Monthly Archives: October 2008

Another Bailout Coming for the Banks Disguised as a Bailout for Homeowners

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From the WaPo:

Officials with the Treasury and the Federal Deposit Insurance Corp. are crafting a plan under which the government would guarantee the mortgages of as many as 3 million homeowners now struggling to avoid foreclosure, according to three sources familiar with the discussions.

Under the program being discussed, the lender would agree to reduce borrowers’ monthly payments, for example by lowering the interest rate or principal of a mortgage loan, based on the homeowner’s ability to pay. These reconfigured loans could help homeowners avert foreclosure.

To attract financial institutions to the program, the government would then guarantee to repay the lender for a portion of its loss if the borrower defaulted on the reconfigured loan.

The mortgage guarantee program would vastly expand the role of the Treasury Department in helping homeowners, while at the same time ensuring some return for lenders.

It would cost between $40 billion and $50 billion, sources said.

The program is being discussed as members of Congress are voicing frustrations that the $700 billion rescue program thusfar has been aimed at helping banks, but not homeowners.

While Treasury and FDIC officials have reached an agreement on the principles of the program, the White House is resisting, according to the sources, who declined to be identified because the negotiations are ongoing..

Wait, what? I thought the FHA Secure program was such a grand success, according to HUD.  Yet reports show that the true number of homeowners helped under that program was unfortunately low which I predicted in Aug of 2007. The July bailout bill gave us Hope for Homeowners, which requires voluntary principal balance reductions on the existing loans and gave the homeowner a new FHA-insured loan. Housing Wire reports that so far, H4H has few takers. But not for lack of interested homeowners. Instead, it’s the investors:

The problem, however, may not be lenders, who say they’re more than willing to begin processing the loans. Instead, the problem sits with third-party investors that have thus far proven unwilling to take the minimum 10 percent haircut required to put borrowers into the program, plus an upfront premium payment–losses are actually far greater for investors who participate, given that the 10 percent figure is based on a current appraisal, and not original LTV.

John Sorgenfrei, president of Florida-based Assurance Home Loan, Inc., said he receives calls from eight to 10 borrowers daily about participation in the program. For the time being, he has been forced to make them wait, as no investors so far have bought into the program..

We’re burning through the 700 billion Troubled Asset Relief Program (TARP) money pretty fast.  The 40 to 50 billion tossed out for this new plan seems sadly low.  Who is feeding the politicians the dollar amounts?  This is not nearly enough money. It may keep the banks alive for a few more months but to what end?

Do you think this latest proposal seems more like another bank bailout? It’s hard to say until we see the guidelines. With FHA and H4H, income must be fully documented and homeowners must qualify. Once again, this may shave off a fair number of homeowners who won’t be able to document income needed to qualify.

It might be wiser to just start talking about nationalizing the entire banking system at this point.  I mean, how many bailouts will it take before taxpayers own the banks?

Rising star or…

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Another sample of business ethics out the window

According to this Bloomberg story,  Eve Mazzarella, a high school drop-out and former maid from Seattle moved to Las Vegas and started a real estate career in the year 2000.   Evidently, she and her husband are now allegedly charged with fraud.  The story goes on to say that she was highlighted in the National Association of Realtors “30 under 30” list, which names the best young real estate agents in the country.

The NAR “30 under 30” article reminds me of the story of Puget Sound Business Journal and Washington CEO Magazine’s “40 under 40” story on a local young CEO.

From the Bloomberg article:

“The day before, the U.S. Attorney for Nevada had indicted the couple on 6 counts of bank fraud, later revised to 13. Prosecutors say the pair recruited fake — or “straw” — buyers to apply for loans to purchase 227 properties worth $107 million. They told the straw buyers they would pay the mortgages. Then they skimmed thousands of dollars from each of more than 432 transactions, the indictment says, stashing the cash in 80 bank accounts.”

Will the real estate community, Lending Brokers, Real Estate Brokerages or regulating bodies of each State do a better job of getting rid of the people who had a direct role in bringing down the housing market and impacting those who had nothing to do with it?

The Philadelphia Phillies Win the World Series!!!

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The curse of William Penn is officially lifted!  If anyone wasn’t sure about that, Joe Blanton’s home run was absolute proof, that Comcast’s putting William Penn up in the sky in June of 2007 was indeed the curse breaker!  No building for him yet, he’s up there on a beam until the building is complete in 2012…but Billy must be happy enough.

For most of Philadelphia’s history, no one was allowed to construct a building taller than the William Penn Statue on top of City Hall.  Mr. Penn looks out toward the Delaware River from the top of City Hall, as I recall, and was visible outside of the window of my office across the street for many years.  In 1987, they built One Liberty Place to be TALLER than Billy Penn.  They tried the excuse that they weren’t “blocking his view”, but apparently Billy was not pleased, as NO sports team in Philly has won since that happened.

So thank you Comcast for not waiting for the building to be finished in 2012 before hoisting Billy Penn up where he belongs…higher than any building in Philly.  Tonight he has thanked you…and so do we.

The Curse of William Penn is LIFTED!

The Curse of William Penn is LIFTED!

The FED drops the Funds Rate to 1.00%

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The FOMC, during a scheduled meeting, elected to reduce the Fed Funds rate by 0.5% from 1.5% to 1.00%. Unless you have a HELOC that is floating (attached to the Prime Rate) this does not directly impact your mortgage interest rates. However, it will influence mortgage rates based on how traders react (50 basis points is what was expected). If you’re a long time reader of Rain City Guide, you’ve all ready heard this song and dance.

FOMC Press Release

Free Taco at Taco Bell

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Taco Bell Steal a Base Free Taco
Taco Bell Steal a Base Free Taco

America wins a free taco today, Tuesday October 28th,  from 2 p.m to 6 p.m.

As part of the Steal a Base; Steal a Taco promotion, anyone can go into a Taco Bell today between 2 p.m and 6 p.m and walk out with a free crunchy, seasoned beef taco.
Jason Bartlett Stole a Base in the 1st Game of the 2008 World Series, winning everyone in America a free taco.  I didn’t read all of the fine print, but it sounds like anyone in line by 6 p.m. gets a free taco, so bring the family!

Buyer Beware: 'Tis the Season

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Boy, you’re going to think I’m the Scrooge…and this article may not apply to most of you…but I want to reach out to those of us who rely on our credit cards to help finance the holidays.  You see, years past it was not uncommon for home owners to get into the spirit and purchase many gifts for our loved ones–going over the top (meaning beyond our budget).  Yes, it feels great to see the look of joy and surprise on little Johnny and Susie’s face when the open the gifts they’ve been longing for…but this year, you may not have the “fix” of meeting with your Mortgage Professional in January to “reorganize” your debt.   Just in time for the holidays, Fannie Mae is unrolling DU Version 7.1 which really puts a damper on cash out refinances.

This officially takes place over the weekend of December 13, 2008; however lenders will start implementing this soon (so that loans are in compliance for Fannie Mae once they are purchased).   A cash out refinance will be limited to 85% of appraised value of your single family residence.   By the way, if you’re refinancing a second mortgage/home equity loan that was not used for the purchase of your residence, this is classified as a “cash out” refinance–even if you have never received cash out and you only reduced the rate on your second mortgage on a previous refinance.  (A refinance including a “non-purchase” second mortgage is treated as “cash out” with pricing and underwriting–no exceptions).   This will force more home owners to FHA mortgages which allow higher cash out refinances at a cost (upfront and monthly mortgage insurance regardless of loan to value).  

Factor in home values and you can really see the challenge with doing a cash-out refinance.  Lenders count on appraisals to establish a value for your home.  This value is based on what other homes like yours have recently sold and closed for in your neighborhood.  No sales?  A short sale?  Ugh.  It doesn’t matter what’s listed down the street, what your assessed value is or what you feel the home is worth in the lenders and appraiser’s eyes.

Tis the Season for big sales, no interest or payment for X many months and credit card companies including blank checks in our statements with dreams of sugar plum fairies and hopes that we’ll indebt ourselves further.  Please don’t do it. 

  • Make a budget for your holiday shopping.
  • Pay cash.
  • Consider a gift exchange for your family.
  • Find alternatives to spending for celebrating the Season.

You may wind up trapped, like Ardell’s Six Pack Joe, once your interest rates kick in and your bills start piling up with no refinance in sight.   I’m here to say that YOU do have a choice and you need to be informed and responsible for your debts.   Mortgages are getting tougher (especially refinances) and chances are, your home equity is not here to rescue you.

I won’t go into how credit cards and home equity loans are being frozen or the credit lines are being reduced without notice (and how damaging it is to your credit scores when your borrowed amount is above 50% of the credit card limit).  

You have less than two months to plan for Christmas.  Don’t be stuck with extra debt and tanking credit scores…your home equity may not be there to save you (even if you have it, you may not have affordable access to it).

What should a loan modification look like?

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I just wrote this long comment on Jillayne’s post, and decided it needed to be a post of its own.  This loan mod returns the risk premium that was not effective at controlling risk.  It didn’t work…give it back. It also makes the lender partly responsible for approving short term income on a long term basis.  It does not involve ANY loss to the lender below the face amount of the notes, and gives them some interest, and saves the homestead.  I think it includes all aspects of consideration for a loan mod, but finding staff competent to come up with loan mods in a short period of time, is not realistic.

What we do know is that the higher risk premium rates, did not cover the risk.

Let’s take an example and see how it plays out, and propose a loan mod.

Family qualified for their current home based on $80,000 a year. $60,000 was salary and $20,000 was two years of consistent bonus or overtime. That was considered conservative lending guidelines “two years of proven history on bonus or overtime

Sunday Night Stats – Prices Dropping

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Recent King County pending sales continue to dip in price.  There seem to be more bargains in the single family home market than the condo market overall.  But that is starting to change.

In the condo market, of the 628 condo sales pending, only 283 have gone pending since the 1st of October, and the asking prices on those were 3.7% lower than the pending sales from before October 1st.  Considering that condo prices for the 3rd Quarter were only down 7.2% YOY, a 3.7% dip in prices is significant and should bring condo prices down to more than 10% lower YOY by year end.  We’ll have to wait and see where they close out.  Those that have closed so far in October have actually closed at higher prices than the 3rd Quarter, so we may not see the full impact of lower prices until the end of the 4th Quarter in condos. 

In the Residential market, 957 of the 1,893 pending sales went pending since October 1, so less of a backlog on a % basis than in the condo market.  The prices of the recent pendings is only down by a hair, compared to pendings from before October 1.  But pending prices overall and closed prices in October to date are down almost 10% compared to the 3rd Quarter and almost 20% YOY. 

If you are hanging in for the perfect house, you may have to wait until Spring of 2009.  But if you’re looking for an opportunity to buy based on bargain prices, the last quarter has a lot to offer.  Remember, for every bargain priced property SOLD there are 5 or more overpriced properties. So far in October it looks like buyers are choosing wisely and getting some real deals.  But you have to know what you are doing out there.

Kind of like going to a huge shoe sale and picking out the Prada’s from the Payless overstock.

As always, stats are not compiled, verified or posted by NWMLS. (required disclosure – it’s also required that I say that in bold letters, for those who’ve been wondering.)

Options for Homeowners Facing Foreclosure

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This is Part Two of a series of articles on the foreclosure process.
This article does not constitute legal advice.
Foreclosure laws vary from state to state.

Homeowners in financial distress should always hire legal counsel. Call your local state bar association for a referral.  Reduced or free legal aid may be available in some states. Ask for a referral from the state bar association or through a LOCAL HUD-Approved Housing Counseling Agency.

For homeowners who are facing financial hardship, denial is a warm, safe comfortable place to stay, where tough decisions can’t hurt and the decision-making process is put off one day at a time.  There is FREE help available from your local state non-profit agencies.

Local, HUD-Approved Housing Counseling Agecies received 1.5 million dollars from Washington State when Gov. Gregoire signed SB 6272. State agencies are already whining that they are “overwhelmed”. Hmmm. How much of that 1.5 million dollars was spent hiring and training competent counselors and how much went into executive salaries, high paid consultants and task force meetings?  There are plenty of out-of-work mortgage production people who are (at this point) probably willing to work at non-profit agencies. Put them to work.  Perhaps I am in denial as to the extent of the problem at our state agencies. If so, agencies: please enlighten me and RCG readers.  If the problems are with the banks and their ability to handle the calls, that doesn’t mean we throw more money at the state agencies.  In part five of this series, I will ponder about massive government intervention. For now, we’re left dealing with the problems at hand.

If you are a homeowner reading this article, that means you’re starting to come out of denial.  Maybe a friend or relative forwarded this to you.  Welcome to raincityguide.com  How are you? Don’t say “fine” through tears or clenched teeth.  Not so good, right?  Okay then. Is your financial distress temporary or long term?  THIS is perhaps the most important question you’ll need to answer. This is going to require that you get real with where you are in life.  Long term, permanent financial distress situations are going open up options that might be different for a homeowner who has a short term financial distress problem.  Let’s try to break things down even more.  Long Term: You’ve been laid off and have been unable to find work at your former pay level for along time and you have third party confirmation that the chances of being able to reach that pay level again are very low. Short Term: You’ve been laid off and have been unable to find work at your former pay level but your prospects are good or you’ve recently been re-hired at a similar pay level.

Reinstatement
If you are payment or two behind, which may happen with temporary financial distress, your lender will be thrilled beyond your wildest expectations to accept the total amount owed in a lump sum.  Reinstatement often happens simultaneously with a forbearance agreement.

Forbearance Agreement
Your lender agrees to reduce or suspend your payments for a short period of time.  These two options are good for people whose financial distress situations are temporary.

Repayment Plan
Your lender helps you get “caught up” by allowing you to take missed payments and tack them on to your existing payment each month until you are caught up.

If your financial distress is long term and will permanently affect your ability to continue making your payments:

Consider Selling
With home values going down, if you do have some equity remaining in your home, you may be better off selling NOW rather than waiting until next year when scads of REOs (already foreclosed-upon homes that the lenders must dispose of) will continue to hit the market, driving inventory up and home values down.  If you owe more on your home than what the home can be sold for in today’s market, you have probably already heard of the term Short Sales.  In this case, the lender is asked to reduce the pricipal balance and allow the loan to be paid off in order to facilitate a sale.  Most lenders are not radically motivated to approve short sales unless foreclosure is imminent.  This author does not recommend that you stop making your mortgage payment in order to force the bank to approve your short sale. All homeowners in financial distress should have an attorney holding their hand the entire time.  If you have assets, you do not qualify for a short sale. Short sales are reserved for homeowners with NO MONEY and you will be asked to provide proof that you have no money.  If you have money, this is a different kind of transaction. It’s called “Making Your Downpayment in Arrears” and you’ll be asked to bring that money at closing.  Don’t ask anyone to help you hide your assets. Doing so may constitute mortgage fraud which is now a class B felony in Washington State. I could go on and on about short sales. If you need more education in this area, we’ve covered the topic in these RCG articles:

Short Sales
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Question From Today’s Short Sale Class
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Should You Buy a Short Sale Property?
—-
Is a Short Sale a Bargain?
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Why Do Banks Take So Long to Approve a Short Sale?

Maybe you would prefer not to sell. Consider taking on a tenant or moving out into more affordable living quarters and renting out your home.

Refinancing is a tough road for homeowners in financial distress. On the one hand, they have been hit by some kind of financial hardship and this typically affects their credit score, which means lender’s rates and fees will be higher.  In addition, tightening underwriting guidelines is something banks do in order to help stop the rising tide of foreclosures. People who hold mortgage loans today might not be able to re-qualify for that same loan if they had to requalify under today’s guidelines.  Income and assets must be fully documented. Find a licensed, local mortgage lender with FHA-approval to see if you might qualify for an FHA loan.  For people who made the conscious decision to state their income higher than reality are out of luck, unless they can prove that they were coached to do so by their lender.  Consult a local attorney for further guidance.  Since refinancing might only be yesterday’s dream for some, Loan Modifications are all the rage in my spam bin. We’ll cover Loan Mods in Part Three.

While doing research for this blog post, I stumbled upon even more money that went from our state government’s rainy day fund, into a state fund to help low to moderate income Washington State homeowners in foreclosure refinance into new loans through the Wash State Housing Finance Commission.  Read more here. I sent an inquiry asking the WSHFC how many WA State Homeowners have been helped this far by this new law and they said, emphasis mine:

Dear Ms. Schlicke:

Thank you for your interest in the Smart Homeownership Choices Program. To date, we have not made a loan to a prospective applicant.  The good news is that when we have talked to the delinquent homebuyers, it seems they have not been able to make contact with their lenders to discuss foreclosure options.  So, we have been able to facilitate getting them to the right person for loan modifications, etc.  There have also been homeowners who have not been pleased with the fact that the assistance is in the form of a loan and not a grant.  They believe the government should be giving them the money to save their home. While we cannot respond positively to these folks, we do send them to one of our homeownership counseling partners to help them with other options that   might be available.

If you know someone who might benefit from the program, please feel free to give them my contact information.

Sincerely,
Dee Taylor
Director, Homeownership Division
Washington State Housing Finance Commission
1000 Second Avenue, Suite 2700
Seattle, WA 98104-1046
(206) 287-4414

Part one: Foreclosure; Losing the American Dream
Part two: Options for Homeowners Facing Foreclosure
Part three: Loan Modifications
Part four: Government Intervention in Foreclosure
Part five: Foreclosure; Letting Go and Rebuilding