Reno Sparks Real Estate Today

Update On Home Affordable Modification Program HAMP

Below is an update to the Home Affordable Modification Program, better known as HAMP. One of the interesting additions is the eligibility of investor owned homes.  Also write downs (reductions in loan amounts) are given a bigger priority. 

All of this sounds really good but the problem is this is a volantary program. Lenders don't have to comply. There is a lot of money in servicing loans, processing foreclosures, and related services.  

The Obama administration has announced changes to its flagship foreclosure prevention initiative – the Home Affordable Modification Program (HAMP). Among the changes, borrowers who are struggling because of debt beyond their mortgage will be eligible for a secondary evaluation with more flexible debt-to-income criteria, and eligibility will be extended to investor-owned homes that are used as rental properties. The administration is also giving principal reductions a bigger role within the program, tripling incentives for investors that agree to write down an underwater borrower’s principal balance and offering these same incentives to the nation’s two biggest mortgage investors – Fannie Mae and Freddie Mac.

Stay tuned.........

From The Desk Of Captain Obvious

I read this story about Fed chief Ben Bernanke taking a stand on the foreclosure crisis and I had to share it. 

Say what you want about the federal reserve and their actions over the last decade. It would be hard to argue their actions have been anything but a complete disaster. 

Fed - foreclosure is not the best solution

More than four years into the housing crisis, and after millions of Americans have lost their homes, Federal Reserve Chairman Ben Bernanke is finally taking a stand.  Bernanke sent a Federal Reserve paper to the leaders of the House of Representative's Committee on Financial Services arguing that relying heavily on foreclosures to deal with mortgage borrowers that can't meet their obligations is "costly and inefficient" for the housing market because they can lead to deteriorating homes and weigh on the property values in the surrounding community.  Instead, the paper encourages lenders to "aggressively" pursue loan modifications and for servicers to be given more incentives to seek alternatives to foreclosure. Foreclosures "can result in 'deadweight losses,' or costs that do not benefit anyone, including the neglect and deterioration of properties that often sit vacant for months (or even years) and the associated negative effects on neighborhoods," the paper said. "These deadweight losses compound the losses that households and creditors already
bear and can result in further downward pressure on house prices."

The paper mirrors findings from regional Fed banks indicating that foreclosures can be detrimental to more Americans than just those who are losing their homes. Properties that are occupied, but in foreclosure, drive down the surrounding property values twice as much as vacant properties, an October study from the Cleveland Federal Reserve found.  And with millions of foreclosed properties already in the pipeline, the foreclosure process is already taking longer than in recent memory -- a situation that may only be exacerbated if lenders don't take the Fed's advice. The average foreclosure process now takes 674 days, almost triple the time necessary in 2007.

You can read more here. 

Let me translate for you. This is the fed saying. We have lowered interest rates, bailed out banks, pumped countless extra dollars into the economy, hurry up and clean up our mess. 

Just for fun, here are a few more stellar quotes on housing from Captain Bernanke. 

(July, 2005) "We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though."

(October 20, 2005) "House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals."

(February 15, 2006) "Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise."

(February 15, 2007) "Despite the ongoing adjustments in the housing sector, overall economic prospects for households remain good. Household finances appear generally solid, and delinquency rates on most types of consumer loans and residential mortgages remain low."

(March 28, 2007) "At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency."

(May 17, 2007) "All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.  The vast majority of mortgages, including even subprime mortgages, continue to perform well.  Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable."

 

 

Need A Down Payment? IRA Might Be The Answer

Homes are more affordable today than almost any other time in recent history. Prices are dirt cheap, lower than replacement cost in most cases. Meaning you can’t buy the materials and build a house for what you can buy one for today. Interest rates are at all time lows, and there are “deals” everywhere.

Many people can qualify for a mortgage but are struggling to come up with a good-sized down payment. With the much stricter loan qualification standards in effect today compared to times past, borrowers are often required to put down at least 20 percent of the purchase price to obtain a home loan.

Fortunately, first-time homebuyers who have IRAs (individual retirement accounts) may have more money available for a down payment than they realize. Ordinarily, the money in an IRA can't be withdrawn before age 59.5 without incurring a 10 percent income tax penalty.

However, there is a special exemption for first-time homebuyers. They can withdraw up to $10,000 in IRA funds to purchase a first home without paying the penalty. A married couple can each withdraw $10,000, giving a total of $20,000.

Whenever money is withdrawn from a traditional IRA, it must be reported as income and regular income tax paid on it. This applies to withdrawals for buying a first home. However, this rule does not apply to Roth IRAs. 

Like traditional IRAs, Roth IRAs are tax deferred. Unlike traditional IRAs, however, contributions to Roth IRAs are not tax deductible. Instead, withdrawals are tax free after age 59.5.

Are taxes due on the withdrawal?

So long as the Roth IRA has been in existence for at least five years, withdrawals up to $10,000 for a first-time home purchase are completely tax free -- neither income tax nor a penalty tax need be paid.However, if the Roth IRA is less than 5 years old, income taxes may have to be paid on the withdrawal, but no penalty tax.

Who is a first-time homebuyer? 

The good news is that a person can qualify as a first-time homebuyer for these purposes even if he or she has owned homes in the past. For IRA purposes, you're a first-time homebuyer so long as you, or your spouse, did own a principal residence at any time during the previous two years.

The two years are measured from the time the new home is acquired. This is the date a binding sales contract is signed or building or rebuilding has begun.

What can the money be used for?

The IRA withdrawal can be used to help pay for any costs involved in buying, building, or rebuilding a home. It may also be used for reasonable settlement, financing, or other closing costs.

Moreover, the money can be given to a child, grandchild, parent, or other ancestor to buy a first home so long as that individual qualifies under the rules.

The money must be used to pay these costs within 120 days after it is withdrawn from the IRA account. If the home purchase is canceled or delayed, no taxes will be due so long as the money is put back into the account within 120 days of its withdrawal.

Personal circumstances vary greatly. As always, you should seek advise from qualified professionals before making any financial decisions.

 

 

Foreclosures Will Clean Up The Mess

It appears people smarter than me are finally figuring out, we need to get foreclosures and short sales done to get the market back on track.

http://money.cnn.com/2011/08/31/real_estate/housing_market_foreclosures/

I’ve long said, the government needs to quit throwing good money after bad and get out of the way.  The biggest problem with the real estate market today is lack of confidence.

Banks, buyers, sellers, real estate agents, loan officers, and other industry professional have no idea what is going to happen next. Is the government going to step in with another plan? Are banks going to get more incentives? Any new programs to help homeowners on the way? Is the fed going to keep interest rates artificially low? If so how long?

So many questions and so few answers.   

Confidence and some level of predictability is key in any market.  You can be confident the market is going down, it’s going to stay about the same, or is going up. If you can feel confident in the market direction you can begin to make important decisions.  

The longer we delay the inevitable, the worse it will get. Prices will continue to fall, more vacant homes will litter neighborhoods, and we will be talking about this a year from now.

The sad part of the story is if the market was left to fall on it’s own, a recovery would most likely already be underway. 

 

Oprah,The Government, And Housing

Finally somene in the government states the obvious.  

House Speaker John Boehner is "skeptical" there is "anything the government can do" to alleviate America's housing crisis.

You can read the full interview and article here.  http://www.cbsnews.com/stories/2011/05/15/ftn/main20062782.shtml

The Government is like Oprah when it comes to home ownership. You get a house, you get a house, and you get a house. Everyone gets a house. No money, no worries we have FHA for you. Banks don’t want to risk giving you a loan because you have bad credit, no problem, we have Fannie and Freddie to take all the risk out. House prices are going to high, no worries we will call the FED cartel and have them lower interest rates to make it cheaper.
The government needs to get out of the mortgage and real estate market, period. Manipulating markets leads to bigger and bigger bubbles and less and less confidence in "the markets." You can not cheat natural forces of a "free" market and economy. The more you do the worse the consequences.
So like Oprah, after 25yrs of making everyone feel good, it’s time to move on.

Home Ownership - The Lost Decade

With all that government help, we are back to home ownership levels not seen since 1998. Ownership levels are expected to fall even further in the coming years.

The mortgage crisis has officially wiped out all the buyers from the 2000-2007 real estate boom. According to the Census Bureau, in the fourth quarter of 2010, 66.5% of Americans owned homes – down from 67.2% a year earlier and the lowest rate since the end of 1998. During the boom, the ownership rate hit a record 69.2% in 2004. Some housing experts expect the rate to fall below 65% as millions more Americans face foreclosure. 

Total U.S. building activity (including both residential and commercial) hit its lowest point in a decade last year. Construction spending fell 10.3% in 2010, marking the fifth annual decline and the lowest level since 2000.

So my questions.

Are government sponsored programs like Fannie Mae and Freddie Mac worth the risk and expense to tax payers?

Do FHA, HUD, and VA loan programs really improve home ownership rates?

You can probably guess my answers!

 

Home Buyer Tax Credit - Check Your Returns

Make sure you check your tax returns if you claimed any version of the home buyer tax credit. Some home buyers may get a big surprise from the IRS if their tax returns are incorrect. 

According to a report from the Inspector General for Tax Administration, about 950,000 of the nearly 1.8 million Americans who claimed the tax credit on their 2009 tax returns will have to return the money.  Those who bought properties during 2008 were to deduct, dollar for dollar, up to 10% of the home's purchase price or $7,500, whichever was less. The catch: The money was a no-interest loan that had to be repaid within 15 years.  Had they waited to buy until 2009, they could have gotten a much sweeter deal. Congress extended the credit and made it a refund rather than a loan.  Now, the IRS is developing a strategy for separating the 2009 taxpayers who are required to repay the credit from those who are not.

A review by the Inspector General earlier this year found that the IRS could not easily distinguish between home purchases made in 2008 and 2009. That heightened concerns that some claims could be erroneous or even fraudulent, that buyers could, for example, claim their purchase came later than it actually occurred.  Yesterday's release reported that 73,000 claims, more than 4% of the 1.8 million homebuyers who received the credit, had incorrect purchase dates recorded by the IRS.  Some of the inaccuracies counted against the taxpayers, Nearly 60,000 were listed as purchasing in 2008 (meaning they had to repay the credit) or had no purchase dates at all, rather than their correct 2009 purchase dates, which would free them of the obligation to pay it back.  It is also taking a look at all those deceased taxpayers who received credits.  The inspector general reported that 1,326 single people listed as dead by the Social Security Administration claimed more than $10 million in credits. The IRS threw out 528 of those 1,326 claims, saving $4 million.

Mortgage Market Changes - What It Means To You

By the time you are reading this, the new 2300 page financial reform bill is likely to be making the headlines. The Senate has already approved the new bill and President Obama is expected to sign it into law this week ..despite the fact that many of the provision related to specific regulations have yet to even be written. If that sounds faintly disturbing, don't worry...your concern is noted and shared by many experts through the nation. However, there are sweeping changes that are already apparent despite the lack of specific details.
Although broad in scope, home buyers and sellers are likely to be among the first impacted by the new provisions. They represent one of the most comprehensive - top to bottom  changes to the finance, valuation, types of mortgage products offered and how lenders are compensated to take place in decades. In fact, there are even new rules for investors that provide capital for the purchase of mortgages.

A few of the most important points likely to make immense impact to buyers, sellers and investors is the language dealing with any type of mortgage outside of the "traditional" or "plain vanilla" category. Unfortunately, regulators have yet to fully define what will constitute a "traditional" mortgage under the new plan but it is clear that the line will be drawn to reduce the number of sub-prime borrowers as well as offerings of owner finance and other alternative forms of finance. Experts predict an immediate severe impact on many minority and low income borrowers; many who have already been impacted by far less severe measures. For example, according to FHA, rejection rates for African American and Latino borrowers have substantially increased among non-FHA loans.

The new FDIC and other regulatory oversight standards contained in the bill are expected to provide safer mortgage(s) instruments but at a higher cost and more stringent requirements for both banks and individuals. It is estimated that only five banks currently control more than 65% of the current mortgage market; the new bill is expected to further consolidate this trend by favoring big banks over small. In part, this is due to the belief that big banks are easier to regulate. However, at the same time, new controls and rules regulating private investors are also expected to take another two to three years to fully define...leading many to believe the bulk of mortgages will still be backed by the United States government for the foreseeable future.

Freddie Mac and Fannie Mae Delisted!

A topic that seems to have flown under the radar; government home mortgage giants Freddie Mac and Fannie Mae were delisting from the New York Stock Exchange. Actually they are Government Sponsored Enterprises (GSE’s).  Even with $145 billion in taxpayer money spent to prop them up, shares have dropped so significantly they no longer qualify for inclusion on the exchange but will continue to be traded via the infamous bulletin board instead. In order to participate in the traditional exchange, shares must trade above $1...Fannie has been below that level for well over a month making delisting a legal necessity. Freddie has continued to struggle at just over the $1 level but will also be delisted given the eventual prospects. Given the difficulty of becoming profitable...much less an actual attempt to repay the government aid, it's unlikely any serious effort to revive the failing entities will happen.

Since January, Freddie and Fannie (with some help from the Veterans Administration) have underwritten nearly all new home mortgages; throw in the assumption of bad assets and bail-outs and the combined total for the defunct duo now accounts for nearly half of all the mortgages in the entire nation. With bank lending standards showing little sign of relief, experts are wondering what the delisting of Fannie and Freddie may mean for the future of a struggling real estate industry.

Aside from the loss of shareholder value...which is expected to be significant as neither entity has retained any level of significant value...the immediate impact is expected to be minimal. "Business as usual" is the anticipated motto for the time being. However, experts predict the long term consequences could dramatically alter the landscape of mortgage lending for years to come. There is significant support for privatizing the role of Freddie and Fannie while liquidating assets to recoup some of the anticipated $1 Trillion in losses currently shouldered by the tax payers.

Fed proposed Homestar program gives homeowners incentive for energy efficiency.

The government released more details on the proposed “Homestar Energy Effiency Retrofit Program.” Here are some of the details.

 

·                        Rebates delivered directly to consumers: Like the Cash for Clunkers program, consumers would be eligible for direct HOMESTAR rebates at the point of sale for a variety of energy-saving investments in their homes. A broad array of vendors, from small independent building material dealers, large national home improvement chains, energy efficiency installation professionals and utility energy efficiency programs (including rural utilities) would market the rebates, provide them directly to consumers and then be reimbursed by the federal government.

·                        $1,000 - $1,500 Silver Star Rebates: Consumers looking to have simple upgrades performed in their homes would be eligible for 50% rebates up to $1,000 - $1,500 for doing any of a straightforward set of upgrades, including: insulation, duct sealing, water heaters, HVAC units, windows, roofing and doors. Under Silver Star, consumers can chose a combination of upgrades for rebates up to a maximum of $3,000 per home. Rebates would be limited to the most energy efficient categories of upgrades—focusing on products made primarily in the United States and installed by certified contractors.

·                        $3000 Gold Star Rebates: Consumers interested in more comprehensive energy retrofits would be eligible for a $3,000 rebate for a whole home energy audit and subsequent retrofit tailored to achieve a 20% energy savings in their homes. Consumers could receive additional rebate amounts for energy savings in excess of 20%. Gold Star would build on existing whole home retrofit programs, like EPA’s successful Home Performance with Energy Star program.

·                        Oversight to Ensure Quality Installations: The program would require that contractors be certified to perform efficiency installations. Independent quality assurance providers would conduct field audits after work is completed to ensure proper installation so consumers receive energy savings from their upgrades. States would oversee the implementation of quality assurance to ensure that the program was moving the industry toward more robust standards and comprehensive energy retrofit practices.

·                        Support for financing: The program would include support to State and local governments to provide financing options for consumers seeking to make efficiency investments in their homes. This will help ensure that consumers can afford to make these investments. 

 

For more details, you can visit http://www.whitehouse.gov/the-press-office/fact-sheet-homestar-energy-efficiency-retrofit-program