible for this, as there is plenty of blame for them both on this matter. We will be watching closely.
Give me a call if you want to buy, sell, or lease residential property, and let's get started.
I haven't written much in terms of analysis of the local housing market lately. We have been pretty busy with some listings, and even more buyers than usual. As we have always maintained, it's always a great housing market, just not for everyone at the same time.
Right now investor buyers are coming out and picking off the weak ones. The bank-owned properties (REOs, foreclosures) are leading the market, with the banks taking the financial hits Big Time. Between the Wall Street Journal and CNBC there is plenty of cautionary words out there for housing, and the periphery of our immediate market area is in a world of hurt. If you are in Palmdale/Lancaster or the Inland Empire, you know what I'm talking about. Locally it is a rare neighborhood that has not been touched by at least one foreclosure sale, and signs of property deterioration like unwatered lawns, or lots of RVs parked on the street, can be a sign of problems to come.
For the regular seller, this housing environment can be challenging. Between the fallen home prices now on the market, and the closed sales of home foreclosures used by appraisers as comparable sales data, this can be pretty tough row to hoe for your average seller who is moving up, moving down, or moving out. Shrinking equity positions sometimes introduce a sense of panic in sellers, who for some months try to hold the line on their list prices, only to have to bend to larger market forces later on with home price reductions much more severe than many had thought possible.
Unfortunately, this is an old lesson that is being re-learned. Home prices go up. Home prices go down. The only constant is change itself.
For home sellers, 'following the market down' has never been a winning selling strategy in a weak market. If you have to sell, take the hit and then try to make it up on your subsequent purchase. If you have to sell and then won't be buying for a while, again, take the hit and price at the very lowest end of the market, and go on with life afterwards. We all know (even us Realtors) that you don't want to 'give your home away'. But the market reality is that in this housing market, you probably won't be happy with the price you do eventually get. However, if you want to sell you have to just bite the bullet and move on.
Buyers.
You are my friends in this market environment.
Buyers have lots of choices, and if serious about buying, can come out with some terrific deals. However, buyers must understand that no one is going to give them a house. Getting a loan is harder than it has been in six or seven years, and the underwriting guidelines for approving a loan are tough. Liars loans are gone, as are the no doc loans that brought out the liar in far too many people. The lenders just don't want to give you a pile of money anymore on your say-so that you can pay it back. Yes, it's a different environment. The slick schemes just aren't available.
But as long as the buyer has some down payment and good credit, there are deals to be made!
Have to run out for an appointment, so that's it for now. This Fannie and Freddie situation will have to be watched. If the government further federalizes the housing industry with a bailout of these quasi-governmental guarantors, we could be in for lots of negative ramifications including an immediate addition of more than $5 Trillion Dollars in federal debt in one fell swoop. Both political parties will be responsible for this, as there is plenty of blame for them both on this matter. We will be watching closely.
Give me a call if you want to buy, sell, or lease residential property, and let's get started.
Are Freddie and Fannie Insolvent?
Financial news outlet CNBC was reporting early Thursday that Freddie Mac and Fannie Mae, the two corporations around which much of housing recovery has been structured, may be technically insolvent.
The claim came from William Poole, former president of the St. Louis Federal Reserve, follows a stock market trading day in which Freddie and Fannie stock resumed the free-fall it had started earlier in the week when Lehman Brothers speculated that changes in accounting rules would require that the two government sponsored enterprises (GSEs) raise even more significant amounts of new capital than had been previously thought. In a market which was plummeting in all sectors, finishing the day down over 230 points, Freddie's shares were off 24 percent on the New York Stock Exchange, closing at $10.26 while Fannies' dropped 13 percent to $15.31.
Poole told Bloomberg News that Congress should recognize that the two are technically insolvent and the odds are that the U.S. may have to bail them out. Others disagreed, saying that there would have to be sudden losses of $40 billion between the two to trigger insolvency.
Meanwhile, the Wall Street Journal is reporting that the Bush administration has been holding talks for months about what to do should either of the two GSEs fail.
The paper says that the government doesn't expect the corporations to fail and no rescue plans are imminent. The talks are part of "normal contingency planning" that the Treasury Department and federal regulators regularly undertake, but that these talks have become more serious recently.
The viability of the two corporations is critical to policymakers because of their key role in the housing market. They own or guarantee about $5 trillion of mortgages which equates to about one-half of outstanding U.S. mortgage debt. The two are currently $1.5 trillion in debt.
While many analysts are saying that the two cannot be allowed to fail, any attempt on the part of the government to help at this point would set off some wild partisan fights on Capitol Hill. Republicans have long sought to put constraints on the GSEs saying that their presumed safety net - the federal government - gives them an unfair advantage in the mortgage market and Treasury Secretary Henry Paulson has, in the past, denied any government intention to guarantee Freddie or Fannie's debt.
However, the assumption that Uncle Sam will be ready to step in should things get bad enough has allowed the GSEs an advantage which allows them to borrow money at better rates. Even in the midst of the current mess the companies have been able to get credit at relatively low cost. On Wednesday Fannie Mae issued a series of two-year bonds that were priced only 0.74 percentage points higher than the yields on comparable Treasury bonds about double the usual disparity.
While it appears most likely that Freddie and Fannie will continue to raise capital from private investors, other options open to help them include a credit line from the Federal Reserve, a federal guarantee such as the administration insists won't happen, or an actual equity investment in the companies by the government.
According to the Journal, "Fannie and Freddie are trapped in a vicious cycle. The companies will have to raise capital through stock sales, and the multibillion-dollar amounts they have to raise could result in a massive dilution of shareholders' equity. In anticipation, investors have been dumping the shares, driving their prices sharply lower. And the devalued currency of Fannie and Freddie shares means they will have to sell even more shares."
Freddie's viability is of more concern than Fannie's. When the Office of Federal Housing Enterprise Oversight (OFHEO) which currently functions as regulator of the two companies stipulated that one criterion for reducing surplus capital requirements for the GSEs earlier this year was that the companies raise additional capital, Fannie raised $7.5 billion right away, while Freddie is still waiting to get registered with the U.S. Securities & Exchange Commission, and wants to resolve past accounting issues before it does. In May, Freddie said it planned to raise $5.5 billion through issuing a combination of common and preferred stock.
At the open on Thursday Fannie Mae's stock was down $2.88 to $12.33 and Freddie's fell another $1.60 to 8.67.
The claim came from William Poole, former president of the St. Louis Federal Reserve, follows a stock market trading day in which Freddie and Fannie stock resumed the free-fall it had started earlier in the week when Lehman Brothers speculated that changes in accounting rules would require that the two government sponsored enterprises (GSEs) raise even more significant amounts of new capital than had been previously thought. In a market which was plummeting in all sectors, finishing the day down over 230 points, Freddie's shares were off 24 percent on the New York Stock Exchange, closing at $10.26 while Fannies' dropped 13 percent to $15.31.
Poole told Bloomberg News that Congress should recognize that the two are technically insolvent and the odds are that the U.S. may have to bail them out. Others disagreed, saying that there would have to be sudden losses of $40 billion between the two to trigger insolvency.
Meanwhile, the Wall Street Journal is reporting that the Bush administration has been holding talks for months about what to do should either of the two GSEs fail.
The paper says that the government doesn't expect the corporations to fail and no rescue plans are imminent. The talks are part of "normal contingency planning" that the Treasury Department and federal regulators regularly undertake, but that these talks have become more serious recently.
The viability of the two corporations is critical to policymakers because of their key role in the housing market. They own or guarantee about $5 trillion of mortgages which equates to about one-half of outstanding U.S. mortgage debt. The two are currently $1.5 trillion in debt.
While many analysts are saying that the two cannot be allowed to fail, any attempt on the part of the government to help at this point would set off some wild partisan fights on Capitol Hill. Republicans have long sought to put constraints on the GSEs saying that their presumed safety net - the federal government - gives them an unfair advantage in the mortgage market and Treasury Secretary Henry Paulson has, in the past, denied any government intention to guarantee Freddie or Fannie's debt.
However, the assumption that Uncle Sam will be ready to step in should things get bad enough has allowed the GSEs an advantage which allows them to borrow money at better rates. Even in the midst of the current mess the companies have been able to get credit at relatively low cost. On Wednesday Fannie Mae issued a series of two-year bonds that were priced only 0.74 percentage points higher than the yields on comparable Treasury bonds about double the usual disparity.
While it appears most likely that Freddie and Fannie will continue to raise capital from private investors, other options open to help them include a credit line from the Federal Reserve, a federal guarantee such as the administration insists won't happen, or an actual equity investment in the companies by the government.
According to the Journal, "Fannie and Freddie are trapped in a vicious cycle. The companies will have to raise capital through stock sales, and the multibillion-dollar amounts they have to raise could result in a massive dilution of shareholders' equity. In anticipation, investors have been dumping the shares, driving their prices sharply lower. And the devalued currency of Fannie and Freddie shares means they will have to sell even more shares."
Freddie's viability is of more concern than Fannie's. When the Office of Federal Housing Enterprise Oversight (OFHEO) which currently functions as regulator of the two companies stipulated that one criterion for reducing surplus capital requirements for the GSEs earlier this year was that the companies raise additional capital, Fannie raised $7.5 billion right away, while Freddie is still waiting to get registered with the U.S. Securities & Exchange Commission, and wants to resolve past accounting issues before it does. In May, Freddie said it planned to raise $5.5 billion through issuing a combination of common and preferred stock.
At the open on Thursday Fannie Mae's stock was down $2.88 to $12.33 and Freddie's fell another $1.60 to 8.67.
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