Olick – no new bailout

Smart Real Estate News & Commentary by Chris McLaughlin August 10, 2010 

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Olick – no new bailout

“It all started with a Reuters article titled, “An August Surprise from Obama?” It suggests that a forced principal writedown program would be funneled either through the existing Home Affordable Refinance Program—which allows borrowers with current Fannie and Freddie loans who owe up to 25% more on their loans than their homes are worth, to refinance to lower interest rates—or through the Bush-era Hope for Homeowners program.  The article suggests that this new bailout would be forced by political pressure, “less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses.”  The trouble is it doesn’t make a whole lot of sense. First of all, Fannie and Freddie don’t own all the loans they guarantee, and forgive me for not being a lawyer, but I’m not exactly sure that the government can just force investors to write down principal on loans those investors own.  “It’s hogwash,” writes mortgage consultant Mark Hanson, who rightly points out that the government is just now releasing guidance to lenders on its FHA short refi program (which includes principal writedown) and its largely GSE 3-year earned principal balance reduction program— both of which were announced last March and both of which are voluntary and require the consent of all lien holders.

Next Tuesday the Administration will be holding a “conference on the future of housing finance”, which, “will help provide critical public input as the Administration continues its work developing a comprehensive housing finance reform proposal for delivery to Congress by January 2011.”  I have been told over and over by Administration officials that there will be no big news announcement at the summit. No mandate that the government will suddenly infuse every troubled borrower’s home with palatable equity. Now I’m not saying something new couldn’t happen, but as HUD and Treasury now launch the new principal writedown phase of the housing bailout, I’m just not sure it makes sense, politically or otherwise, to turn all that on its head.”

Economy slowing

According to a Labor Department report, U.S. non-farm productivity declined by an annual rate of 0.9 percent after rising at a revised 3.9 percent rate in the first quarter, the first time since the fourth quarter of 2008 that output per worker fell.  Analysts surveyed by Reuters had forecast that productivity, a measure of hourly output per worker that is taken as an indicator of the economy’s vitality or lack of it, would expand at a 0.2 percent annual rate in the second quarter and that unit labor costs would rise 1.3 percent. 

Unit labor costs, a gauge of potential inflation pressures closely watched by the Federal Reserve, edged up at a 0.2 percent annual rate after shrinking at a revised 3.7 percent rate in the first three months this year.  The weak productivity figure is in line with other broad signs that the economic recovery is losing momentum. The overall economy grew at only a 2.4 percent annual rate in the second quarter, down from a 3.7 percent rate in the first quarter.  Fed policymakers were holding a one-day meeting on Tuesday to consider interest-rate policy, but with rates already near zero the speculation was that the U.S. central bank may be mulling other fresh steps to stimulate the economy amid signs that inflation poses little or no current risk.

Senator calls for investigation into Fannie Mae

As we reported yesterday, last week Fannie Mae denied allegations made by Caroline Herron, a former employee at the government-sponsored enterprise (GSE). Herron said the company, which was allegedly hired by the Treasury Department for $113 million to run the Home Affordable Modification Program (HAMP) runs the program to better its own balance sheet, not to help homeowners. Herron is suing Fannie Mae for firing her for requesting reform in the program. Now Sen. Spencer Bachus (R-Ala.), the ranking Republican on the Financial Services Committee, sent a letter to committee chairman Barney Frank (D-Mass.) requesting an investigation into the recent allegations against Fannie Mae.  Bachus requested that the committee hold a hearing this month to “examine whether Fannie Mae executives mishandled and mismanaged Federal foreclosure mitigation programs, including the Home Affordable Modification Program (HAMP).” 

Bachus requested testimony from Herron, and he wrote if her allegations were true, it would “help explain why HAMP has been such a failure.”  A spokesperson at Fannie Mae said the investigation found “no merit,” and Herron did not participate in it.  Lynne Bernabei, Herron’s attorney in the case, said they told Fannie they would participate, but Fannie said they would not be allowed to respond to the findings or view the report.  But a source familiar with the situation says that Herron and her attorney received one oral request to participate in the investigation and three written ones.  Frank’s office said the senator was traveling, and it was not immediately known if the letter was under consideration.

Small business still pessimistic

The National Federation of Independent Business (NFIB) said its optimism index fell 0.9 point to 88.1 in July. “We don’t have any confidence that the economy is going to get fixed, that it’s going to improve,” William Dunkleberg, the group’s chief economist, told CNBC. “We really crashed when it came to expectations for business conditions. Not good.”  Only 2 percent of respondents said they had plans to create new jobs. That actually represented an improvement from June’s 1 percent reading. 

Just 12 percent of small business owners reported raising average selling prices, while 24 percent said they were cutting prices.  “With no pricing power and real sales volume weak, profits are not able to recover,” the report said. “Inflation is clearly not a problem.”  Respondents said they are fearful of the political climate in terms of taxation issues as well as increased costs for national health care and financial reform.  “The index is pretty much full of forward-looking components, and looking forward—not too good,” Dunkleberg said.

Housing not at the bottom yet?

According the US Housing Market Monthly report by Capital Economics released yesterday, home sales have yet to hit the trough of the recession.  Further, the economics firm states that pending home sales will do little to push home sale numbers higher. In fact, the number of pending home sales is so diminished, down 32% in the wake of the tax credit expiration, that existing sales will only dip in the coming months as these mortgage agreements are finalized.  Analysts at Moody’s Investors Service agree, stating that the odds of a near-term double-dip recession increased to one in four from one in five predicted this spring. If this double-dip happens, Moody’s estimates home prices will fall along with sales — an estimated 20% before stabilizing in early 2012.  However, mortgage tech company Fiserv predicted only a 4.9% decrease in housing prices over the next 12 months. 

Pending home sales fell another 2.6% in June from May after deteriorating 29.9% in May from April. According to Capital Economics, this will be reflected in existing home sales in the months to come. Existing home sales in June fell by 5.1%.  The housing market is currently experiencing an excess of inventory as Capital Economics reported an 11% homeowner and rental vacancy rate in the second quarter of 2010, a new record high. Capital Economics states, “relative to the rising trend of the last 30 years, that suggests around 0.6m [or 600,000] properties than normal are currently sitting empty.”  Capital Economics also suggested that builders are adding to the excess supply, noting a 28% annualized jump in residential investment in Q210 alongside a 19% decline in housing starts from April to June (down 14.9% in May and 5% in June). All of these statistics in addition to macroeconomic conditions is what economists at Moody’s believe are hindering economic recovery.  “We expect real GDP to advance nearly 3% this year, monthly payroll employment gains to average close to 125,000, and the unemployment rate to end the year back over 10%,” Moody’s reported. “With the economy slowly recovering, we expect home sales and residential construction to end up slightly stronger this year than last year while house prices will depreciate a bit more.”

Now for our real estate education section…

Six Biggest Blogging Mistakes & How to Correct Them

Real estate and investment pros alike are turning to blogging with good reason; over 80 percent of buyers and sellers indicate they enjoy the ability to get to know who they do business with by reading their blog first. Unfortunately, blogs are not all created equal. A poorly managed blog is worse than a waste of time…it can actually act like negative publicity. Learn how to spot the top six biggest blogging mistakes and find out how to correct them with these quick tips:

1. Publish or Perish. Anyone who ever went through graduate school is familiar with this old refrain but it holds true in the blogosphere as well. Publish on a regular basis or perish. A significant number of blogs are abandoned shortly after being started. Others seem to do fairly well then hit a plateau after a few months. Both are deadly sins in the blogging world. Readers (ie prospective clients) expect regular content that is updated frequently.

2. Findable. Even the best blog is worthless if people can’t find it! Search engines must index a blog by using keywords and search terms, author or subject. Be sure to include all relevant information so readers are able to locate your blog. For example, your name, city/state, business, topics/keywords.

3. Viral. Blogs are meant to be shared so make it easy for readers to include your content in other forms of social media. Periodically check your blog on different browsers, mobile applications and other methods of access to assure it is viewable by as many people as possible.

4. Social. Although there are pros and cons’ to allowing reader questions and/or interaction, the social aspect of blogging shouldn’t be ignored. Whether you opt to integrate every question/feedback or simply a representative sample, make sure readers feel they are appreciated and included.

5. Syndicated. RSS is one of the most important and frequently used features of most modern day blogs. Readers are automatically notified when the blog is updated and content is sent to their desired preference setting. Make sure your blog is set-up for syndication rather than rely on visitors to return over and over in the hope of finding the latest update.

6. Lost Links. Encourage people and other sites to link to your blog; not only does it help increase visibility but also provides important information to relevant ancillary sites and services that may benefit both parties.

Still getting up to speed on how to best integrate your blog into other social media methods? Why not attend one of our free webinars or other informational sessions designed to get you going in a fraction of the time typically required to master this every evolving field.

See you at the top!

Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

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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!
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      seminar leader for current trends and hot topics
      in Real Estate Investing, Entrepreneurship, and
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