Arroyo Seco Real Estate

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!

This would be just unbelievable but for the fact that it makes sense in a certain world of warped logic. Our Great Leader and his band of Merry Dumbkoffs are going for the hair of the dog, mmm, mmm, mmm! Unbelievable? You be the judge:

A Poisonous Cocktail
Expanding the Community Reinvestment Act.

. . .

In short, the CRA is compelling banks to make trillions in loans to individuals who have poor credit and who often can’t or won’t make their payments.

Now comes Rep. Eddie Bernice Johnson, D-Texas, and 50 other co-sponsors (all Democrats) of H.R. 1479 the “Community Reinvestment Modernization Act of 2009,” who want to expand the CRA to include not just banks but also credit unions, insurance companies and mortgage lenders. Congressman Barney Frank, chairman of the House Financial Services Committee, has supported the idea in the past. The SEIU and ACORN, along with a host of other activist groups, are also behind the effort.

President Obama has been a staunch supporter of the CRA throughout his public life. And his recently announced financial reforms would make the law even more onerous and guarantee an explosion in irresponsible lending. Obama wants to take enforcement of the CRA away from the Federal Reserve, the FDIC and other financial regulators who at least try to weigh bank safety and soundness when enforcing the law, and turn it over to a newly created Consumer Financial Protection Agency (CFPA). This agency’s core concerns would not be safety and soundness but, in the words of the Obama administration, “promoting access to financial services,” which is really code for forcing banks to lend to those who would not ordinarily qualify. Compliance would no longer be done by bank examiners but by what the administration calls “a group of examiners specially trained and certified in community development” (otherwise called community activists). The administration says, in its literature about the reforms, that “rigorous application of the Community Reinvestment should be a core function of the CFPA.”

Oh, joy! Oh, unalloyed happiness! Happy Real Estate Days Are Here Again! Yes, let’s do take the very same instrument that annihilated the housing industry in the first place, make it bigger, wider and load it up with all kinds of extra whammy and at the same time strip it of even the semblance of responsible oversight then turn it loose with complete confidence that this time it will yield a better result. I mean, seriously folks, what could go wrong?

What this is, dear readers, is a baldfaced attempt to re-inflate the housing bubble. Because, you see, housing is a key industry, so if we pump up housing the whole economy will rise with it. And yes sir, it will. It’ll rise for about a year, I guess they’re calculating, just in time to make people happy for the 2010 elections. What else can the incumbents do, after all? It’s not as if their plans were sustainable in the long term, so with the lamentable demise of ACORN they’ve got to figure another way to gin up the votes to stay in office. Evidently they aren’t feeling very confident that the expenditure of the other 85% of the bailout money between now and then will do the trick.

I guess it isn’t bad enough that we are running the printing presses night and day just to come up with money to lend ourselves. It’s not bad enough that the banks are keeping huge chunks of foreclosed homes off the market lest they depress the market (Seriously, what are they going to do, hold ‘em for non-paying tenants forever?). It’s not bad enough that the Fed is handing out trillions of dollars to someone somewhere (Nowhere Man?) and won’t say how much and to whom. No, I guess not.

Seems to me that we are largely recreating the Great Depression in our day. Sure wish I had a nice, thick wad of Euros or Yen or something other than dollars (heck, I’d feel better if I just had it in dollars!) squirreled away somewhere I could fall back on when this Titanic goes down by the head. Sure hope you have a decent plan.

There are days when I wish I were a drinking man.

The Government Sponsored Enterprises affectionately known as Fannie Mae and Freddie Mac are once again doing what they do best: going broke.  People in the know are noticing, but probably the news will be more or less hidden from the general public.  Probably no more than a quick, no questions asked press release late on a Friday afternoon.  You can get summaries from different perspectives here.

So what might this mean for prospective home buyers? Hard to tell.  If there was any common sense in Washington they’d just let the critters go bankrupt.  That won’t happen, most likely, it would shut down the trough.  Shutting down the trough would be ok if it were only American home buyers who were bellying up.  But Fannie and Freddie have been good to our elected representatives both directly in the form of campaign contributions and as a source of payoffs for favors rendered.  Probably Fannie and Freddie will be bailed out again, not for the sake of the public but for the sake of highly paid public grifters and their hangers on.

Get ready, fellow taxpayers!  Your country needs you to save this invaluable gravy train.  For the children, or something.

Finally I’m trying out new technology.  I’ve been meaning to make more use of YouTube, and here it is, my first effort.  Here is a brief clip of Jason D, whose property in Pasadena I sold as a short sale.   Have a look and let me know what you think, leave a comment on the video over at YouTube.

Congress Gives Renting a Boost as a Solution to Foreclosure Problems

Congress unanimously passed a bipartisan plan last week to let FDIC-member banks lease real estate-owned properties back to foreclosed homeowners-a move that legislators hope will protect both mortgage lenders and borrowers from the worst effects of the foreclosure crisis.

The Neighborhood Preservation Act “will give struggling families an opportunity to stay in their homes while riding out the housing crisis, and will be instrumental in alleviating the overall crisis in the housing sector,” said Rep. Gary G. Miller (D-California), author of the measure. Rep. Barney Frank (D-Massachusetts), chairman of the House Financial Services Committee, is a co-sponsor of the bill.

Under the bill-which the House approved in a voice vote-banks may lease properties acquired through foreclosure or a deed-in-lieu for a term of up to five years. Rent-to-own options are also encouraged under the measure, which would apply only to leases signed in the next two years.

The act reflects lawmakers’ growing interest in novel approaches to limiting REO inventories, stabilizing home prices and aiding troubled homeowners, said Dr. Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

Previous policies and modifications “haven’t been as effective in stemming the tide of foreclosures as lawmakers would like,” said Baker, who has advised several staffs on Capitol Hill in recent weeks. “There’s a sense that they’d like to do something more.”

This particular measure removes legal obstacles to a practice that could benefit lenders and borrowers alike, advocates say. Distressed homeowners may get to stay put and ultimately regain their deeds. Banks may be able to avoid adding to their glut of unsold REO. Some lenders, such as the government-sponsored Freddie Mac, already allow some of their foreclosed homeowners to stay on a month-to-month basis.

“At no cost to the taxpayer, the Neighborhood Preservation Act will reduce the number of houses coming into the housing inventory and will preserve the physical condition of foreclosed properties, Miller said. That “will ultimately help stabilize the aesthetic and economic values of homes and neighborhoods.”

Baker, an early advocate of “right to rent” policies as a foreclosure solution, said that while renting is an alien notion to many mortgage banks, more lenders should find it in their bottom-line interest to lease REO homes.

“If you’re getting rent every month, that’s not bad,” he said. “Especially when the alternative is a foreclosed home sitting unsold.”

A couple of weeks ago I posted this little video about how 90% of people facing foreclosure do nothing.  Then I got to thinking: What if they are talking to the bank, there’s no way I would know about that.  So maybe far more people are taking action than I thought and I have no way to know about it.  I’m sure many more people are trying to do something than I am aware of, but maybe not as many as I might have hoped.  Here’s why:

I went on the WordTracker database to check on keywords to make my marketing more effective.  I entered the search term “foreclosure” and searched again using “foreclosure”  + “help” + “assistance” + “stop” + “prevent”.  Below is a screen shot of the results.

The column “Keyword” shows the actual term that was searched.  The column “Count” tells you how many times a day that term has been searched over the last 160 days.  The column “Predict” is an estimate of how often that term will be searched in the near future.  The most popular search terms are searched tens of thousands of times a day, so we can see that stopping foreclosure is not something that a lot of people are interested in if we use the search engine keyword method of determining the measure of public interest.  I believe that in the internet age it is actually a fairly strong measure of public interest because the internet is such a cheap, fast, readily available and easy to use research tool.

Now for the final piece of the puzzle.

Given the actual state of the economy and the housing market we are on track for between 3.5 and 4.0 MILLION foreclosures across the nation in 2009.  That is over 10,000 foreclosures a day.  That means that roughly 1% of people facing foreclosure are using internet search engines to research ways to avoid foreclosure.

It’s not even noon yet but already I could use a good, stiff scotch and water, and never mind the water.

A few days ago there was a great article in the Wall Street Journal that examined the facts in the foreclosure tsunami we’ve had since 2006, and finds that the number one predictor of foreclosure is upside down mortgages.

What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house — that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.

Many policy makers and ordinary people blame the rise of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates. Those hapless individuals were then supposedly unable to make the higher monthly payments when their mortgage rates reset upwards.

But the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began — the third quarter of 2006 — during which more than 4.3 million homes went into foreclosure.)

Sharing the blame in the popular imagination are other loans where lenders were largely at fault — such as “liar loans,” where lenders never attempted to validate a borrower’s income or assets.

This common narrative also appears to be wrong, a conclusion that is based on my analysis of loan-level data from McDash Analytics, a component of Lender Processing Services Inc. It is the largest loan-level data source available, covering more than 30 million mortgages.

Go read the whole thing.

Pretty much whenever Congress gets involved.

Not that I’m cynical, mind you.  Just experienced.

I guess the collapse of the subprime housing bubble must have been really lucrative for someone in high places.  Else why would Congress be setting up Round 2?  From the Wall Street Journal we learn that Fannie Mae and Freddy Mac under the leadership of the Obama administration  are going to extend help to homeowners to refinance even though they owe up to 125% of what their home is worth.

To be eligible, borrowers must be current on their mortgages and have loans owned or backed by government-controlled mortgage companies Fannie Mae and Freddie Mac.

Secretary of Housing and Urban Development Shaun Donovan said the higher limits “will make a critical difference in our ability to help many more Americans…to stay in their homes.”

Nearly 30% of homeowners with mortgages owe more than their homes are worth, according to Moody’s Economy.com.

Wednesday’s move is the latest indication that the refinance program, announced in March, has fallen short of expectations. In mid-June, the administration said 20,000 borrowers had refinanced under the program. The administration had previously said that the plan could help four million to five million borrowers who owed 80% to 105% of their home’s value.

As recently as late April, Mr. Donovan had rejected the idea of expanding the program to borrowers who were more deeply underwater.

The 105% plan was basically worthless to Southern California because property values have dropped over 50% since the peak in 2005.  The 125% is largely worthless for the same reason.  But in an economic climate such that property values are likely to continue to fall and unemployment likely to rise the government plan is basically a way to siphon money to loan officers and ultimately to other shadowy predators further up the feeding chain.  No one is suggesting, of course, that the chain leads all the way to Congress like it did back in halcyon days before the bubble burst.  No.  Uh-uh.  And don’t nobody go check.

Don’t look here either.

Nor here.

UPDATE: The problem here is the same one that the previous program had.  The success of the program depends on the loan being bought by a private investor.  Investors are in the game to earn a return on their capital.  Usually they are willing to accept fairly high risk investments if the return in likely to be substantially larger than average.

This program proposes to make refinance loans available to property owners whose properties are worth less than the refinance amount.  So in this case the investor is being asked to loan somebody $500,000 on a property worth $400,000 using the property itself as collateral for the loan.  Yes, it is being done through Fannie Mae and Freddy Mac, but they just re-sell the loan to private investors and guarantee the loan they sold.

Now ask yourself: would you be willing to loan some poor shlub who’s underwater on his mortgage $500,000 on a property worth $400,000?  With property values still falling and uneployment rising (oddly, only employed people seem to pay mortgages)?  Even if it is guaranteed by the government (that is, by you and me, my fellow taxpayer)?

Probably that’s why only one of these was done last year in the whole Western United States when the refinance limit was only 105% over value.

Go figure.

From the Florida Business Journal we learn that Fanne Mae and Freddy Mac are too big to fail and are being kept on life support on the taxpayer’s dime.