Eggo shortage continues Graphic by Hayley I. F. Perkins
Housing, a cornerstone of the nation's economy, is about to lose several layers of federal aid that went a long way toward preventing the sector from crumbling and the economy from sinking deeper into recession.
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Deadline Newsroom - Housing, a cornerstone of the nation's economy, is about to lose several layers of federal aid that went a long way toward preventing the sector from crumbling and the economy from sinking deeper into recession.
Over much of the past two years, during the greatest economic downturn since the Great Depression, government programs rendered housing more affordable through lower mortgage interest rates, home-buying incentives and a greater supply of federally insured loans. That assistance is beginning to fade, leaving behind the potential for more expensive housing in an economy that has not yet fully recovered.
The government is questioning its own plans to withdraw from the nation's housing market. During the December meeting of the Federal Reserve's Open Market Committee and Board of Directors, members voiced concern about the economy's ability to sustain growth without a strong housing sector.
"In particular, they noted the risk that improvements in the housing sector might be undercut next year as the Federal Reserve's purchases of MBS [mortgage-backed securities] wind down, the home buyer tax credits expire and foreclosures and distress sales continue," according to minutes of the meeting.
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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.
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Deadline Newsroom - Wells Fargo & Co., a bank that received $25 billion from a U.S. Treasury bailout, canceled a four-day corporate event in Las Vegas as other financial firms cut similar perks amid criticism from lawmakers and media inquiries.
"We had scaled back the mortgage event, but in light of the current environment, we have now decided to cancel," the San Francisco-based company said Feb. 3 in a statement.
The lender also abandoned plans for similar future functions.
The move came after the Associated Press reported the bank booked 12 nights at upscale Wynn Las Vegas and Encore Las Vegas, two of that city's posh casino hotels, as part of a conference for top mortgage officials.
Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also a National Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location! DeadlineNews.Com's Editorial Content Is Intellectual Property • Unauthorized Use Is A Federal Crime Read more!
Turns out those ATMs may be one-armed bandits after all. Once one of the nation's top subprime mortgage writers, and recipient of $25 billion in taxpayer bailout money, Wells Fargo has booked 12 nights at two posh Vegas casinos to reward mortgage officers, says the Associated Press (AP).
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Deadline Newsroom - The Wells Fargo stage coach is rolling into Vegas this month, loaded with mortgage officers who managed to keep their jobs -- in part -- because of taxpayer money.
The Associated Press reported today the bank, which received $25 billion in taxpayer bailout money, is planning a series of corporate junkets to Las Vegas casinos this month.
It's the latest company to get federal bailout money and then engage in lavish money-burning behavior.
Meanwhile, consumers and small investors who were supposed to get a trickle down payback of their own tax dollars, continue to lose homes, retirement investments and take on extra jobs to pay the mortgage.
Once one of the nation's top subprime mortgage writers, Wells Fargo booked 12 nights at the posh Wynn Las Vegas and its sister hotel, the Encore Las Vegas. The hotels will host the annual conference for the company's top mortgage officers, according to the Associated Press (AP).
Subprime mortgages are responsible for a large chunk of millions of foreclosures. Foreclosures helped trigger the housing crash and, ultimately, the greatest economic recession since the Great Depression.
But at Wells Fargo, it's livin' large and business as usual.
AP reports such corporate getaways are bank tradition.
You know, the kind that goes back to the days of bandits robbing defenseless overland stagecoaches.
Later this month, the Wells Fargo's insurance division gets its hootenanny at the likewise posh Mandalay Bay Hotel.
Previous years have included all-expense-paid helicopter rides, wine tasting, horseback riding in Puerto Rico and a private Jimmy Buffett concert in the Bahamas for more than 1,000 employees and guests, AP said.
In previous years, top loan officers were treated to performances by Cher, Jay Leno and Huey Lewis. One year, the company provided fortune tellers and offered camel rides. Every night, employees returning to their rooms found a new gift on their pillows, according to the AP story.
Rooms at the Wynn and the Encore are among the most expensive on the Strip. Both properties have high-end retail stores, including Manolo Blahnik at Wynn and Chanel at Encore, according to AP.
And few leave Vegas without dropping a bundle at the tables.
Turns out those ATMs are one-armed bandits after all.
Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also a National Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location! DeadlineNews.Com's Editorial Content Is Intellectual Property • Unauthorized Use Is A Federal Crime Read more!
A new report about the ravages of foreclosures on the state level also documents the burgeoning state-level response to keep people in their homes. It's a must read for consumers seeking help.
Produced by the Pew Charitable Trusts as the first detailed dissertation to chronicle the impact of the foreclosure crisis at the state level, the report is chock full of "where-to-go-for-help" advice.
"The stakes are incredibly high. Home ownership is the primary vehicle through which American families build financial security. It also is an essential building block of state and local economies," according to Pew managing directors Susan Urahn and Shelley Hearne.
Their timing is impeccable. One in 33 current U.S. homeowners may be headed toward foreclosure in the coming years because of subprime loans, and in some states the crisis is more acute. In Arizona, one in every 18 homeowners could lose their home. In Nevada, the ratio is one in 11, according to the report.
The report charts some assertive, even experimental state efforts to mitigate financial harm to homeowners, lenders, local communities and state budgets.
• To help borrowers avoid foreclosure and keep their homes, 20 states (including California, Colorado, New York and Nevada) have launched formal foreclosure intervention or prevention initiatives.
• Sixteen states (along with those above, including, Indiana, Maryland, Massachusetts, Michigan, New Jersey, Ohio and Pennsylvania) have enacted both high-cost lending and foreclosure intervention laws.
• Thirteen states (among them Arizona, Illinois, Indiana, Iowa and Minnesota) have created counseling hotlines to help the foreclosure-at-risk, and several states are encouraging (too often reluctant) lenders to work with borrowers to find alternatives to foreclosure.
• Nine states (including Delaware, Maryland, Michigan and Ohio) have established loan funds that can be used to refinance borrowers who have loans they cannot afford or to provide short-term loans to help borrowers overcome financial difficulties.
• To protect vulnerable borrowers from unscrupulous real estate investors, nine states have created laws regulating firms that claim to "rescue" borrowers from default. Since the downturn, rescue operations have preyed upon vulnerable home owners.
• And in an effort to prevent problematic loans from being made in the first place, 31 states (among them, Arkansas, Georgia, Kentucky, Oklahoma, Texas and Utah ) have implemented laws that address predatory lending.
The report also explains the foreclosure process and lists home owners options when they default (become more than 30 days late on a payment) on their mortgage.
• Bring the account current by paying the past due balance on their loan, including late charges and other fees assessed by the lender.
• Renegotiate the terms of their loan with the lender.
• Pay off their loan by refinancing the loan with another lender.
• Sell the property to pay off the current loan, if the home is worth more than the mortgage. Or if the property is not worth the mortgage balance, engage a "short sale" where the lender forgives a portion of the debt provided a seller is available to buy the home.
• Voluntarily convey the property back to the lender through a deed–in-lieu of foreclosure.
The report also lists a host of relief efforts, some on the state level, some not, some well known, some not so well known, including:
Check with your state housing, consumer, social or community agencies to determine what home owner and mortgage programs and assistance is available to help see you through hard times.
Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's news that really hits home! DeadlineNews.Com's Editorial Content Is Intellectual Property • Unauthorized Use Is A Federal Crime
Don't count on new federal bailout measures to quickly trickle down to your neighborhood. Instead, struggling home owners should consider local assistance that is available right now.
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Deadline Newsroom - Don't expect the federal government to have all the answers for the economic crisis that's really hitting home.
Real estate is a local state of mind.
With its legislative lethargy, shotgun approach for bailing out Wall Street and the slow, plodding bureaucracy that will administer Washington, D.C.'s economic cures, federal relief efforts will take a while to trickle down to Main Street.
Fortunately, there's growing evidence some housing needs are being met right down the street -- on the real front line in the housing crisis. Metropolitan areas are trying hard to put the brakes on the American Dream deferred.
That's because the housing crisis isn't only affecting those who lose homes, "…but also by their neighbors, communities, municipalities. Policy makers also understand the importance of helping buyers stay in their homes so that they can build equity and contribute to the stability and fiscal health of their communities, towns, states and nation, according to the Pew Charitable Trust's "Defaulting on the Dream" an analysis of the current housing crisis and state-level responses.
The Brookings Institution also recognized the significance of the local market dynamic more than a year ago in what could be considered the framework for the United Metros of America.
The report, "Blueprint For American Prosperity" underscores how a detached federal government, embroiled in political partisanship and burdened by procedural procrastination has often proved ineffectual, if not impotent, when it comes to addressing the national penchant for prosperity.
The blueprint says more and more often, large metropolitan areas, not the federal government, are at the forefront of social change, quickly addressing housing policies, sprawl, sustainable development, education, immigration, infrastructure, energy independence, technological innovation, global warming and a host of other pressing social concerns.
Perhaps no where is that more true than on the home front. In many cases, struggling home owners need look no further than their own backyard community for relief.
• Hearkening back to WWW II industrialist Henry J. Kaiser's affordable housing communities, Chicago's Metropolitan Planning Council offers an Employer-Assisted Housing program that includes 60 employers offering down payments, rent, savings assistance and home ownership education to thousands of employees. Program leaders say the feds aren't doing enough. Federal agencies in September finally began doling out $3.92 billion in new Neighborhood Stabilization Grants (See what your community will get), once rejected by President Bush, but signed into law under Title III of the Housing And Economic Recovery Act of 2008 (HERA). The grants are designed to help local governments acquire and redevelop foreclosed properties that might otherwise become sources of abandonment and blight within their communities.
"These Neighborhood Stabilization Grants provide limited resources enough to recover just a fraction of the more than 30,000 properties that have been foreclosed upon in metropolitan Chicago since 2007," said Robin Snyderman, vice president of the Chicago area council's Housing & Community Development.
Check with your employer, local redevelopment and planning agencies, metro government, business groups, community efforts and social programs for employer assisted housing.
• In what's not a truly local effort, but evidence of federal knee-jerking, the National Association of Homebuilders have been lobbying Congress, though the din of recent bailout action, for a larger tax credit for first-time home buyers.
The builders say the current credit, actually a $7,500 interest free loan and another provision in the recovery act, has done little to spark housing sales in a credit-starved world. They'd like the feds to pump up the volume and double the credit/loan to $15,000.
Jerry Howard, the chief executive officer of the National Association of Home Builders, says association members -- small and large builders alike -- have felt "no impact" from the $7,500 provision.
Home buyers more often need up front cash incentives in the form of grants, down payment assistance and even solid lessons in home ownership. Again, check the local market for faster help.
New home builders, however, certainly aren't waiting for solutions from Capital Hill. All offer both cash and amenity incentives in most developments and some are taking matters into their own hands.
• Downtown San Jose, CA's redevelopment vision of a more vibrant city core included a building frenzy of first-time-for-the area, high-rise condos with ground floor shopping, retail services and other amenities in the mix. But failing sales -- zero sales for some properties -- led builders to convert many of the empty units to rentals. With an average rent of nearly $1,700 in the Silicon Valley area, according to RealFacts.com, rents can be far from affordable, but the conversions do add more rental units to an economically thriving region that's often short on housing.
As the housing bust ensued, rental housing in many hard hit areas has become cheaper or at least more negotiable due to a glut of unsold speculative condos and other properties converted to rentals.
Consider your position when the market springs back to life and you are already nesting in a full-featured home, rather than an apartment. It's not out of the question to negotiate a lease-option deal with the builder.
• Down the road, in Gilroy, CA, long before home ownership counseling was de rigueur for certain loans, mortgage assistance programs, bankruptcy law and bailout legislation, South County Housing was doling out a heavy curriculum of home ownership studies along with sweat-equity programs and loans that look a lot like subprime mortgages.
However, thanks to smarts that largely Latino buyers receive, foreclosure rates hover around zero, belying rates in the rest of the foreclosure-hammered Golden State.
Seek accredited home ownership counseling now and prepare in advance for your own home. There's a lot of counseling going around these days. In October, the U.S. Department of Housing and Urban Development (HUD) doled out, to more than 2,300 local housing counseling agencies, $50 million in housing counseling training and housing counseling grants for first-time home buyers. The feds, for all their stumbling and bumbling through the housing crisis, do seem to understand the local angle.
• Portland's elected regional Metro government has the authority to coordinate land use across several local jurisdictions and is currently focused on integrating housing choices and affordability into policymaking and funding allocations, better evaluating land use impacts of transportation investments, and safeguarding regionally significant natural areas. Similar agencies exist elsewhere.
The program should give SAMs a higher profile, but with the growing group of SAM facilitators, private SAMs can be available locally without federal originating restrictions.
Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's news that really hits home! DeadlineNews.Com's Editorial Content Is Intellectual Property • Unauthorized Use Is A Federal Crime
The $700 billion bailout legislation unveiled Sunday failed in the U.S. House of Representatives Monday after offering vague hope for millions of struggling home owners. The Dow responded with it's own 7's, three of them, in a historic drop of more than 777 points.
The $700 billion bailout legislation unveiled Sunday failed in the U.S. House of Representatives after offering vague hope for perhaps millions of struggling home owners.
Many argued, with housing as a permanent, but crumbling cornerstone of the economy, the nation's financial system as well as the economy won't recover until the foreclosure flood is effectively dammed.
The failed legislation didn't appear to offer that hope, and instead generated selling fear in the financial markets.
Wall Street reacted with the Dow's greatest plunge in history -- a 777.68 point crash. It was the biggest trading session drop since Sept. 17, 2001, the day the markets reopened after the 9/11 terrorist attacks, when the Dow fell 684 points. Standard & Poor's 500 Index tumbled the most since 1987.
The version of the bill that failed the House 228-205 Sept. 29 would have required federal agencies holding mortgages and mortgage securities to identify loans that could be modified, but the provision was unclear about how that task would have been accomplished.
These agencies would have included the Federal Reserve, Federal Deposit Insurance Corp., and the Federal Housing Finance Agency, which recently took control of mortgage giants Fannie Mae and Freddie Mac.
The failed legislation also would have allowed the Secretary of the Treasury to use loan guarantees and credit enhancement to avoid foreclosures, but again, provisions to were cloudy.
The legislation also called for shoring up the Hope for Homeowners program designed to prevent foreclosures, but it did not fully specify the enhancements. The Hope for Homeowners program, which begins Oct. 1, allows borrowers who can't meet their current mortgage terms to refinance into more affordable, fixed-rate loans backed by the Federal Housing Administration.
Michael Calhoun, president of the Center for Responsible Lending said there was "nothing in the bailout" sufficient to mitigate damage caused by foreclosure fallout.
The center has called for court-supervised loan modifications; foreclosure deferments; more Federal Housing Administration oversight; home loans from the Federal Deposit Insurance Corporation direct to consumers and stiffer regulations for future foreclosure prevention and stronger rules for mortgage lending and servicing.
Consumers Union likewise had recommended that the multi-billion bailout of the financial sector include more provisions and protections for home owners at risk of foreclosure; bankruptcy court power to prevent foreclosures; curbing abusive credit card practices and other provisions including greater oversight on companies receiving bailout assistance.
"We need to ensure that there is vigorous oversight of this bailout process but we also need a more long-term plan that provides strong new rules and enforcement to avoid future mortgage and credit meltdowns," said Jim Guest, Consumers Union president.
Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's news that really hits home! DeadlineNews.Com's Editorial Content Is Intellectual Property • Unauthorized Use Is A Federal Crime
President Bush today signed legislation designed to ease the housing crisis and prevent similar collapses in the future. Read the $300 billion "Housing and Economic Recovery Act of 2008" and the new National Association of Home Builders' tax credit-related Web site to learn how the credit works.
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Deadline Newsroom - President Bush today signed legislation designed to ease the housing crisis and to prevent similar collapses in the future. In the final back-and-forth between the U.S. House of Representatives and the U.S. Senate on the legislation, the House last week voted 272 to 152 to approve the "Housing and Economic Recovery Act of 2008". In a rare weekend session, the Senate followed with a 72 to 13 vote of approval.
President Bush agreed to sign the housing rescue package after initially voicing reservations about money for local communities to buy up distressed properties.
Unfortunately, the impact of the new legislation won't be felt until administrative issues are hammered out, likely by this fall or later.
In addition to helping communities with vacant properties, the package comes with stronger regulations for Fannie Mae and Freddie Mac, tax credits for first-time home buyers and higher limits (up to $625,500) on Federal Housing Administration (FHA) loans. Not only is the government effort expected to save an estimated 400,000 homes from foreclosure, the legislation could raise the profile of an unconventional creative financing tool and push it into the mainstream of housing finance.
The give and take in the legislative fight has always included the creation of an FHA-sponsored equity sharing program (Hope For Homeowners) to refinance loans at a discount for home owners facing foreclosure. In return, home owners would share future equity gains with the FHA.
"The feds are about to take equity sharing to the next level," says Jeff Langholz, founder and CEO of HomeEquityShare.com, an online network that matches equity sharing partners.
First-time home buyer tax credit
Among other provisions is a maximum $7,500 tax credit for first-time home buyers or buying couples who have never owned a home or who haven't owned a home in the past three years. In the case of a couple, both cannot have owned a home ever or during the prior three years.
Eligible home owners are also those with homes that closed from April 9, 2008 to July 1, 2009. Only single taxpayers with adjusted gross incomes up to $75,000 and married couples filing a joint return with incomes up to $150,000 qualify for the full tax credit. In a "married filing separately" household a maximum credit of $3,750 can be claimed on each return.
Partial credits of less than $7,500 are available for some taxpayers whose adjusted incomes exceeds the limits. The credit is not available for individual taxpayers with adjusted incomes of $95,000 or more and for married taxpayers filing joint returns with incomes of more than $170,000.
All or a portion of the home buyer credit can be claimed as a refund even if the taxpayer has little or no federal income tax owed.
The credit, designed to provide a financial incentive for home buyers, is actually a no-interest loan that must be repaid over 15 years, beginning two years after taking the credit. If the home is sold within 15 years, the balance of the tax credit payback is due, provided there is ample capital gains. The credit payback is forgiven if there's no capital gain at the time of the sale. Details were still being ironed out, but taxpayers will likely be able to claim the credit on IRS Form 1040 and more information should be available in the next version of IRS Publication 530 "Tax Information For First-Time Homeowners."
Second home owners foot the bill
Unfortunately, the same law that gives home buyers some tax relief, takes away a tax-break windfall previously enjoyed by second home owners. To help foot the bill for the relief act Congress closed a loophole second home owners used to avoid capital gains taxes.
Under current law, married homeowners can exclude from taxation, up to $500,000 in gains from a home sale, provided the property was the primary residence for two out of the previous five years. The maximum exclusion for a single person is $250,000.
Vacation and rental property owners can legally double dip the exclusion by first selling their primary residence and capturing the tax-free gain. Then, after moving into the second residence for two years to qualify it as their primary residence, they are able to cash in again on the tax-free gain after selling the second home.
That ends January 1, 2009 when the housing relief act eliminates the capital gains exclusion for the portion of gain that came while the home served as a vacation or rental property. The act retains the tax benefit for any gain achieved during the period when the property served as a principal residence.
Here's an example for a homeowner who sells a residence after 10 years of ownership and the home was a vacation property for eight years. If the home owner realizes a $100,000 gain when the home is sold, $80,000 would be subject to capital gains tax. The remaining $20,000 would qualify for the exclusion. Of course, if the home is never used as a vacation property, and is the primary residence for two years out of the last five, the full $100,000 gain would still be tax free.
Because the law doesn't take effect until 2009, home owners who move into the vacation home before the end of 2008 will still be eligible for the benefits of the old law. For more information, see Publication 523, "Selling Your Home."
Other provisions include:
• GSE (government-sponsored enterprise) reform. The law reforms the regulation of Fannie Mae and Freddie Mac and permanently increases the conforming loan limit to help buyers in high-cost markets (to what) as the government temporarily expands its line of credit to Fannie and Freddie. It also permit the U.S. Treasury to purchase an equity stake in the companies through the end of 2009.
• Mortgage revenue bond program gives states the ability to issue an additional $11 billion in mortgage revenue bonds to help strapped borrowers seeking to refinance their home loans.
• An enhancement of the low-income housing tax credit to expand the supply of affordable rental housing.
The legislation is also based on five principles.
1. Long-term affordability. The program is built on the idea that creating new equity for troubled homeowners is likely to be a more effective way to avoid foreclosures. New loans will be based on a family’s ability to repay the loan, ensuring affordability and sustainable home ownership.
2. No investor or lender bailout. Investors and/or lenders will have to take significant losses in order to benefit from the proceeds of the loans refinanced with government insurance. However, these losses would be less than the losses associated with foreclosure. 3. No windfall for borrowers. Borrowers will share their new equity and future appreciation equally with FHA. Borrowers will pay for the FHA insurance.
4. Voluntary participation. This will be a voluntary program. No lenders, servicers, or investors will be compelled to participate.
5. Restore confidence, liquidity, and transparency. Credit markets frozen with risk aversion, in part, because banks and other financial institutions do not know what their subprime mortgages and related securities are worth. The uncertainty is forcing lenders to hoard capital and stop the lending necessary for economic growth. This program is designed to help restore confidence and get markets flowing again.
Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's where all the news really hits home. DeadlineNews.Com's Editorial Content Is Intellectual Property • Unauthorized Use Is A Federal Crime
Legislation designed to ease the housing crisis and prevent similar collapses in the future awaits President Bush's signature. Read a summary of the $300 billion "American Housing Rescue and Foreclosure Prevention Act," also called, the "Housing and Economic Recovery Act of 2008"
Unauthorized use of this story is a copyright violation -- a federal crime
Deadline Newsroom - President Bush's signature is expected on legislation designed to ease the housing crisis and prevent similar collapses in the future. In the final back-and-forth between the U.S. House of Representatives and the U.S. Senate on the legislation, the House this week voted 272 to 152 to approve what's initially dubbed the "Housing and Economic Recovery Act of 2008". In a rare weekend session, the Senate followed with a 72 to 13 vote of approval on what was finally called the "American Housing Rescue and Foreclosure Prevention Act."
President Bush agreed to sign the housing rescue package after initially voicing reservations about money for local communities to buy up distressed properties.
Unfortunately, the impact of the new legislation won't be felt until administrative issues are hammered out, likely by this fall or later.
In addition to helping communities with vacant properties, the package comes with stronger regulations for Fannie Mae and Freddie Mac, tax credits for first-time home buyers and higher limits on Federal Housing Administration (FHA) loans. Not only is the government effort expected to save an estimated 400,000 homes from foreclosure, the legislation could raise the profile of an unconventional creative financing tool and push it into the mainstream of housing finance.
The give and take in the legislative fight has always included the creation of an FHA-sponsored equity sharing program to refinance loans at a discount for home owners facing foreclosure. In return, home owners would share future equity gains with the FHA.
"The feds are about to take equity sharing to the next level," says Jeff Langholz, founder and CEO of HomeEquityShare.com, an online network that matches equity sharing partners.
According to the summary, the legislation comes with five principles.
1. Long-term affordability. The program is built on the idea that creating new equity for troubled homeowners is likely to be a more effective way to avoid foreclosures. New loans will be based on a family’s ability to repay the loan, ensuring affordability and sustainable home ownership.
2. No investor or lender bailout. Investors and/or lenders will have to take significant losses in order to benefit from the proceeds of the loans refinanced with government insurance. However, these losses would be less than the losses associated with foreclosure. 3. No windfall for borrowers. Borrowers will share their new equity and future appreciation equally with FHA. Borrowers will pay for the FHA insurance.
4. Voluntary participation. This will be a voluntary program. No lenders, servicers, or investors will be compelled to participate.
5. Restore confidence, liquidity, and transparency. Credit markets frozen with risk aversion, in part, because banks and other financial institutions do not know what their subprime mortgages and related securities are worth. The uncertainty is forcing lenders to hoard capital and stop the lending necessary for economic growth. This program is designed to help restore confidence and get markets flowing again.
Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews Group -- DeadlineNews.Com, a real estate news and consulting service and Web site and the new Deadline Newsroom, DeadlineNews.Com's news back shop. In both cases, it's where all the news really hits home. DeadlineNews.Com's Editorial Content Is Intellectual Property • Unauthorized Use Is A Federal Crime
With some 9 million homeowners holding an incentive to dump their homes, a real homeowner bailout is beginning to look a lot better than what's in store otherwise.
Deadline Newsroom - It may not be such a bad idea to bailout millions homeowners who are in over their heads with mortgage debt.
Sure, many homeowners are to blame for their housing lust -- developed with a little boost from their friendly neighborhood real estate dealers -- but there's a bigger picture.
The economy is at stake.
Housing has long been considered an economic cornerstone. People buy homes. Homes gain value. People cash in on that value and buy stuff. As we all know, consumer spending is what really fuels the economy. Housing, after the dot com bust, carried the economy on its rooftop for years.
Unfortunately, the cycle is done. The trend is down. Home values are falling, faster and faster. Falling home prices are leaving consumers short of that extra home-based, economy-boosting, discretionary cash.
Mortgage lenders, who once poured mortgage money into the streets, now cover their assets and are reluctant to finance homes with falling values or to help the vast majority of homeowners facing falling fortunes.
Toss more foreclosures, short sales, auction sales and other homes with weakened values into an already over-supplied housing market and you get prices squeezed even more.
It's a vicious circle.
Take California.
The year got off to a rousing start in January when for the first time in documented history, there were more homes sold at foreclosure auctions than condos and single-family homes on the open resale market, according to data mash from ForeclosureRadar.com and DataQuick.
Meanwhile, January home sales in the Golden State were in the tank and prices were whipped, down a whopping 22 percent from a year ago, according to the California Association of Realtors (CAR).
California will always have Paris and celebrity stars gone wild, the Steve Jobses and the industries of nerds, so-real vacation playlands that serve as backdrops for Hollywood movies, and its own produce to eat, but most markets won't be so lucky.
They may follow California into a market of doom. Coming out is going to be tough.
Right now, without some sort of bailout (and most Americans want one), millions of homeowners have nothing but an incentive to dump their homes on the market. Their mortgages are larger than the value of their homes.
Moody's Economy.com recently reported that one in 10 homeowners, nearly 9 million of them, have homes that aren't worth the balance on their mortgage.
The threat of more depressed value homes on the market recently prompted Mark Zandi, Economy.com's chief economist to forecast a home price drop of 20 percent from peak price levels in 2006.
He says each foreclosure on a neighborhood block reduces the value of all homes on that block by almost 1.5 percent.
U.S. home prices were already down nearly 9 percent by the final quarter of 2007, compared to the same period in 2006, according to the Standard & Poor's/Case-Shiller Home Price Index.
That's the steepest decline in the index's 20-year history.
An unscientific poll running for months now on the news-that-really-hits-home Deadline Newsroom blog is leaning toward a "later than 2010" recovery for the housing market.
Experts at the Center for American Progress say, even if the credit market improved, a freefall in home prices due to excess inventories is likely to push the housing market bottom way out beyond the horizon of 2009.
And that's just the bottom. A real recovery will take much longer.
Market conditions today are a lot like the homeowner who waits until the last minute to try to escape foreclosure.
If there isn't a bail out now, options leave the table and prolonged distress could force a really costly bailout years down the road.
Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.
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If you are a homeowner with a subprime mortgage, chances are, you could use a little hope, right about now. You may be in luck. Mortgage servicers representing 90 percent of the subprime industry say they want to lend you a hand.
Deadline Newsroom - If you are a homeowner with a subprime mortgage, chances are, you could use a little hope, right about now.
You may be in luck. A program that just happens to be called HopeNow is putting the kind of hope you need on the fast track. Refinanced mortgages with fixed rates are available from the HopeNow program for qualified homeowners struggling with subprime mortgages.
Since it was created last year, HopeNow has taken applications from 45,000 subprime borrowers looking for some quick relief from mortgages they can't handle. Along with easier-to-manage mortgages, homeowners who refinance under the HopeNow program also get counseling to make sure they hold onto their new refinanced mortgage -- and their home.
The program has the blessings of both the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Affairs. The outreach program contacts subprime borrowers before they get into trouble and gives them the help they need to remain homeowners.
HopeNow is the work of mortgage servicers who represent 90 percent of the subprime market. The subprime mortgage market includes 2 million subprime mortgage holders who have mortgages that could reset to higher rates in the next two years, according to the U.S. Department of the Treasury.
The HopeNow program's fast track effort is speeding early applicants through the refinance process to free up time for mortgage servicers to focus on the more difficult cases, according to the Treasury Department.
The ultimate goal is to prevent as many foreclosures as possible.
For more information, visit the HopeNow.com Web site or call 1-888-995-HOPE (4673).
Treasury Secretary Henry Paulson said Hope Now's effort to fast-track qualified borrowers into new, affordable loans "Will be measured by the number of avoidable foreclosures that are prevented, not by the number of refinancings or modifications with an interest rate freeze."
The federal government/mortgage servicers alliance includes the American Bankers Association; American Financial Services Association; American Securitization Forum; America's Community Bankers; Assurant, Inc.; Bank of America (which plans to purchase home loan lender Countrywide Financial); CCCS Atlanta, Inc.; Carrington Mortgage Services; Citigroup Inc.; Consumer Bankers Association; Consumer Mortgage Coalition; EMC Mortgage, Inc.; Fannie Mae; The Financial Services Roundtable; First Horizon National Corporation; First Tennessee Home Loans; Freddie Mac: GMAC ResCap; Homeownership Preservation Foundation; Housing Partnership Network; The Housing Policy Council; HSBC Finance; Indymac Bank; JPMorgan Chase & Co; Litton Loan Servicing; Merrill Lynch; Home Loan Services/Wilshire; Morgan Stanley/Saxon; Mortgage Bankers Association; National City; NeighborWorks America; Ocwen Loan Servicing; Option One Mortgage Corporation; PMI Mortgage Insurance Co.; Securities Industry and Financial Markets Association; State Farm Insurance Companies; SunTrust Mortgage, Inc.; Washington Mutual, Inc.; and Wells Fargo & Company, among others.
Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.
DeadlineNews.Com's Editorial Content Is Intellectual Property • Unauthorized Use Is A Federal Crime
Deadline Newsroom – Offering more easy money to solve what easy mortgage money has wrought will only throw good money after bad and enable a flawed, strung-out system to flourish.
Even consumers with mortgages that have melted down don't deserve a federal cash-based bailout. Don't shoot the messenger.
Those are the recommendations of the National Taxpayer Union. Welcome to the school of hard knocks.
Call it tough love or tough luck, but the Union says borrowers, brokers, lenders and others who took on or gave out too much mortgage risk will just have to, well, suck on it.
They should get no quarter.
"A government bailout is not a viable solution. The government bailout is only going to reward people who made bad decisions -- both borrowers and lenders -- and if we reward bad decisions, it's only going to encourage more people to make these bad decisions in the future," said study author Jacob Vigdor, an associate professor of Public Policy Studies and Economics at Duke University.
Vigdor says just about any kind of financial lifesaver from rewriting a consumer's mortgage to stave off foreclosure to a cash infusion from the federal government to save a lender amounts to a subsidized bailout.
Foreclosure moratoriums, taxpayer-backed loans to troubled borrowers and lender-restrictions that effectively rewrite mortgage contracts all effectively socialize risk while encouraging recklessness from borrowers and lenders alike, the Union says.
While President Bush says he stopped short of a federal bailout for lenders for the same reasons the Union says any bailout is shortsighted, many consumer provisions in the Bush plan are just what the Union denounces.
Says Vigdor, any bailout approach is a "moral hazard" which means that "wealth is redistributed from the responsible to the irresponsible, from the ethical to the unethical."
• Brokers, who account for the majority of subprime loan originations, pursued subprime borrowers aggressively, sometimes recommending loans that were a poor match for the borrower’s financial circumstances.
• Similarly over-eager to attract borrowers and to close deals quickly, lenders engaged in poor underwriting practices, failing to obtain reasonable evidence of a borrower’s ability to repay, offering no-money-down arrangements, and approving borrowers based on "teaser" rates, rather than the fully-indexed rate.
• Seeking to qualify for the largest loans possible, and often assuming that home prices would continue upward, borrowers with little ability to manage payment shock or earnings fluctuation "maxed out" their loans, in some cases by lying about their earnings. The Union said, as everyone now knows, when housing prices leveled off, or declined in some regions, the house of cards collapsed. Borrowers defaulted on higher payments and couldn't tap their equity, if any, to refinance or pay off the large principal.
Government intervention also isn't necessary, says the Taxpayers Union, because evidence thus far doesn't indicate a "crisis."
It says delinquency, foreclosure and held-for-sale rates of subprime mortgages originated in 2006 are higher than for loans originated in 2003 and 2004, but are on par with those originated in 2000-2001.
Also while the rate of foreclosure this year has soared to 80 percent or more of those last year in some markets in some months, only 7 percent of subprime loans originating in 2006 were recently in danger of being held for sale, foreclosed upon, or going delinquent.
"The only sure way to eliminate the high rate of foreclosures in the subprime market would be to eliminate the market entirely," depriving the other 93-95 percent of subprime borrowers of their American Dream.
Rather than going to such extremes, instead of offering bailouts or ignoring the plight of existing borrowers, less intrusive forms of assistance do work, the Union says.
Some of the best forms of assistance are "educational bailouts" where consumer education and foreclosure-avoidance strategies are employed even after the borrower gets in too deep.
For example NeighborhoodWorks America and its Center for Foreclosure Solutions revealed a year ago how community-based programs can dramatically reduce foreclosure rates without major financial bailouts.
A combination of borrower education, sometime spanning the full cycle of homeownership and debt management, used in conjunction with loss mitigation and limited short-term financial assistance may be a better idea.
While lenders and brokers must retool their efforts to school borrowers, bring disclosures in line with today's complicated mortgages and underwrite based on real risk, NeighborWorks' work serves as a reminder that there are a multitude of ways to help borrowers avoid foreclosure, short of taxpayers taking over their mortgages.
"Consumer education is a theme running through every successful program," the report says.
Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.
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