Foreclosure relief – great for banks; for consumers not so much

Smart Real Estate News & Commentary by Chris McLaughlin August 30, 2010

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Foreclosure relief – great for banks; for consumers not so much

Mark Gimein of Daily Finance makes the following points about why HAMP actually hurts many borrowers while helping banks:

1.  Foreclosure relief in many cases simply stretches out borrowers’ slow bleed of resources. By keeping borrowers in limbo while letting lenders delay repossessing houses they can’t sell, foreclosure aid is now benefiting borrowers less than the lenders who created the mortgage mess. For lenders, mortgage modification is the waiting room in the mortuary, a convenient place to hold borrowers while the banks deal with the overflow of houses already repossessed.

2.  Most borrowers behind on their mortgages are already overburdened with other debts. After the mortgage reduction, the typical modification recipient, despite an average $513 drop in monthly payments, has to devote 63.5% of his or her income to mortgage payments, other debt, and taxes.

3.  Banks don’t have to kick people out quickly.  Banks have steadily slowed down the foreclosure process: The average homeowner in foreclosure now is an amazing 461 days behind in his payments. Barry Ritholtz of financial blog The Big Picture calls banks’ reluctance to take over houses “strategic non-foreclosure.” Taking a leisurely path to repossession lets lenders avoid the costs of maintaining properties they can’t sell in a market that remains in free fall in much of the country.

4.  The last insult added to this mess comes from Fannie Mae, which has promulgated new rules that lock those who don’t make the effort to modify their mortgages out of the Fannie-backed mortgage market for seven years.  So ultimately this comes full circle, and what started as an effort to help borrowers has become another cudgel in the hands of lenders.

Spending up more than income

Consumer spending is critical because it accounts for 70% of economic activity.  The Commerce Department says spending fell 0.1% in April, rose a tiny 0.1% in May, was flat in June, but rose 0.4% in July.  Personal incomes were up 0.2% in July, less than expected but at least an improvement over June when incomes had not risen at all.  With spending rising, the personal savings rate slowed to 5.9% of after-tax income. That’s down from 6.2% in June, the highest in nearly a year. Even with the July decline, the savings rate is nearly three times higher than it was before the recession began in December 2007. 

The July spending gain was the highest since a 0.5% rise in March. But the concern is that demand could taper off in the second half of this year if unemployment remains near double digits.  If Americans don’t have jobs, they don’t have the income to support spending. the economy is growing too slowly to support sustained job growth and some fear it could fall back into a recession. Economic growth slowed to 1.6% in the April-to-June quarter, the government reported Friday. That was revised down from the initial estimate of 2.4%.  A string of weak economic reports in recent weeks has prompted economists to trim their growth forecasts for the rest of the year and next.

Fannie Mae portfolio up 4.1%

Fannie Mae’s mortgage portfolio through July is up 4.1% from the year ago yet down somewhat from June, and the GSE issued nearly half the mortgage-backed securities during the month than in did last July.  Fannie ended July with gross holdings of nearly $812 billion. That figure stood at $770.4 billion last year and $817.8 billion in June.  The agency issued $42.7 billion of mortgage-backed securities during July, a nearly 48% decline from $79.7 billion a year earlier but up 6.4% from June. Fannie’s MBS issuances peaked in June 2009, when more than $130 billion was issued.  The serious delinquency rate in Fannie Mae’s portfolio fell to 4.99% in June, which is the latest month data is available, from 5.15% in May. For the year-ago July, the agency’s delinquency rate was 4.17%. The rate peaked at 5.59% in February and was as low as 3.42% in April 2009.  “Fannie Mae and FHLB are taking advantage of better funding from callables as bullet LOAS widens due to renewed corporate issuance and calmer short LIBOR levels,” said Jim Vogel of FTN Financial. “The gain can be as much as 10bp.  The obvious result is that both need less funding from bullets and floaters.  The superior funding stems primarily from the constant demand for new callables to replace those redeemed at close to a $100 billion monthly pace.”

NABE – economists mixed on what to do

The National Association of Business Economists (NABE) said Monday that three-quarters of its members believe that promoting economic growth should be a higher priority than reducing the national deficit, according to an August survey of the nation’s economic policy.  However, nearly the same number of NABE economists said they do not think another stimulus package is necessary to halt the economic slowdown and get the economy back on track. At the same time, a majority believe that policymakers should do more to boost job growth.  The survey, based on responses from 84 NABE economists who work for private-sector firms and industry trade associations, comes as economic growth in the United States has slowed significantly after rebounding from a deep recession.

The NABE survey showed that just under half of those polled see deflation as the main threat facing the economy in the short term, but respondents were less certain about whether inflation or deflation is the biggest threat over the next three years.  In a sign of the challenges currently facing Fed policy makers, there was little consensus among the NABE economists on when the central bank will raise interest rates and begin selling off assets it bought during the financial crisis.  After cutting rates to historic lows near 0% in December 2008, the Fed has been without its main tool for supporting economic activity for nearly two years. It has since bought billions worth of Treasury bonds in an effort to bring down rates for home and other consumer loans. But some central bankers are worried about adding to the $2 trillion worth of assets the Fed has acquired over the last few years.  A clear majority of economists said that none of the existing tax cuts on individual income, dividends and capital gains should be allowed to expire.

DSNews.com – Homebuyer’s tax credit coming back?

After a worse than expected falloff in home sales during the month of July, buzz about a possible revival of the federal homebuyer tax credit has begun to surface.  The National Association of Realtors (NAR) reported last week that sales of previously owned homes plummeted 27 percent in July, hitting their lowest mark in 15 years. New home sales also took a dive, dropping nearly 13 percent from June to July.  Both reports were clear indications of the frailty of the housing market post-stimulus. Although, the steep declines were actually considered a by-product of the tax credits themselves, which expired on April 30 – payback for the incentives that pulled sales forward into the spring months. 

HUD Secretary Shaun Donovan said on CNN’s “State of the Union” program this weekend, “The July numbers were worse than we expected, worse than the general market expected, and we are concerned. That’s why we are taking additional steps to move forward.  Donovan said it was too early to say for sure, after only one month’s numbers, whether the administration would revive its popular homebuyer tax credits to give the housing markets another much-needed boost, but he didn’t wholly rule it out as an option.  “All I can tell you is that we are watching very carefully,” Donovan told CNN. “We’re going to be focused like a laser on where the housing market is moving going forward, and we are going to go everywhere we can to make sure this market stabilizes and recovers.”  Two U.S. Senate candidates from Florida, one of the hardest hit states by the housing downturn, spoke out in favor of bringing back the federal tax credits for homebuyers on the CNN program.

Now for our real estate education section…

Take the Mystery Out of Time Mastery

One of the most frequently cited reasons for not actively pursuing short sale investments is a lack of time; work schedules, family obligations and other day-to-day activities simply seem to take every available moment. So, where does everyone else find the time to invest? Surely they all can’t be retirees with nothing else to do all day. You are right – they aren’t. Research shows that busy people are more likely to remain busy and get even more done because they have mastered the mystery of time management.

For those of you who have read (and failed) at the 4-Hour Workweek or the 7 Habits of Highly Effective People and other popular time management books, the first step is to determine why you are out of control in the first place. Are you overwhelmed with work, home or other obligations? Chances are you may not even realize the extent of the problem but instead spend your days going from one urgent task to the next.  Although urgency is a great motivator, it can go too far. When the daily “to-do” list tends to pile up into a never-ending series of activities without an end in sight, you can be sure it has gone too far.

Rather than trying to figure out how to schedule enough time to attend a time-management course or sit down and re-prioritize the entire week or work through the weekend in yet another vain attempt to “get organized” try this instead; get control. Sounds simple doesn’t it? Well in some respects it really is simple. Today is Monday…give this a try for five days and see how it works for the remainder of the week:

1. Begin by asking yourself what really constitutes the most important actions for the day…the ones you would stay late in order to finalize…then work on those first. Be careful not to confuse “important” items with “urgent” items.

2. Next on the list are those “opportunity” items. These are tasks which are either time sensitive or require some level of consistent work in order to bring about.  If you find the opportunity list growing too large, it’s time to step back and get a reality check. Keep the list small and only add items once the original ones are accomplished. If an item is no longer a priority then delete it; don’t leave it on the list waiting for another day.

3.  Delegate. Learning how and when to delegate takes a bit of patience and persistence. Contrary to popular belief, hiring someone else to handle the mundane tasks in life isn’t always as simple as it seems. Finding the right person can be time consuming and fraught with frustration especially for those that have a tendency to micro-manage. Let go and let others do their job so you can do yours!

4. Appointments versus Tasks. Understand the difference. Appointments are traditionally the last thing you can delegate but many of the tasks required in the process of an appointment can easily be delegated. Create a list of significant outcomes that can be tracked and put into effect immediately.

See you at the top!

Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2010.

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About the author:

Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.

    * As the top Florida foreclosure and pre-
      foreclosure expert, he oversees more than
      100 short sale & REO closings each month
   * Long-time authority on real estate investing
      and rapid reselling of distressed homes.  Owns
      portfolio of nearly 100 high-value, high-profit
     properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     400 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!
    * Highly sought-after speaker, consultant, and
      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
      Wealth Building
    * Follow me on Twitter: http://twitter.com/mclaughlinchris
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