The Trickle Down Effect and You

Have you wondered at all what part of the Stimulus Bill escaped the pork masters and might actually reach down to your community and maybe do some good?  ‘Course you have!  Haven’t we all?

What’s that you say?  You don’t believe a penny of it is actually going to escape the payoff  troughs of Congressional cronies?  Well if you said so you would be wrong!

Behold! Some of the money actually has escaped from geedy political hands and is making its way to your neighborhood.  Believe!

A CONSUMER GUIDE TO THE FIRST-TIME HOMEBUYER FEDERAL INCOME TAX CREDIT

Everything you the consumer needs to know.

What’s the opposite of Schadenfreude?

Might that be Freudenshade? Schadenfreude is bad enough, thank you.I suppose the prophets of old felt that way when their dire predictions regarding the consequences of infidelity to the Covenant proved true. So it is with grim satisfaction that I ran across the Dr. Housing Bubble Blog and saw his latest post.  Sigh.  I agree.

The gist: Prices in So. Cal. have fallen to February 2002 levels.  We’ve lost 6 years of gains in less than 3 years.  The volume of sales has dropped off significantly, though it has begun to climb from it’s low in January of 2008.  A full 58% of all sales are foreclosed properties.  The Obama Housing Bill is going to help homeowners with loans of 105% of current value, but here in So. Cal. we are a lot more under water than that.  Everybody’s glad the California legislature finally passed and the Governator signed a budget bill.  Alas for Californians, we’ve been, or soon will be, Californicated with substantially higher taxes which will NOT help housing at all.  Take a shot of Dutch courage, go read it and gird your loins for further declines in housing prices.

Now, where did I put that bottle of single malt?

Larry Kudlow is on the money regarding the President’s Housing Bailout plan.   It doesn’t solve any problems and creates lots more.  Some quotes:

Team Obama is rewarding bad behavior. It is enlarging moral hazard. It is expanding its welfarist approach to economic policy. And with a huge expansion of government-owned zombie lenders Fannie Mae and Freddie Mac, Team Obama is taking a giant step toward nationalizing the mortgage market.

Meanwhile, Wall Street is awakening to the disappointment that the securitized mortgages behind the toxic assets that have done so much damage to banks and the credit system are not being treated in the Obama program. The oversight is incredible.

Then there’s the bankruptcy-judge cram-down, which would allow the courts to renegotiate interest rates and loan principal. This would abrogate private contracts and throw out the rule of law. Do we think future investors will put up mortgage capital if they fear judges will overturn the terms of contracts? Home-loan supplies will fall and mortgage rates will rise.

Then there’s Fannie and Freddie, the big winners here. Only their products are eligible for mortgage relief. Jumbo mortgages are not. Neither are private-label mortgages created by various non-bank lenders. Fan and Fred already run 48 percent of the mortgage market. Obama’s proposal would greatly enlarge that and move the mortgage system toward government nationalization.

What’s even more incredible is Team Obama’s stubborn refusal to have any faith in the free market. In some of the hardest-hit areas of the country, markets are already solving the housing problem. Writing on his Carpe Diem blog, University of Michigan professor Mark Perry notes that while California home prices dropped 41 percent in 2008, home sales in the state jumped 85 percent. It now looks like 2008 sales for single-family houses will exceed levels reached in 2007.

What’s more, the unsold-inventory index for existing single-family detached homes in December 2008 was 5.6 months, compared with 13.4 months for the year-ago period. And the median number of days it took to sell a single-family home dropped to 46.1 in December 2008, compared with 66.7 in December 2007. So inventories are dropping, the number of days to sell a home are falling, and sales are rising in the wake of lower prices.

There is much that government can do to support and encourage the housing market during these difficult times.  This ain’t it.

Resisting Forclosure a Form of Civil Disobedience?

I guess it was bound to happen. People who have lost their homes to foreclosure start to take them back – with a little help from their friends.

I guess ACORN doesn’t have enough trouble, but they’ve got to help folks instigate folks into taking back what is no longer theirs. But not to worry, the Stimulus Bill gives them $1 Billion (down from the original $4.4 Billion), presumably to cover legal costs. One hopes it will be enough.

In this case the irony is that the house had already been resold, so they were squatting not on the big bad bank’s property, but on that of some home owner who had the good sense and good fortune to take advantage of the bank’s loss.

Continue to continue

The FDIC is hiring inspectors to insure that banks are complying with Community Reinvestment Act standards, the very thing that started the fire in the first place.

The definition of insanity

Instability in the Real Estate Market

Natural systems, left to themselves, will find a balance. This does not mean that they are static, but that they will fluctuate within certain limits, which I call dynamic equilibrium. When exterior pressures unbalance the system, the system gyrates wildly, as time goes on and the system is not further disturbed, the swings will dampen and gradually become almost unnoticeable. The Real Estate market is one such system. When outside forces held interest rates low, eased criteria for lenders, the result was an excess of demand which resulted in a wild increase in prices. When interest rates rose, lending criteria were tightened and prices became so high that they were out of reach of most people, the market corrected and has been dropping at about 20% per year over the course of the last three years. Left to itself, the market would reach equilibrium when inventory (supply of houses for sale) and demand for housing met. It is clear that this balance will not be attained any time soon, perhaps not for years. Until supply equals demand the housing market will not recover.

President Obama’s housing rescue plan skews the market and will have the net effect of retarding the recovery of the real estate market for the foreseeable future. So says Michael Pento, and I agree. Fashionable though it has become to blame the free market and greed for our economic ills, the real culprit is politically driven government interference.

Pento is right to say that even if the market were left to right itself it would take a long time. One of the reasons is that at the moment there are 19 million vacant homes in the US (and the foreclosure boom has not yet peaked, in my opinion), but only 2.23 million are on the market. Which means that over 86% of foreclosed homes have not yet hit the market. If they did they would glut the market and prices would not so much as plummet as do a full power, afterburner on, greased lightning, screaming nosedive.  Which is why banks are delaying foreclosures in many cases, and holding foreclosed assets rather than simply dumping them on the market as they seize them.  Were they to do so, they would lose even more billions.

Something else to look forward to. Hold on to your hats!

President Obama’s Housing Plan

This afternoon James Liptak, President of the California Association of Realtors sent this letter out to the members.  Note that many of the details remain to be worked out, I’ll keep you posted as things develop.

Feb. 18, 2009

Dear C.A.R. Member,

Earlier today, President Obama unveiled the Homeowner Affordability and Stability Plan, which will offer assistance to as many as 9 million homeowners, while attempting to prevent the destructive impact of foreclosures on families and communities.

The plan contains three main components, and only applies to primary residences. The loans referenced in the plan cannot exceed Freddie Mac/Fannie Mae conforming loan limits.  I’ve outlined the plan in greater detail below.

The first component is directed toward homeowners suffering from falling housing prices who still have equity in their homes, but no longer have the 20 percent equity needed to refinance.  Under the plan, homeowners who have conforming loans owned or guaranteed by Freddie Mac and Fannie Mae will be allowed to refinance their homes, even if they do not have 20 percent equity left in the house. The U.S. Treasury Dept. estimates that about 5 million homeowners will be helped by this portion of the program.

The second component, known as the Homeowner Stability Initiative, is designed to assist homeowners who are “underwater” on their mortgages. The $75 billion initiative will bring together lenders, servicers, and the government so that all stakeholders share in the cost of the modification.  Primary mortgages would be reduced to monthly payments that do not exceed a 38 percent debt-to-income ratio, with the costs of doing so borne by the lender. The government and lender then would split the costs of further reducing the monthly payments until they were at a 31 percent debt-to income ratio. An important aspect of the initiative is that homeowners do not have to be delinquent to participate.

The Homeowner Stability Initiative also will create incentives for servicers, mortgage holders, and homeowners. Servicers would receive an up-front fee of $1,000 for every eligible modification meeting the initiative’s guidelines. Guidelines are scheduled to be released by March 4. Mortgage holders will receive an incentive payment of $1,500, and servicers $500, for modifications made on loans that are current but at risk of imminent default.

The final aspect of the Homeowner Stability Initiative is creating clear and consistent guidelines for loan modifications. The Obama Administration plans to work with federal agencies, banking and credit union regulators, and the private sector in order to develop loan modification guidelines that can be implemented across the entire mortgage market. While adoption of the guidelines will be voluntary for the private sector, all financial institutions receiving Financial Stability Plan assistance going forward will be required to implement the loan modification guidelines.

The government estimates that between 3 and 4 million homeowners will benefit from the Homeowner Stability Initiative component of the plan.

The third component of The Homeowner Affordability and Stability Plan is supporting low mortgage rates by strengthening Fannie Mae and Freddie Mac.  The Treasury Dept. plans to increase their Preferred Stock Purchase Agreements with both Fannie Mae and Freddie Mac from its current $100 billion in both entities to $200 billion in each. The Treasury Dept. also will continue to purchase Fannie Mae and Freddie Mac mortgage-back securities in order to help promote stability and liquidity in the marketplace.  Additionally, the Treasury Dept. will increase Fannie Mae and Freddie Mac’s portfolios by $50 billion, for a total of $900 billion. The Obama Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving home buyers, such as CalHFA. Funding for this will not come from TARP money but from the Housing and Economic Recovery Act.

While some of the details still are being developed, such as the modification guidelines, the Obama Administration plans on using programs and funding already allocated for The Homeowner Affordability and Stability Plan and will need little legislative approval for programs under the plan.

We’ll keep you updated on the Homeowner Affordability and Stability Plan as more details and information become available to us.

Sincerely,

James Liptak
2009 President
CALIFORNIA ASSOCIATION OF REALTORS®