Arroyo Seco Real Estate

Here’s a great little video on the government’s role in the housing crisis.

Click image to see full size.

Yep.

The New York Times, that stalwart mouthpiece for all things Democratic (as in the Party of “Now What?”) has a story today about the disappointing performance of the Making Home Affordable program.

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.

So we’ve managed to kick the can down the road a little ways while the problem gets bigger and more unmanageable, government doing what government does best: gumming up the works.  Looks like it’s time to invoke W.C. Fields again: “Take the bull by the tail and face the situation.”

Government has no business being in the mortgage industry, nor, should Congress in all it’s asinine wisdom decide to bail out all these distressed home owners by buying up their bad mortgages, the housing business.  When I was in High School I had the opportunity to drive a 1953 Ford that had this disquieting quirk: you had to turn the steering wheel fully 1/4 turn before it would engage the steering gear and the wheels would respond.  I kept it mostly inside the lines, but it I was fishtailing a great deal until I got the hang of it.  It’s a wonder I didn’t wind up in a ditch or worse.  The bigger the bureaucracy the longer it takes to respond to inputs, the wilder and more out of control it gets.  When that bureaucracy is the government, it’s drunk too.

In a move to avoid public awareness, the Obama administration removed the maximum bailout caps for Fannie Mae and Freddie Mac on Christmas Eve.  The move, which would otherwise have made heads snap, will thus fall into the media void of the Christmas weekend.  The previous bailout caps of $200,000,000,000 for each of the semi-non governmental entities were in no danger of being exceeded anytime soon, having used less than 1/16 of the limit to date.  Two obvious questions present themselves, were there a journalist in the house to ask them:  1.  Why? 2. Why now?

Why now is easy to answer.  When these caps were set in 2008 there was a window within which the administration could make changes without the consent of Congress, that window is due to expire at midnight on December 31, 2009.  After that date any changes would have to be approved by Congress.  This Congress would not have balked at granting the the administration anything it wanted, but would, in Congress’ inimitable fashion, wanted to embellish it somehow.  That would have led to a public discussion, which the administration evidently did not want.  Some transparency might have inadvertently crept in.

As to why, who better to shed some light than Edwart Pinto at Business Insider dot com.  He lists five possible reasons, but this is the bottom line:

The above actions would preserve and strengthen the government’s involvement and control over the country’s housing finance system and make it harder to reintroduce substantial private sector involvement later on.  They would also continue distortions in the marketplace leading to who knows what unintended consequences. Finally these steps would do nothing to deleverage the housing finance system, a key step in returning it to any degree of normality.

In a nutshell, it nationalizes the mortgage industry.

How surprising.  Not.

As we can see here.  James B. Lockhart III, vice chairman of WL Ross & Co. and the former director of the Federal Housing Finance Agency, talks with Bloomberg’s Carol Massar about the outlook for the U.S. housing market. Lockhart also discusses the outlook for the commercial real estate market and the future of Fannie Mae and Freddie Mac.  The quote that makes the most sense to me:

Q. What to do about Fannie Mae and Freddy Mac.

A. The worst thing we could do would be to nationalize them.  There’s too much government involvement there already.

D’ya think?

This is just an amazing story that fellow realtor Frank Bellardo posted a few weeks ago.

Basically, IndyMac Bank (now OneWest Bank), is holding clients hostage, demanding a promissory notes, or they will proceed to foreclosure. For the life of me, I couldn’t figure out why they were doing this. What advantage could there possibly be for them to proceed to foreclosure?

Yesterday, I figured it out. You see, IndyMac was taken over by the FDIC and sold to OneWest Bank in March/2009.  Guess who the investors are behind OneWest? George Soros, Michael Dell, Steve Mnuchin (former Goldman Sachs executive), and John Paulson (hedge-fund billionaire).

Now, listen to the deal they got from the FDIC….

Basically, they purchased all current residential mortgages at 70% of par value (70% of the
outstanding loan amounts). They purchased all current HELOCS at 58% of Par Value!!!

Next, in order to “sweeten the pot”, the FDIC stepped in and guaranteed the following: For any residential mortgages where OneWest experiences a loss, the FDIC will step in and cover anywhere from 80%-95% of the loss. The loss is calculated using the ORIGINAL LOAN BALANCE, not the amount that OneWest paid for the loan. Let’s use my clients situation as an example:

if the Loan Amount is $478,000, plus 6 months of missed payments, for a grand total of $485,200. OneWest pays $334,600 for the loan. We have an all cash offer of $241,000, net to OneWest. So, let’s do the math, shall we?

The net loss, according to the FDIC formula is the ORIGINAL LOAN AMOUNT minus the amount of the offer. In this case, $485,200-$241,000, or $244,200. Next, the FDIC, according to their Loss Share Agreement, writes  a check to OneWest for 80% of the so-called “net loss”. So, in this case, OneWest gets a check from Uncle Sam for $195,360 (.80 X $244,200).

Add the $195,360 to the sales price of $241,000, and you get a grand total of $436,360. Remember, OneWest paid $334,600 for the loan. So, OneWest puts $101,760 in their pocket, thanks to the FDIC. Folks, that is over $100k of our hard-earned tax dollars!

So, you ask…Why does this program hurt short sales?
Because, our brilliant government offers this SAME PROGRAM FOR FORECLOSURES! The only difference is, the government picks up 80% of the tab on all of the extra costs associated with a foreclosure (BPO’s, upkeep, utilities/maintenance, legal fees, etc.)

So, If I’m OneWest, why would I want to waste my time negotiating through a Short Sale, when I can make the same amount of money (if not more) by just letting it go to foreclosure? And we wonder why nobody can get a Loan Modification?  Why would OneWest approve a loan modification for this guy, when they can foreclose and make over $100k? And, to add injury to insult, they have held this loan for 6 months!  Not a bad ROI, huh?

What infuriates me the most is that in my particular case mentioned above, they have the guts to hold my client hostage for a $75k promissory note, after they are already making more than $100k on the sale!!! This is his primary residence, 1st Position loan, and OneWest has NO RECOURSE!  Imagine if they could make $100k, then get a deficiency judgement! Talk about making some big bucks!  Can you say “GREED”?

The scary thing is that over 50 banks have Shared Loss Agreements in place with the FDIC. Some of them include: Bank of America (go figure), CitiMortgage, Wells Fargo, etc.

This entire agreement between the FDIC and OneWest can be found here, on the FDIC website. It’s all there, for the world to see! They have it all layed out. All  of the formulas, worksheets, etc.

Wait, it gets better…The FDIC just announced that it needs to start borrowing money from the U.S. Treasury in order to replenish it’s deposit insurance fund (the same fund being used to pay all of these banks in the Loss Share Agreements).

Here we go again, Taxpayers-R-Us to the rescue of the Kleptocrats.

Here it is, then.  It’s all we’d said it would be.  Here are the details, arranged in a nice little side by side comparison for your viewing pleasure.  All that now remains is the Presidential signature.

Realtors are really excited about this because it keeps the gravy train rolling until April.  Me, I’ve got mixed feelings.  It is nice to have escrows closing every now and then, paying the bills is a good thing.  It would have been better to allow the market to reach the bottom which it won’ t do for a while given these temporary incentives.  Jobs.  It all comes down to jobs.  Without jobs there won’t be money for people to pay their mortgages.  Jobs, jobs, jobs.

Here it is, I guess at some time we knew it was coming.  Here’s the plan that will drive thousands of lenders out of business and drive all (at least residential) real estate lending to a handful of big banks.  It’s all at the link. Having taken TARP money, now the big players get to end all  competition.  Sort of like health care, who needs 1300+ health insurance companies in this country?  Why, nobody!  Why do we need thousands of independent mortgage lenders?  No reason.

One of the peculiar things about big banks is that they can, and do, do what smaller lenders can’t.  Break the rules.  Over and over again I see prospective buyers who can’t get a loan using a loan broker because the simply don’t qualify run down to Bank of America or Chase and walk out with loan approval.  They then go buy some property which they will likely lose because they don’t have the economic horsepower to pull the loan for 30 years.  The only way a bank can lend these people is by completely disregarding sane lending guidelines and standards.

But that’s OK.  The loan officer, got a commission.  So did the real estate broker, but that’s secondary.  Like dogs to vomit the banks are doing the same thing that ran the bubble up, popped it and nearly wrecked the worldwide financial system.  So long as the big boys are getting their cut all is well with the world.

What’s really cool about it is that it is all being done sub rosa, on the QT, the hush-hush.  Why should you, the American Public know anything about this?  You aren’t getting any of the payola anyway and, if you’re halfway smart, you’ll have already stocked up on K-Y Jelly.

You there!  Yes, I’m talking to you, Taxpayer!  Front, center and assume the position!

He is a wise man. Click pic for larger image.

That’s becuse he must have seen this chart over at Dr. Housing Bubble blog Click the image for larger view:

Lots of talk of extending the first time buyer tax credit into 2010.  Nothing is cast in stone yet, but I suspect it soon will be.  Here are some of the details of what is being discussed from Subprime Blogger:

The first time home buyers tax credit extension is getting very close to being finished.  The latest update is that the extension will offer tax credits to home purchases under contract by April 30th, 2010 while allowing another 60 days to close on the sale.  The biggest change we see in the newest proposal is that the income levels for the tax credit have increased.  The new proposal is individuals up to $125,000 and couples up to $250,000; this is an increase from $75,000 for individuals and $150,000 for couples.

For “move-up” buyers or individuals who have lived in their current home for five or more years the tax credit would have the maximum of $6500.  Please remember that this just a proposal and nothing has been confirmed yet.  Overall, it looks as if the tax credit extension is a reality and many first time home buyers are going to get their wishes of having the tax credit moved forward.

In the short run this is good for Realtors, buyers and for sellers.  In the long run, it is disastrous for buyers and for the housing market overall.  In this scenario the taxpayer is footing the bill for subsidized housing, maintaining artificially high prices.  Basically, they are trying to re-inflate the housing bubble as a means of getting the economy going.  It will work, after a fashion.  As long as taxpayer dollars are pumped into the system.  As soon as the flow of dollars dries up prices will resume their fall towards a somewhat lower market based price floor.

Update: Yep, it’s on the way.

The Dodd-Lieberman-Isakson Amendment to extend and expand the Homebuyer Tax Credit is contained in the Unemployment Insurance extension bill. You can take a look at a very top line overview of the current proposed tax credit by clicking here.

Although the Senate was not able to reach a procedural agreement to schedule a vote on the bill, the Senate is expected to vote Monday evening for a “Motion to Invoke Cloture.” This means that if 60 Senators vote “yes” on the cloture motion, the Senate will then be able to schedule a vote on the bill that contains the Dodd-Lieberman-Isakson Amendment. Once the Senate acts, the homebuyer tax credit must still go to the House of Representatives for action.

I can’t link to it because it’s contained in an email from Alex Perriello, President & CEO of Realogy Franchise Group, the parent company for Century 21.  He urges us Realtors to quick like a bunny hop on the phone and call our Congress Critters and support this bill.  I’ll call and oppose it.

Using taxpayer money to try and re-inflate the housing bubble to stabilize the economy is nuts.   Especially when the very same government is doing all in its power to knock the pins out from under the economy in every conceivable way.  This notion has more holes than a ton of Swiss cheese.  Don’t get me wrong, I LOVE Swiss cheese!  A sustained recovery in the housing market depends upon a sustained recovery in the job market.  No job, no income, no money, no pay the mortgage.  This seems obvious and elementary to me, but it utterly escapes the vote pandering hacks currently running the asylum.

This deal is set up a tax rebate, that is, they send you back up to $8,000 of your hard-earned tax dollars next year when you buy a house.  This just in: it cost the government $28,000 for every $4,500 they rebated on the cash for clunkers boondoggle (because, you know, nobody can do things as efficiently as government!)  What’s it going to cost them to rebate that $8,000?  Probably no more than $40,000 or so.  With Federal tax revenues down (actual, not projected) by 31% the last time I looked I’ll be surprised if they don’t pay out that $8,000 in brand new Obama bucks good for papering your wall or providing target practice for your canary.

The economy cannot be sustained by the the housing market, and the housing market cannot be long sustained by government subsidies.  That the attempt is being made to do just that is a clear indication that Bernie Madoff was a piker, a boy playing a man’s game.  The real Ponzi artists are the career kleptocrats swilling Kool-Aid in Washington, Sacramento and other points along the Twilight Zone Express.

All aboard!