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HAMP destined to fail
As Amherst Securities Group LP’s Laurie Goodman told Congress, the U.S. loan modification program is “destined to fail” because it doesn’t confront the real problem of negative home equity that is driving foreclosures. The three-year housing slump has wiped at least 28 percent off home values nationwide, government and industry data show. Almost 23 percent of homeowners in the third quarter owed more than their properties are worth, according to First American Core Logic, a real-estate data company in Santa Ana, California. “The phenomenon of underwater mortgages is one of the most troubling aspects of the entire housing market collapse,” Julia Gordon, senior policy counsel at the Center for Responsible Lending, told the committee. “Homeowner equity position has emerged as a key predictor of loan modification re-default, more so than unemployment or other facts.”
Fewer than 1.5 million of the 3.2 million homeowners targeted by the Obama administration for mortgage relief are likely to qualify for the Home Affordable Modification Program, Herb Allison, the U.S. Treasury Department’s assistant secretary for financial stability, told the committee. Banks have said they are rushing to meet a new deadline announced by the Treasury on Nov. 30 to permanently convert more than half of the 650,994 loans that were in trial modifications at the end of October into permanent reductions by year’s end. A mortgage “cram-down” bill that stalled in Congress earlier this year will also be attached to the broader financial regulatory legislation and voted on this week, Frank said today. The cram-down provision would let federal judges lengthen mortgage terms, cut interest rates and reduce loan balances for homeowners in bankruptcy court, even if the lender objects.
Cash for caulkers
President Obama proposed a new program yesterday that would reimburse homeowners for energy-efficient appliances and insulation, part of a broader plan to stimulate the economy. No one is quite sure how it would work, but Steve Nadel, director at the American Council for an Energy-Efficient Economy, who’s helping write the bill, said a homeowner could receive up to $12,000 in rebates. The plan will likely create a new program where private contractors conduct home energy audits, buy the necessary gear and install it, according to a staffer on the Senate Energy Committee and Nadel at the American Council for an Energy-Efficient Economy. Big-ticket items like air conditioners, heating systems, washing machines, refrigerators, windows and insulation would likely be covered, Nadel said. Consumers might be eligible for a 50% rebate on both the price of the equipment and the installation, up to $12,000, said Nadel. So far, there is no income restriction on who is eligible.
That would mean a household could spend as much as $24,000 on upgrades and get half back. Homes that take full advantage of the program could see their energy bills drop as much as 20%, he said. The program is expected to cost in the $10 billion range. “Not only will [such legislation] increase our energy security and transform our energy infrastructure to a modern, clean and efficient one,” Senate Energy Committee Chairman Jeff Bingaman, D-N.M., wrote in a recent op-ed column in the Hill, a Capitol Hill newspaper. “But it also will position the United States to lead in the development of clean energy technologies.”
Mortgage applications up
According to the Mortgage Bankers Association (MBA), the Weekly Mortgage Applications Survey for the week ending December 4, 2009 increased 8.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 54.0 percent compared with the previous week, but it was a shortened week due to the Thanksgiving holiday. The Refinance Index increased 11.1 percent from the previous week and the seasonally adjusted Purchase Index increased 4.0 percent from one week earlier. The unadjusted Purchase Index increased 41.7 percent compared with the previous week and was 18.8 percent lower than the same week one year ago.
The increase in purchase applications reflected a 10.0 percent increase in Government Purchase applications and a 0.2 percent decrease in Conventional Purchase applications, both on a seasonally adjusted basis. The four week moving average for the seasonally adjusted Market Index is up 1.5 percent. The four week moving average is up 2.3 percent for the seasonally adjusted Purchase Index, while this average is up 1.6 percent for the Refinance Index. The refinance share of mortgage activity increased to 74.4 percent of total applications from 72.1 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 4.7 percent from 4.8 percent of total applications the previous week. The average contract interest rate for 30-year fixed-rate mortgages increased to 4.88 percent from 4.79 percent, with points increasing to 1.17 from 1.00 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This ends a six week run of declining 30-year fixed rates which may have triggered the increase in refinance applications.
Shoveling more money
President Barack Obama wants to spend even more with an expansion of his $787 billion stimulus plan, unveiling job-creation proposals that build on the initial package, including a hiring tax credit that his own party jettisoned as unworkable and some business owners deemed ineffective. An additional $50 billion would go toward infrastructure spending, ramping up Treasury Department lending to small businesses through the Troubled Asset Relief Program, extending tax credits for business investment and offering state and local governments a fresh lifeline. Other ideas that weren’t in the February stimulus legislation include a tax credit that rewards companies for hiring workers and tax rebates for individuals who make their homes more energy efficient. New infrastructure spending would include funds for roads, bridges, airports and water systems, even though tens of billions of dollars from the original stimulus plan remain in the pipeline.
White House economist Jared Bernstein said worthy projects not deemed “shovel ready” in the initial funding applications now will see money, implying that federal stimulus spending could stretch well beyond 2010. Some beneficiaries of the latest plan expressed skepticism about its payoff. Philadelphia Mayor Michael Nutter, a Democrat, said the initiatives might spur job growth indirectly, but he would prefer a less circuitous route. He said the Obama administration needs to do more direct hiring, to create jobs programs aimed at high-unemployment urban centers like Philadelphia, where unemployment stands at 11.2%. Ralph Braun, chief executive of Braun Corp. in Winamac, Ind., said a tax credit is meaningless for a producer like him. “If you’re just going out to hire someone just for a tax credit, what kind of job will you put them in that has any longevity to it?” said Mr. Braun, whose 730-employee company produces wheelchair lifts and other equipment. “You have to have a customer for that employee to serve — so I’m confused how a tax credit would stimulate anything.”
Fewer prices declines
A total of 22 percent of houses on the market as of December 1 have lowered prices at least once, down from 25.6 percent in November, marking the lowest share since Trulia started tracking reductions in April. In real numbers, home sellers slashed $24.7 billion from asking prices for houses listed as of Dec. 1 nationwide, down 12 percent from $28.1 billion the prior month. “The tax credit extension has provided sellers with a much bigger window of opportunity, creating significantly less pressure to sell now,” Pete Flint, chief executive of San Francisco-based Trulia, said in a statement. The Trulia report showed price cuts are fewer in areas hardest hit by foreclosures, showing a floor is starting to be reached after deep discounting. These regions will be the first to return toward fair market value, Trulia said. The South and West regions, which include some of the cities hardest hit by foreclosures, had the lowest level of price cutting in the latest report. Nineteen percent of listings in the South and 20 percent in the West had price cuts, compared with 22 percent in the Midwest and 25 percent in the Northeast. The luxury market continues to pay a high price in the housing bust. Homes listed at $2 million or higher have slashed prices by an average of 14 percent from the original asking amount. These houses represent less than two percent of all current listings on Trulia, but are responsible for 26 percent of the $24.7 billion in home price reductions.
Now on to our real estate investing educational arena …
The High Price of Mortgage Modification
Short sale investors frequently encounter homeowners that believe a simple mortgage modification or refinance will solve all their financial woes – tragically that is rarely true. In fact, recent research released by the federal government seems to indicate it is merely postponing the day of reckoning. Rather than delaying the inevitable it’s important to explain the high price of mortgage modification to distressed sellers.
All Pain – No Gain
Research shows more and more distressed homeowners are falling behind even after obtaining a mortgage modification but this only presents half the problem. Homeowners become so focused on remaining in their property they forget the long term cost of carrying a mortgage they cannot afford. The result is the loss of financial security for years to come; college savings, retirement accounts and lifestyle are sacrificed for a home they cannot afford. It’s imperative for homeowners to ask several important questions to determine if they are making the right decision for their financial future:
1. How much is the home worth today versus how much is owed?
2. How long do you intend to keep the property?
3. How much would you save by downsizing or purchasing a different property?
4. How much are you able to set aside for college, retirement and savings while servicing the mortgage?
5. What can you expect to make on the property if you needed to rent/lease it?
6. How long will it takes you to break even on the property if you were to sell it?
7. How much will be added to the price of the loan after legal fees, overages and other costs?
8. How many additional years will you need to pay the loan if fees/other are capitalized?
9. Is the interest rate, PMI, HOA and escrow subject to change? If so, will you be able to afford the new rates in the future?
10. Is your spouse willing to become financially responsible in the event of a loan modification? Remember, even if the original mortgage was purchased only in one name, most modification programs require both spouses to assume financial responsibility in order to obtain a modification agreement.
11. Will the property need to be repaired or brought up to a certain standard in order to qualify for the mortgage modification – if so, can you afford it?
12. What rights and responsibilities are required should you sell the property at a later date?
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
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!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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