Equity Expert’s Weblog

March 24, 2009

The Fed, and Record Rates (again)

Filed under: Real Estate — equityexpert @ 7:23 pm
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from HSH Associates Financial News Blog by Tim Manni

According to the latest issue of HSH’s Market Trends Newsletter, “The Fed, and Record Rates (again),” the conclusion of the Fed’s two-day FOMC meeting sent conforming mortgage rates down once again to historically-low levels.

“Without usual policy tools at its disposal, the Fed again weighed heavily into mortgage and bond markets. At the close of its meeting Wednesday, The Fed announced an extension of its plan to buy up Fannie and Freddie-issued debt and mortgage-backed securities offered by the GSEs as well as Ginnie Mae (FHA-backed product) and detailed a long-rumored plan to start purchasing certain Treasury securities.”

“Conforming mortgage rates moved into record territory again this week. After falling to a new daily low average rate of 4.94% on Thursday, HSH’s weekly average for 30-year FRM conforming money also managed a 13-basis point dip to 5.07% + 0.28 points, while the overall average for fixed-rate mortgage money (expressed as HSH’s Fixed-Rate Mortgage Indicator) slipped back by seven basis points, landing at 5.62%. The FRMI’s 5/1 Hybrid counterpart moved backward by six basis points to 5.36%, while Federally-unsupported jumbo 30-year FRMs remained steady for the week.”

“The Fed originally announced a $600 billion mortgage support plan back in November 2008, with $100 billion available for GSE debt and $500 billion for MBS purchases. The plan kicked in in early January, and since then the Fed has been accumulating MBS at about $4 billion per day, with estimates that they have used up about $200 billion of the original $500 billion commitment. At such a pace, it’s easy to plot on a calendar just when that original commitment would come to a close — somewhere in May or June. At about $100 billion per month, and with an initial expiry in a month or two, we believe that the Fed’s new $750 billion represents an enduring commitment to this program at least until the end of the year and perhaps slightly beyond. The total of $1.25 trillion may very well mean that virtually all MBS originated this year will find a ready buyer, financial market stress or not.”

“While there was some anticipation that mortgage rates would fall sharply as a result of the program, we note that the Fed didn’t say that they were going to pick up the velocity of their purchases (although they well could). Rather, we think that they wished to signal to the bond market and consumers that rates would remain low and stable for the foreseeable future, and that there will be an entity that will support the good-credit quality mortgage markets.”


March 19, 2009

California Home Sales on the Rise

Filed under: Real Estate — equityexpert @ 8:47 am
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California Home Sales on the Rise

by User ImageTim Manni
One of the country’s hardest-hit housing markets has shown significant signs of improvement so far this year. According to the California Association of Realtors (C.A.R.), single-family home sales increased 100.8% in January from a year ago. With home prices at extremely low levels, California has drastically begun reducing their unsold inventory.

The median price of a single-family home dropped 40.5% in January. The C.A.R.’s index of unsold homes depleted from 16.6 months in January of 2008, to just 6.7 months in 2009.

“The strength in California home sales in recent months signifies that the market is gradually working its way through the large numbers of distressed sales that have followed in the wake of the troubled mortgage problem. With favorable home prices and historically low mortgage rates, affordability in the California housing market is now at its highest since the start of the decade,” said C.A.R. President James Liptak.

Sales in Southern California’s six-county region continued to improve last month as well. The L.A. Times reported that homes sales increased 41% in February from 2008.

The recent uptick in housing reports hasn’t been limited to just the west coast. National housing starts rose 22% in January according to the Commerce Department. Indicators for new construction are also on the rise. Applications for building permits jumped 3% in February.

Economists are quick to warn against getting too excited over the news. However, if these statistics hold in the coming months, especially in foreclosure-ridden states like California, we may be witnessing a significant turnaround.

February 7, 2009

The Senate’s Flawed 4 Percent Mortgage Refinance Plan

Filed under: Real Estate — equityexpert @ 9:28 pm

February 4, 2009

by Ronald D. Utt, Ph.D., David C. John and J.D. Foster, Ph.D.

Recently, there has been a great deal of discussion about the Senate Republicans’ 4 percent housing stimulus and mortgage relief plan (proposed earlier by Chris Mayer and Glenn Hubbard of Columbia Business School). While this plan is correct in assessing the severity of the current housing situation, refinancing mortgages at very low interest rates would be a costly initiative and a massive new government intervention in housing and finance markets that would yield few if any of the promised benefits.

High Mortgage Rates Are Not the Problem

Too-high mortgage rates are the least of the problems facing housing today, and mortgage interest rates on the open market are already approaching the level that Mayer and Hubbard propose without government interference, mandates, or subsidies. In fact, the 5.25 percent interest rates first proposed by Mayer and Hubbard in The Wall Street Journal are already higher than the rate offered to many borrowers, which led them to revise their proposal to a 4 percent rate.

The biggest issues currently facing the market include:

  • The low credit quality of the existing group of non-owners; 
  • The continued declines in home prices in many areas as previous speculative bubbles continue to deflate; 
  • The enormous stock of excess housing units; 
  • and The fact that the uncertainty of future employment is deterring many potential home buyers. 

A decrease in mortgage interest rates will do little to address these issues.

As Mayer describes it, this new 4 percent mortgage interest rate will also be available to those wishing to refinance their mortgages, which he claims will add an extra $175 billion per year of disposable income to households and thereby provide a significant stimulus to the economy. Why our government would also want to provide deep subsidies to those not needing them is unexplained. However, the truly catastrophic aspect of this proposal is that the $175 billion represents a transfer of income from the badly battered and nearly insolvent financial sector to 25 million relatively untroubled homeowners. Raising the purchasing power of individuals and families is sensible to stimulate the economy, but it should be done directly through reductions in marginal tax rates.

Mayer contends that now is a good time to implement the Mayer-Hubbard plan because “home prices have already fallen at or below where fundamentals suggest.” This assertion fails on two counts: First, housing prices are set locally. In some markets, housing prices were slightly elevated and have come down modestly; in others–largely those subject to restrictive land use regulations–prices were highly inflated and may have further to fall to reach normal levels. Statements about housing prices nationally are almost always empty.

Second, if it were so obvious that housing prices were approaching normal levels, the market would respond accordingly. But with median home prices in many U.S. metropolitan areas still more than four to nine times median household income in the area, housing prices in many of the most distressed areas remain well above their historic norm. With the housing finance industry now refocused on more responsible lending practices, house prices will continue to fall in these least affordable–and most troubled–housing markets as previous, lower-quality borrowers are now properly denied mortgages on which they are likely to default and for properties they cannot afford.

Mayer further argues that this mortgage rate reduction will yield between 800,000 and 2.4 million additional home sales per year. This, too, is not supported by any reasonable evidence. There are many econometric models of the housing market that might predict such an impact, but their results are largely determined by a long-term pattern of growing economic prosperity, rising home prices, and stable financial markets and thus are not valid in times of unprecedented turbulence like the present.

Come One, Come All

Of particular concern is that under Mayer-Hubbard, lower mortgage interest rates would be available to all borrowers regardless of whether they can afford their current mortgages. Already, mortgage lenders are swamped with the number of good-quality borrowers who want to refinance their loans to take advantage of the low rates available on the private market. This glut will only grow exponentially as homeowners seek to take advantage of the “once in a lifetime” lower rates. Faced with such a demand, lenders are almost certain to focus first on larger loans that provide the highest risk to the lender and second on the loans of good customers. The rest of the market will simply have to wait their turn.

In the long run, the 4 percent loan rate will have a strongly negative impact on private mortgage lenders. First, once a borrower has refinanced at the lower level, he or she will be very unlikely to ever refinance that home again. Second, it is unclear from the Mayer-Hubbard proposal how markets will return to market interest rates. If there is a firm cutoff date for the subsidized rate, there will be floods of applications as that date approaches and inevitable complaints and suits from those who missed the deadline. If there is a gradual move to higher rates, it keeps the rates artificially low for an extended period of time, thus distorting the housing market for longer than necessary.

Finally, the market, not policymakers, is best suited to establish interest rates for specific loan products.

Problems with Implementation

In contrast with his proposal for setting mortgage rates, Mayer’s proposed mortgage renegotiation process may be an improvement over the current situation. Whenever possible, lenders, borrowers, and the local markets generally are best served when a mortgage can be reworked so as to create a reasonable prospect of avoiding foreclosure. The magnitude of the current turmoil was not anticipated when common servicing arrangements with respect to third-party services were established. However, as past efforts have shown, renegotiating mortgages is far more complex than many appreciate, and the ultimate outcomes are often unchanged.

The Mayer-Hubbard proposal is intended to address problems arising from diverse ownership of mortgages that have been securitized and the legitimate fear of mortgage servicers that they could be liable if any of the owners object to the terms of a refinancing. However, a serious problem remains in dealing with the second mortgages that are often part of a financing package. Past evidence makes it clear that these complications are not minor and that they are not likely to be easily swept away.

It is clear, however, that to date about half of the renegotiated mortgages soon ended up back in default, and most responsible studies expect that level of redefault for future refinancings to persist. This should not be surprising for the subprime borrowers because they already had a checkered borrowing history in order to be eligible for the designation of “subprime borrower,” a situation that would not change now when the advantages of default are so much greater. However, the level of defaults is also increasing on mortgages where the borrowers had higher quality credit histories. Unfortunately, there are strong indications that these groups are also likely to have higher than expected redefaults.

Trying to Preserve a Vanished Housing Market

Although there is much to be said for trying to resolve the current housing problem in an accommodating fashion, the main flaw with the Mayer-Hubbard plan is that it is trying to preserve a housing market outcome in terms of both the absolute quantity of the housing stock and the prices paid for housing units that should never have happened in the first place. As painful as it is, the market is slowly working its way back to a sustainable outcome.

When mortgage lenders and investors were picky about risk and limited credit to those who by experience, income, and wealth had a high probability of paying back the loan, the homeownership rate in the U.S. largely remained within the 63 to 65 percent range. This level of homeownership was constant in the U.S. from the early 1960s to the mid-1990s. With the growing acceptance of subprime mortgages, low- or no-down-payment loans, and exotic repayment schemes, previously ineligible households became eligible for credit, driving the homeownership rate up to 69 percent. Unfortunately, this level was unsustainable, and the housing market is in the process of returning to the long-term sustainable norm of 64-65 percent. A side effect of this process is that it will yield something on the magnitude of about 5 million “surplus” housing units that will no longer be owner-occupied.

Mayer, Hubbard, and others like them are attempting to reverse this process and use generous subsidies and interventions to restore a level of ownership that the market has just demonstrated as unsustainable even in good times. And with the good times gone for an unknown length of time, the impossibility of their proposal having a successful outcome seems even more obvious.

What Next?

This is certainly not an easy problem to resolve, and the effort that has gone into discussing the Mayer-Hubbard plan is considerable. Unfortunately, their proposal is simply not an appropriate solution. The clear implication of available data is that this country will return to a sustainable level of homeownership and that this will leave many of the unqualified owners as renters who will need places to rent. Thus, public policy should be focused on ways to redeploy this surplus of formerly owner-occupied homes to rentals.

It should not be government policy to spend massive amounts of taxpayer money to subsidize those who do not need subsidies, provide homes for those who cannot afford to keep them, and in the process destroy the private mortgage finance system. Trying to short-circuit the market’s resolution of the current housing situation will be both expensive and unlikely to succeed.

Ronald D. Utt, Ph.D., is the Herbert and Joyce Morgan Senior Research Fellow, David C. John is Senior Research Fellow in Retirement Security and Financial Institutions, and J. D. Foster, Ph.D., is Norman B. Ture Senior Fellow in the Economics of Fiscal Policy in the Thomas A. Roe Institute for Economic Policy Studies, at The Heritage Foundation.  Originally posted at http://www.heritage.org/Research/Economy/wm2269.cfm

February 6, 2009

Watch for changes to lending guidelines!

Filed under: Real Estate — equityexpert @ 5:29 pm
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It seems like just yesterday when I was emailing realtors regarding some of the changes that Fannie Mae had made limiting loans to individuals who have more than four financed properties.  Then I receive this update to which changes the guidelines (Announcement 09-02):

Multiple Mortgages to the Same Borrower
To support prudent lending for housing investment, Fannie Mae is changing our current limit of four financed properties per borrower. We will allow five to ten financed properties per borrower, with certain eligibility and underwriting requirements, including a 720 minimum credit score and 70-75% maximum LTV/CLTV/HCLTV (depending on the transaction and property type). The requirements apply to any loan being delivered to Fannie Mae, regardless of whether Fannie Mae is the investor on the borrower’s other mortgages.

Stay tuned – more changes are I am sure on the way!

February 4, 2009

Blogging About E-Lending

Filed under: Uncategorized — equityexpert @ 1:23 pm
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 By Anthony Garritano

NEW YORK-Now is as good a time as any to really talk about the problems that exist in the mortgage space. And certainly there are a few problems out there. Gone are the days when it’s best to keep everything close to the vest to maintain a competitive advantage. The industry has to open up and communicate, and let’s face it open communication is what the Internet, and more specifically, blogs are for. And slowly but surely, the industry is getting this message.

For example, Cyberhomes recently launched a blog that extends the full potential of information exchange and social networking to professionals in the real estate and mortgage industries. CyberhomesBlog.com delivers writing and analysis of real estate trends and technology. Cyberhomes.com is the home and neighborhood evaluation portal launched in 2007 by Fidelity National Financial Inc., a Fortune 500 provider of products, services and technology solutions to the financial and real estate industries. “Internet and social networking technology have brought us to the point where a well designed and maintained blog can now serve an entire industry the way the water cooler, bulletin board, break room and even test kitchen once served a single office,” said Reggie Nicolay, Cyberhomes’ director of social media in a prepared statement.

Also, Bill Adamowski has taken the idea of blogging even further by launching MorLinkz, the first professional online networking community dedicated to the mortgage industry. Free to mortgage professionals, the MorLinkz network enables its members to connect with each other and collaborate online. In addition, members can post jobs, find jobs, get industry news, discover new business opportunities, publish blogs, participate in forums, etc.

January 23, 2009

Attitude and Perseverance Will Help Sales People Survive

Filed under: Uncategorized — equityexpert @ 1:13 pm
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January 23, 2009  

By Brad Finkelstein

Telephone sales expert, Art Sobczak, in a recent TelE-Sales Tip, admits that the current business climate is bad. But, he continued, “The successes in life adapt to their environment. They make changes. They act.”

He spoke with an expert on peak performance and motivation, Alan Zimmerman, and asked him what salespeople need to do, right now, to keep their attitudes high and outsell the competition. “Here are his common-sense, on-target answers. First, on attitude:

  1. Refuse to blame anyone or anything for sales problems. Blaming anything outside of yourself doesn’t change anything. All blame can do is keep you stuck or make you spiteful, neither of which will turn you into a winner. Ever wonder why one salesperson prospers while another suffers in the same situation? The answer is simple: The suffering salesperson will waste time on blame, while the prospering salesperson is investing time and learning how to get better. What are you doing, right now, to get better? 
  2. Refuse to use a loser’s language. The most successful, and I might add, the happiest salespeople, refuse to use a loser’s language. They know that words precede results. They know if they talk like a loser, they’ll end up losing. George Schultz, the former U.S. secretary of state said, “The minute you start talking about what you’re going to do if you lose, you have lost.” The salesperson who will not acknowledge defeat cannot be defeated. That person is guaranteed to win in the long run. It’s a given. 
  3. Choose to believe in yourself. Even though you may have some doubts about your sales abilities, even though the balance sheet of your life may show more liabilities than assets, you’ve got to believe in yourself. Sugar Ray Robinson, the boxing champ, said, “To be a champ, you have to believe in yourself when nobody else will.” If that sounds easier said than done, all you have to do is start affirming it. Tell yourself 20 times a day, 100 times a day, “I like myself. I believe in myself. And I am a great salesperson.” Eventually your subconscious mind will start to accept your affirmation, and you will believe in yourself. (By the way, the cynics laugh and make fun of this. Just ask them what their sales results are, though.) 

Mr. Sobczak also relayed Mr. Zimmerman’s advice about what salespeople need to do to keep selling in tough times.

  1. Work hard. If someone were to follow you around for a week and painstakingly recorded everything you did to advance your sales career, would that person walk away with a long list of all the things doing to get ahead? Or would that person have a long list of the excuses you gave and the times you wasted? Sometimes people fool themselves into thinking they’re putting out 100% effort, when in reality, they’re not. 
  2. Practice endurance. Most sales people want success the easy way, but in reality, success comes only after persistence. “Could the same be said of you? That you never give up? That you endure? Or do people, secretly behind your back, say you bail out when things get a little tough? Do they say you give up way too easily or throw in the towel too quickly? Do they point out the fact that you seldom finish what you start?” asked Mr. Sobczak. 
  3. Stay committed. “Everything else being equal, commitment wins every time. So fight back any feelings of discouragement that might get in your way. Don’t allow yourself to hang it up when things get rough,” he said. 

His conclusion: “Most salespeople don’t fail. They just give up.”

In a separate tip, Mr. Sobczak commented on one sales woman who tended to preface everything she said to her prospects with a negative comment. And, he added, not surprisingly, she had negative results. But sales people can overcome this problem.

“First, be certain you’re not now in the habit of negatively preconditioning your listener. And with many people, it is a habit. “Listen to your calls from the perspective of the prospect/customer. Thoroughly analyze your language to determine if you use ‘conditioning’ phrases that frost listeners. Catch yourself before you use them. “Then, get in the habit of grooming an atmosphere in which your listeners will positively view your information. And it’s not that difficult,” he said.

Art Sobczak is the president of Business By Phone Inc., Omaha, Neb. More information about his tips is available at www.businessbyphone.com.

January 5, 2009

What We’re Hearing

Filed under: Uncategorized — equityexpert @ 12:43 pm
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January 2, 2009

By Paul Muolo

Capitalism is a wild and wacky game. And it’s not for those with weak guts, which brings me to the case of IndyMac whose long awaited sale was announced by the Federal Deposit Insurance Corp. Friday afternoon. The new “owners” of IndyMac are essentially a bunch of hedge funds that are well known for some of their contrarian bets in financial services. First and foremost among those private hedge funds is Paulson & Co., led by hedge fund guru John Paulson, who made a killing (a $15 billion killing) by shorting the ABX Index back in 2007 and early 2008. The ABX gauges the value of subprime bonds and we all know what happened there, don’t we? For some reason the FDIC didn’t mention Mr. Paulson’s $15 billion winning bet against the B&C market in its press release. The FDIC’s original investment banker on the sale of IndyMac was Lehman Brothers, which went bust a few months after getting the assignment. The advisor to the consortium? That would be Merrill Lynch & Co., which helped cause the subprime crisis by financing dozens of subprime lenders, buying their loans and packaging them into securities (CDOs) for sale to institutional investors in the U.S. and overseas. (Lehman did that too.) Like I said, capitalism is a wild and wacky game. But who knows any more, really? If John Paulson is putting his reputation (and a little bit of his money) on the line, maybe this actually signals a “bottom” in the mortgage and credit crisis. For the full story on the sale of IndyMac visit: http://www.nationalmortgagenews.com/…

How’s the refi boom looking these days? Answer: it depends on who you ask. On Friday I interviewed Brian F. Benjamin who runs Two River Mortgage & Investment of Red Bank, N.J. Last week, Brian said he received 15 calls for jumbo mortgages where the loan amount was north of $1.5 million. But of those 15 it looks like he will only be able to close two loans. Brian, who operates as a broker, said many lenders have tightened jumbo guidelines by so much that borrowers don’t have a chance. “Some will only do the loans if the LTV is 50% or better,” he said. He also complained about Fannie Mae “adders” where the GSE charges extra points and fees for low FICO score mortgages. He gave an example on a $275,000 mortgage where the borrower has a 659 FICO. The total “adders” (fees) came to 2.55 points. I asked him if the fees were going to the lender or Fannie. His reply: “It’s going to Fannie one way or the other — directly or indirectly,” he said. Meanwhile, one rank and file retail LO for a top ten ranked lender — who requested his name not be used — told us he’s getting “lots of calls” on refinancings via the company’s 800-number. But it’s not a slam dunk by any means. The biggest problem with the applicants who are looking to refinance is “not enough equity,” he said, “or poor credit.” Stay tuned…

January 4, 2009

3 Ways to Promote Your Products and Services

Filed under: Marketing — equityexpert @ 2:57 pm
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Here are some simple ways to promote your products and services in 2009 courtesy of Salesrep Radio (check out their excellent podcast here):

  1. You talk about your product/services – face to face networking like BNI
  2. You write about your product/services – start a blog
  3. Other people talk about your product/services – testimonials

Testimonials – use them to fulfill this third type of marketing

  • Holidays – we just came through the rounds of cards so send a note anytime you can add some value to your clients’ lives.
  • Use social opportunities to build relationships – there really is something to those extra football tickets after all
  • ASK for the testimonial using these questions:
    • Why was it a good experience?
    • Describe the experience with your salesperson
    • Describe your experience with the product/service
  • Use an online assessment tool – like SurveyMonkey
  • Methods:
    • Written – develop a scrapbook, use your website (think of Amazon user reviews)
    • Audio – carry a voice recorder or turn your phone into one
    • Video – next wave – by seeing that client, prospects can see the sincerity of the message.  Check out the Flip MinoHD

December 31, 2008

Filed under: Uncategorized — equityexpert @ 12:40 pm

Study: Incomes Fail to Keep Pace with Rising Housing Costs

By Amilda Dymi

WASHINGTON-Higher living costs indicated by large increases in a wide variety of housing expenses other than higher mortgage costs are impacting both homeowners and renters’ ability to cope with the current economic crisis and more specifically with foreclosures, a recent study finds.

Entitled, “Stretched Thin: The Impact of Rising Housing Expenses on America’s Owners and Renters,” the study conducted by the National Housing Conference research affiliate, Center for Housing Policy, found that between 1996 and 2006, all the major categories of homeowner expenses increased faster than incomes.

Mortgage payments increased 46%, utilities 43%, property taxes 66% and property insurance 83%, compared to a mere 36.3% increase in homeowner incomes. Similarly, during this period rents increased by 51% while renter incomes increased only 31.4%. In addition, increases in the cost of heating oil, natural gas and gasoline have further lowered families’ buying power.

It shows that mortgage payments are only one of several factors contributing to rising housing and living costs, which are “adversely affecting virtually all segments of the housing market – homeowners and renters, new and longtime homeowners, and households with and without mortgages.”

The study found nearly one-in-six households – some nine million homeowners and nine million renters – spent more than half their income on housing in 2006, “which is a share of income far in excess of the 30% threshold generally considered affordable.” (In this study, housing expenses include rent or mortgage payments as well as the cost of utilities, property taxes, insurance and maintenance).

“By documenting the substantial increases in a wide variety of housing expenses, this study shows that the nation’s housing concerns extend beyond higher mortgage payments,” said Center for Housing Policy chairman John McIlwain, a senior resident fellow at the Urban Land Institute, and Ronald Terwilliger, chair for housing. “To get the American economy back on its feet, we will need to look comprehensively at helping Americans afford the full ‘costs of place,’ which include the costs of shelter, utilities and transportation.”

Findings show housing expenses increased “at a pace that far outstripped growth in income.” Housing expenses for homeowners increased by 66% in the 1996-2006 period, while incomes grew by 36%. For renters, the increase was 51% compared to 31% income growth. The median income of renters at slightly more than half the median income of homeowners did not change over the 10-year period.

Housing expenses increased by an average of $5,314, or 64.9%, which is much higher than other major expenses such as food at $1,412, or 30.1%, transportation at $2,126, or 33.3%, and even health care at $996, or 56.3%, while median incomes rose 35.8%.

In 2006, homeowners typically spent 26.2% of their income on housing expenses up from 21.5% in 1996 – while renters spent 29.4% of income, up from 25.6%.

Mortgage principal and interest payments are generally the largest housing expense for homeowners with mortgages, consuming over one-fifth of incomes. From 1995 to 2005, these payments increased almost 46%, outpacing the 36% increase in the median homeowner income. An increase that in reality is even higher given that the available data “do not fully reflect the increased costs associated with interest rate resets on mortgages offered with initial teaser rates and the widespread use of option ARMs” and their higher mortgage payments which are being phased in over the 2006 to 2010 period.

Average property taxes, which typically account for just over 4% of a homeowner’s overall income, from 1996 to 2006, increased nearly 66% while the change in homeowner income was at 36.3%, or less than half the rise in average home values of 137.3%.

December 29, 2008

What We’re Hearing

Filed under: Real Estate — equityexpert @ 12:47 pm
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December 26, 2008

By Paul Muolo

Paul MuoloWant to Help a Struggling Mortgagor? Give Him a Job

Plenty of ink has been spilled in the trade press about loan modifications. And plenty more will be spilled throughout 2009 and then some. Do loan mods work? Should the government spend taxpayer money to restructure thousands, if not hundreds of thousands of delinquent mortgages? Good questions one and all.

The devil, as always, is in the details. Loan mods can be tricky and complicated because of the legal ramifications. First, off, what type of loan mod plan are we talking about? If a lender/servicer holds a troubled mortgage in portfolio and the note has not been securitized it’s then up to that lender/servicer to make a decision on a loan mod. But if a mortgage has been securitized and resides in a legal “trust” that’s where matters get complicated.

Some investors (fearing lost income) will not grant permission to modify a note. They fear that they will lose money on not only delinquent loans but that it sets a precedent. They worry that if they grant permission on nonperforming loans what’s next: subperforming and current mortgages that could go delinquent?

There’s an easy solution to getting around investor concerns. The Treasury Department can use some of the $700 billion of TARP money to purchase MBS backed by delinquent subprime loans. Once these securities and trusts are in the hands of Uncle Sam they can break apart the ABS/MBS into whole loans and do what they like with them. (That’s how one mortgage bottom fisher explained it to me.)

The “buy ’em and break ’em” concept sounds promising but then again, Treasury has nixed the idea of purchasing MBS and ABS as part of the $700 billion bailout. Of course, that was the Bush Treasury Department. By the time you read this the Obama team will be just about in place and they can do what they want with the remaining $350 billion, that is, if Henry Paulson doesn’t spend it all before Jan. 20.

It’s sort of funny. What started out as a mortgage crisis has now grown into a pan-business crisis affecting homebuilding, insurance, automobile companies and the list goes on and on. And it all started with the little old 30-year mortgage, the “subprime” of the species. The “virus” has infected the entire mortgage body and then some.

But getting back to loan modifications. I remember interviewing Faith Schwartz of the Hope Now alliance back in the summer. The alliance was marveling at what a wonderful job its members (lenders and servicers mostly) had been doing on helping hundreds of thousands avoid foreclosure. It all sounded wonderful but then I asked her if Hope Now knew how many of its two million in modified loans had gone south again? Her reply: we don’t know.

At press time, the Office of the Comptroller of the Currency had just released a study showing that modified loans restructured in 1Q 2008 had a 36% delinquency rate in the 30-plus-day category and 53% in the 60-plus-day category. The 2Q loan mod numbers were about the same: not good. These figures do not take into account the much ballyhooed IndyMac loan mod program which became operative late this summer when the FDIC took control of that once high flying alt-A lender. Who knows, maybe the IndyMac rewrites will be better. (Agency chief Sheila Bair is counting on it.)

For the mortgage industry and government loan modifications boil down to this: Does it make financial sense to rewrite thousands upon thousands of loans if they wind up going bad eventually? It’s a fair question. Consumers do not go belly-up just because their house becomes “under water.” The payments stop when they lose their jobs. One solution might be to get more Americans back to work, which is a tall task given that the unemployment rate is just shy of 7%.

Any veteran mortgage executive knows there are two basic ingredients driving loan demand (and delinquencies): employment and interest rates. Mortgage rates are starting to fall but without blue- and white-collar industries creating new jobs all the loan modification ideas in the world won’t save the industry, or the nation.

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