Home Affordable Modification Program

Smart Real Estate News & Commentary by Chris McLaughlin June 9, 2011

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Shiller sees another drop in prices

At an S&P Housing Summit in New York yesterday, Robert Shiller reiterated his fears of falling home prices. It’s not a forecast, he said, just a comment on his understanding of housing market trends.  In an off-hand remark before cameras and microphones, economist and housing market guru Robert Shiller opined earlier this year that he would not be shocked if there was another 10% to 25% in the nation’s home price plunge.  He explained that speculative markets, like stocks or commodities, act like random walks. They go up and down all the time. Housing market direction tends to be more consistent.  “I worry that this is a real and continuing downturn, like in Japan,” Shiller said. “It had a boom in the 1980s that peaked in 1991. Prices declined in the major cities for 15 straight years after that.”  The U.S. housing market is hard to predict because the boom and bust it went through was unique. Shiller has studied historical price data back to the 1890s and found nothing like it.  “This is the biggest housing boom and bust in U.S. history,” he said. “The bubble was unique. “That makes it impossible for statisticians to forecast because they deal with things that repeat themselves. You see a pattern and expect it to repeat.”  It’s even different from the Great Depression, when the home price plunge was at about the same rate. The big difference, however, was that prices of nearly everything else cratered in the 1930s as well — which has not been true during the housing bust.

Import prices higher

The Labor Department said import prices climbed 0.2% last month, confounding forecasts for a 0.7% decline and following April’s revised 2.1% jump. In the year to May, import prices surged 12.5%, the largest gain since September 2008.  Petroleum import prices fell 0.4%, the first decline since September 2010.  Exports prices rose 0.2% after a downwardly revised 0.9% gain. Analysts had been looking for a 0.3% gain.

Banks penalized

The Treasury Department announced on Thursday that it will withhold incentive payments to Bank of America, J.P. Morgan Chase and Wells Fargo until they substantially improve their performance in the federal Home Affordable Modification Program, known as HAMP.  Ocwen Loan Servicing was also cited but will continue receiving payments. Its results were affected because it started servicing a large pool of mortgages while under review.

The banks needed to boost their performance in several areas, including correctly evaluating whether a homeowner meets the HAMP income requirements.  Though the administration has talked tough in the past, this is the first time it is wielding the most powerful weapon in its HAMP arsenal — the withholding of payments. Servicers are eligible for up to $4,500 over three years if they put borrowers into sustainable modified mortgages.

The cited banks had varying responses to the Treasury’s action, with Wells Fargo saying it would formally dispute the findings.  The San Francisco-based bank said Treasury is using data from last year and that it has cut its error rate to 4.5%, down from the 27% cited in the report.  Chase said it “respectfully disagrees” with the assessment, while Ocwen said it was surprised that it was dinged for problems with the modifications made by servicers whose portfolios it took over.  Bank of America said it acknowledges it must make improvements, particularly in areas affecting homeowners.

New rules for the USD

According to David Bloom, the global head of foreign exchange strategy at HSBC, the foreign exchange market has turned upside down and the dollar no longer has an anchor as investors grapple with the implications of quantitative easing, discussions to raise the debt ceiling and the recent slowdown in US growth.  “The framework to think about the dollar and its link to fundamentals has undoubtedly changed. It used to be that the dollar had primacy, but now the dollar behaves like a residual currency,” said Bloom in a research note.  The difficulty for the US economy is that the recent slowdown comes at a time when a second round of quantitative easing or QE2 is coming to an end and the debt ceiling has been reached, according to Bloom who believes the end of the Federal Reserve’s unconventional policy is positive for the dollar.  “The idea was that if QE2 helped fuel dollar weakness and the push into higher yielding currencies, then the end of QE2 could lead to a reversal of this process” said Bloom.  Before the crisis the dollar would trade on fundamentals like interest rate differentials, but the crisis changed that in Bloom’s opinion.  “Now, however, because major central banks have had to adopt QE or other unconventional measures, it has become harder to decipher what the impact on exchange rates should be,” said Bloom.

Luxury housing leading the recovery

The housing market is showing “signs of improvement” with help from luxury home sales, Toll Brothers Chief Executive Douglas Yearley said yesterday.  “There are some signs luxury is leading us out of this a little bit,” he said. “We’re clearly off the bottom.”  But while Toll is a builder of those luxury homes, the CEO expects sales the rest of the year to be relatively flat. That’s despite 60% of Toll sales coming from the northeast corridor of Boston to Washington, D.C., which was not hit with the same housing problems as Las Vegas and Florida, among others.  “I think in pockets we’ll see some success,” Yearley said. “The good news is pricing has definitely stabilized. We’re not seeing price reductions. In some isolated cases, we have some pricing power, we’re able to raise prices.”  He added that after five or six years of waiting, buyers want “to move on with their lives and I think they’re done trying to time the perfect point to get in the market. They’re taking advantage of great interest rates. Affordability’s at an all-time high…It’s helping us but we have a long ways to go.”

See you at the top!

Chris McLaughlin

**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com

http://www.shortsalescoach.com

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http://www.reomillionaireclub.com

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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 150 high-value, high-profit

      properties

    * Owner of one of Florida’s largest Real Estate firms,

     running 4 different offices, supporting over

     420 agents, uniquely positioning him to help

     thousands of investors make money in the

     biggest market opportunity ever!

   * In 2010, Chris’ 4 Central Florida real estate offices

      closed 2,786 sides for a closed sales volume of

      $392,912,927!  

    * 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

    * Join my Facebook Fan Page: http://www.mclaughlinchris.com

Smart Real Estate News & Commentary by Chris McLaughlin June 7, 2011

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Fannie Freddie mortgage mods drop 28% in Q1

Fannie Mae and Freddie Mac servicers provided 86,201 modifications in the first quarter, down 28% from the previous quarter, according to the Federal Housing Finance Agency.  The drop comes after modifications fell 18% in the fourth quarter. Combined with repayment and forbearance plans, servicers retained nearly 144,000 homes in the period. Servicers also started 260,000 foreclosures, and although that is down from 310,000 from the previous quarter, it’s nearly double the amount of homes retained.  Servicers provided 26,000 permanent workouts under the Home Affordable Modification Program, up from 17,000 in the previous three months. Another 64,000 loans were put into active HAMP trials, meaning the majority of the modification activity for Fannie and Freddie mortgages went through HAMP.

Since the Treasury Department launched HAMP in March 2009, Fannie and Freddie servicers permanently modified more than 320,000 mortgages, according to FHFA data.  Short sales and deeds-in-lieu of foreclosure remained nearly unchanged from the previous period at roughly 27,500.  Roughly 44% of the borrowers said their reason for delinquency was a curtailment of income, compared to 14% who said they had too many obligations and 4% who pointed their continued unemployment.  Refinancing through the Home Affordable Refinancing Program totaled 130,204 in the first quarter, down 8% from the previous quarter. However, more than 16,000 of the refinancings were done on loans with a loan-to-value ratio of 105% or higher in the first quarter.

The amount of delinquent loans on Fannie and Freddie balance sheets declined.  Mortgages between 30- and 60-days delinquent totaled 553,000 in the first quarter, down 16%. There were 1.3 million loans more than 60-days delinquent, which dropped 7% from the previous period. And loans in serious delinquent or in the foreclosure process dropped to 1.19 million, down 5% from the previous period.  Seriously delinquent loans dropped to 4.02% in the first quarter, down more than 20 basis points from the previous period.

GOP says shrink federal workforce 10%

A new bill would shrink the number of government workers by 10% by 2015. For every three retiring federal workers, the government would only be allowed to hire one replacement.  The measure would save an estimated $127.5 billion over 10 years if adopted, according to Reps. Darrell Issa of California, Dennis Ross of Florida and Jason Chaffetz of Utah, the bill’s sponsors.  “Private sector job creators and families in my district have learned to do more with less,” Chaffetz said in statement. “So should the federal government.”  The idea is not exactly a new one. President Obama’s own fiscal commission included the basic plan in its final report, but would reduce the roughly 2 million member workforce at a less aggressive rate.  “Washington needs to learn to do more with less, using fewer resources to accomplish existing goals without risking a decline in essential government services,” the report said.

Olick – spring housing season

I don’t know what the official end of the spring housing market is, but it seems as if the experts have called the close, and it ain’t great.  Last week, after the folks at the vaunted S&P/Case Shiller Indices put a period on the home price double dip, which others had been reporting for months — and The New York Times did a piece on falling home prices — it seemed like suddenly the housing watchers got nervous again.  Over the weekend, JP Morgan Chase’s housing analysts revised their outlook lower for home price recovery, “largely based on existing home sales coming in lower than expected.” While they expect that regional divergences will increase, “Our new base case is down percent from here (Q1 2011) and bottoming in mid-2012. We expect home prices to modestly improve over the summer months.”  Soon after, Credit Suisse’s Monthly Survey of Real Estate Agents announced: “Weak ending to the spring season.” CS’s Daniel Oppenheim notes, “A lack of urgency continues as does a fear and hesitation of buying if prices still have further to fall.” This, we knew.

“Most worrisome was the lengthening time needed to sell a home, as there are few qualified buyers and those qualified buyers are waiting for the right price.” Buyer traffic is weak, and distressed markets are showing the best activity. This is a key point because of an argument that was going around the blogosphere last week.  Core Logic put out a price report showing that if you remove distressed properties from the equation, home prices are basically flat, not falling, as the rest of the reports scream. Housing bulls, including the former FHA commissioner, Dave Stevens, now head of the Mortgage Bankers Association, pointed to the report as evidence of recovery, but when I Tweeted about the Core Logic report, well-known mortgage analyst Mark Hanson protested:  “Why in the world would they discount distressed sales when they are the market, they support the market, and without them as support, house sales volume and sentiment would tumble. Further, MBS [mortgage-backed securities] loss severities and bank loan loss reserves are based on distressed sales not organic sales. In short, distressed sales carry more weight across the things that matter to the housing and financial markets.”

I’m watching a segment on MSNBC right now about how renewed trouble in housing might affect the 2012 presidential election. Suddenly housing is back in the headlines, not that it ever should have left.  Politicians may point to a slowdown in new mortgage delinquencies, and claim that the housing recovery is fine, but just slow. That should not be the focus. The focus must be on the more than 11 million underwater borrowers, and not just because some might walk away from their homes.  The plain truth is that not all homeowners who owe more on the mortgages than their homes are worth are going to walk away from said homes, and abandon their lifestyles and credit ratings in the process. Not near everyone.  But negative equity has a huge effect on lifestyle, spending and mobility. There is an enormous inventory of unsold homes on the market and about to come on the market, and if current homeowners can’t sell their homes, then they can’t buy new ones.  That may sound kind of “duh,” but I don’t think enough bankers or policymakers get it. You cannot rely on investors and first-time home buyers to eat up an unprecedented backlog of inventory.

Obama’s economic adviser leaving

President Obama’s top economic adviser, Austan Goolsbee, is leaving the administration to return to the University of Chicago, the White House announced yesterday.  The announcement came after a series of reports that showed the U.S. economy struggling to maintain headway after the housing bust, banking crisis and recession. On Sunday, Goolsbee told CNN’s “State of the Union” that despite disappointing employment, manufacturing and housing price figures, the long-term trends remain positive.  Goolsbee took over for Christina Romer, who stepped down last September from the job running the White House Council of Economic Advisers. Goolsbee was on the original White House economic team, serving on the council with Romer and Cecilia Rouse, that swept into office in January 2009 at the height of the financial crisis.  Only Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke remain of Obama’s original economic brain trust. Rouse left the White House earlier this year to teach at Princeton.

Goolsbee has been an outspoken defender of Obama’s policies as the U.S. economy struggles to find its footing following the steep recession of 2007-09. In a statement announcing Goolsbee’s departure, Obama called him “a close friend” and “one of America’s great economic thinkers.”  Last Friday, when dour-than-expected unemployment figures were released, Goolsbee was the first to give them an upbeat spin calling them a “bumps on the road to recovery,” a phrase repeated in Obama’s speech later that day and throughout the weekend.

But the financial markets weren’t so sure. Stocks closed lower again yesterday, as investors remained nervous about the nation’s economic future.

WSJ – mortgage misery

Almost 40% of homeowners who took out second mortgages—extracting cash from their residences to cover everything from vacations to medical bills—are underwater on their loans, more than twice the rate of owners who didn’t take out such loans.  The finding, in a report to be released today by real-estate data firm CoreLogic Inc., illustrates the consequences of easy borrowing amid the housing boom’s inflated prices. The report says 38% of borrowers who took cash out of their residences using home-equity loans are underwater, or owe more than their home is worth. By contrast, 18% of borrowers who don’t have these loans were underwater.  It’s not clear how much cash withdrawn from homes during the boom was used to acquire luxuries such as expensive automobiles, and how much went to basic necessities, including tuition expenses, or renovations intended to raise a property’s value.  What is clear is that home-equity loans, which account for about 10% of the U.S. mortgage market, have been a headache for homeowners and lenders alike. Second mortgages refer to any loan taken out on a property that is subordinate to the first mortgage, and include home-equity loans or lines of credit.

Second mortgages are weighing on a fitful recovery, in which housing has figured as particularly weak spot. The S&P/Case-Shiller National Index last week showed that home prices tumbled 4.2% nationwide in the first quarter, its third straight quarter of price declines after a modest recovery in early 2010. Nationwide, prices have fallen 34% since their peak in 2006. The inventory of unsold homes will take 9.2 months to sell, the National Association of Realtors said recently, about 50% higher than what is considered a healthy level.  CoreLogic found that borrowers with second mortgages had deeper levels of negative equity—an average of $83,000 compared with $52,000—than borrowers without second mortgages. In many cases, borrowers withdrew cash from their properties using home-equity loans or lines of credit, a type of second mortgage. The CoreLogic report doesn’t include cash-out refinancing, a common practice during the boom, where borrowers opted to extract cash while refinancing their first mortgage.  According to Federal Reserve Board data, homeowners took out a total of $2.69 trillion from their homes at the height of the housing boom between 2004 and 2006. That tally includes cash-out refinancing.  Overall, the CoreLogic report found that the percentage of underwater homeowners declined slightly in the first quarter. About 10.9 million Americans who borrowed to buy their homes, or 22.7% of all homeowners with a mortgage nationwide, were underwater in the first quarter, down from 11.1 million, or 23.1%, in the fourth quarter of 2010.  The modest decline wasn’t a sign of an improving market. Rather, the change reflected completed foreclosures, which reduced the total number of homeowners in the market, CoreLogic said.

Second mortgages have made it more difficult for troubled borrowers to negotiate loan modifications with lenders. Economists say borrowers with second mortgages on homes that are underwater are far more likely to walk away from their homes.  Homeowners seeking a “short sale,” in which they sell their property for less than the value of the outstanding mortgage, have a much harder time doing so when they have a second loan, because all the lenders involved must agree to take losses on the sale, and second-lien holders take the first losses in such a situation.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com

(subscribe to this newsletter)

*************************************************
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 150 high-value, high-profit
      properties

    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     420 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!

   * In 2010, Chris’ 4 Central Florida real estate offices

      closed 2,786 sides for a closed sales volume of

      $392,912,927!  

    * 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

    * Join my Facebook Fan Page: http://www.mclaughlinchris.com

Smart Real Estate News & Commentary by Chris McLaughlin March 11, 2011

Forward this e-mail to your friends! 

Then they can subscribe directly at the following link: 

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Bills “dead on arrival”

Four House of Representative bills aiming to end Federal foreclosure prevention and mortgage assistance are essentially “dead on arrival,” according to a source within one Senator’s office.  This week, the House of Representatives will likely pass bills that would terminate the Home Affordable Modification Program, the Neighborhood Stabilization Program and the Emergency Homeowner Loan Program, which provides interest-free loans to unemployed homeowners to help with mortgage payments.  The House voted Thursday to end the Federal Housing Administration‘s Short Refi program, which began in September. Through it, participating lenders which include the largest banks, could offer FHA-insured loans that reduce the principal on the existing mortgage, bringing underwater borrowers to the surface. 

The Obama administration said Tuesday night that it would veto the bills should they reach his desk, but they may not make it that far.  Still, House Republicans continue to push for these programs they say show underwhelming poor results. Arguing against the FHA Short Refi program Thursday, Rep. Spencer Bachus (R-Ala.) said the program will not reach a large percentage of the 11 million borrowers currently underwater, as estimated by CoreLogic.  “That means that even if this program could have helped 100,000, it would have helped one out of 120,” Bachus said. “Yes some government employees would say you’re eligible, you win. But that isn’t fair for those who don’t receive help and still have to pay for it.” 

James Russell, managing director of the Collingwood Group, said Thursday the government as a whole needs to focus on how it winds itself out of the housing market while balancing the reduction of the budget gap against the “politically charged” issue of foreclosure.  “The key issue to focus in this debate is how to define the federal government’s responsibility to support homeowners that are underwater on their mortgages. If it’s the government’s responsibility to protect all consumers from financial failure, there are legs to this proposal for banks to take a 10% write-down on the mortgage balances,” Russell said. “Alternatively, although it may be politically correct to put the burden of loss on financial institutions, asking them to take a loss that isn’t currently on their books can affect their stability and their willingness to continue making loans.  Whatever the outcome in the House, the bills will face an uphill battle at best in the Senate.

Oil falls below $100

The main U.S. oil contract, West Texas Intermediate, for April delivery fell $2.50 to $100.20 a barrel. Earlier, prices hit a low of $99.01.  Brent crude, the benchmark European contract, slid $2.26 to $113.27 a barrel.  Oil prices fell yesterday after economic data out of China raised worries that energy demand in the world’s fastest growing economy may be cooling. But the market regained some ground late in the day following reports that police in Saudi Arabia fired on protesters in the eastern city of Qatif.  Protesters were planning to hold a “Day of Rage” in Saudi Arabia on Friday, defying a government ban on all kinds of public demonstrations.  Traders said the recent run-up in oil prices was driven largely by speculative investment, and that the market was due for a “correction.” 

“The market was extremely overbought,” said Stephen Schork, publisher of the industry newsletter the Schork Report, adding that managed money accounts had long positions equal to six times the amount of oil stored at strategic U.S. port in Cushing, Okla.  “We’re seeing a massive technical correction lower,” he said.  In addition, the dollar rose sharply against the euro and the pound, but remained weak against the Japanese yen. A stronger dollar often pressures prices for commodities priced in the U.S. currency, such as crude oil.

DSNews.com – home prices decline, but not in the west

Home prices in the West fell 4.5 percent over the three-month period ending in February when compared to the previous three months. Based on a study by Clear Capital, eight of the fifteen lowest performing markets are from the western part of the country.  Driven by heavily distressed markets in Arizona and Nevada, Clear Capital says the West region is expected to set new double dip price lows as early as next month if the trend continues.  The company notes that home prices in Tucson, Arizona are down 13.4 percent from a year ago, and more than half the homes sold in Las Vegas these days are REOs.  In contrast, home prices in the South region remained flat, with absolutely no change between the two subsequent three-month periods ending in February. In the Northeast, prices rose 0.3 percent during the rolling quarter timeframe.

The Midwest did record a drop (-1.6 percent) but much narrower than the West saw.  Looking at the broader national picture, Clear Capital recorded a 1.4 percent decline in home prices over the three-month period ending in February when compared to the previous three months, primarily due to the depreciation in the West.  Home prices nationally have appreciated 4.2 percent since the cycle lows set in early 2009, and Clear Capital says it’s seen considerable moderation in the declines recorded in recent months.  The firm’s analysts say lenders now have a better understanding of distressed pricing and marketing, as well as the damaging effects of flooding the market with distressed inventory.  “[C]urrent trends are continuing to show a softening of price declines,” said Dr. Alex Villacorta, director of research and analytics at Clear Capital. “The 3.9 percent quarterly decline we observed in December has given way to moderating declines with the national price index now down only 1.4 percent, suggesting a leveling of prices is on track for spring.”

Retail sales strong

Total retail sales rose 1.0 percent, the Commerce Department said on Friday, the largest gain since October and the eighth straight monthly advance. January sales were revised up to a 0.7 percent rise from a previously reported 0.3 percent gain.  Economists polled by Reuters had expected retail sales to increase 1.2 percent last month. Compared to February last, sales were up 8.9 percent.  Excluding autos, sales rose 0.7 percent last month after gaining 0.6 percent in January. That was in line with economists expectations.  Consumers last month overcame a 3.7 percent increase in gasoline prices to spend on a range of goods, including autos, whose sales rose 2.3 percent after rising 1.2 percent in January. Receipts at gasoline stations increased 1.4 percent after rising 1.3 percent in January. Excluding gasoline, sales rose 0.9 percent after rising 0.6 percent in January.  Outside autos and gasoline, consumers also spent on clothing, lifting sales 0.8 percent. Receipts at sporting goods, hobby, book and music stores increased 1.3 percent, while sales at building materials and garden equipment suppliers were up 0.6 percent.  So-called core retail sales—which exclude autos, gasoline and building materials—rose 0.6 percent after a 0.7 percent gain in January.  Core sales correspond most closely with the consumer spending component of the governments gross domestic product report. Spending, which accounts for 70 percent of U.S. economic activity, grew at a 4.1 percent annual rate in the fourth quarter, the fastest in more than four years.

Bigger pockets – private mortgages

With all the talk of Freddie and Fannie going away and the mortgage industry being taken over by banks and Wall Street, we have to look at this as an amazing opportunity for real estate investors. In a private mortgage market, banks and Wall Street will inevitably screw things up again by trying to enforce rules and regulations that are all over the board:  Too restrictive lending standards, Too loose lending standards, new regulations, new security instruments to sell on Wall Street.  These are just a few of the changes we can expect to see if the mortgage market goes private.

With all of these changes, the process of getting a mortgage will become a more “specialized” transaction cutting out even more Americans. It will mean less customer service and more fees. If this happens it will create an amazing opportunity for us as real estate investors to lend to prospective homeowners on seller financed terms.  Seller financing a property you own can help provide more personalized customer service and help solve some of the problems that got us to this point. As an investor, we have an opportunity and a responsibility to provide fair lending to prospective homeowners. Selling your property on contract terms is a powerful solution to rebuilding the homeownership market when qualified buyers are being turned away by the banks.  During the S&L crisis, seller financing became a standard way to buy and sell properties, thus stabilizing the US market and aiding in the economic recovery.  We sit here 20+ years later, in a similar economic landscape and we know that it’s up to us, as investors, to stimulate the homeownership economy once again. Using seller financing, we can help stabilize pricing and create a positive ripple effect in the economy. The result?  Helping more people realize the American dream of homeownership and giving investors the opportunity to build long-term stable returns.

See you at the top!

Chris McLaughlin
**************

Copyright Loss Mitigation Institute LLC 2010.

All Rights Reserved.

http://www.shortsalesriches.com
http://www.shortsalescoach.com
http://www.sixfigurebpo.com
http://www.reomillionaireclub.com
http://www.youtube.com/shortsalesriches 

http://www.smartrealestatenews.com (subscribe to this newsletter)

*************************************************
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 150 high-value, high-profit
      properties
    * Owner of one of Florida’s largest Real Estate firms,
     running 4 different offices, supporting over
     420 agents, uniquely positioning him to help
     thousands of investors make money in the
     biggest market opportunity ever!

   * In 2010, Chris’ 4 Central Florida real estate offices

      closed 2,786 sides for a closed sales volume of

      $392,912,927!  
    * 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
    * Join my Facebook Fan Page: http://www.mclaughlinchris.com
–

Smart Real Estate News & Commentary by Chris McLaughlin November 3, 2010

Forward this e-mail to your friends! 

Then they can subscribe directly at the following link: 

http://www.smartrealestatenews.com/ 

*** Join Chris’ Facebook Fan Page–> http://www.mclaughlinchris.com

*** Follow Chris on Twitter–> http://www.twitter.com/mclaughlinchris

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TOMORROW: Our Orlando Foreclosure Investing Summit is nearly

SOLD OUT.  Click here to claim one of the last seats:

http://www.ORLInvestorEvent.com

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Why did HAMP fail?

Casey B. Mulligan, an economics professor at the University of Chicago, thinks the Home Affordable Modification Program (HAMP) failed because bad economics doomed it from the very start.  He explains that ome buyers take usually out mortgages that cover only part of the value of the houses they are buying, so the house is worth more than the mortgage owed.  Fannie Mae and Freddie Mac both announced debt forgiveness or “loan modification” formulas.  The modification program encourages lenders to reduce mortgage payments, so that each borrower’s housing payments (including principal, interest, taxes and insurance) are no more than 31% of the borrower’s gross income.  If the mortgage modification rules were actually followed, one implication would be that a family that earns $50,000 more in the year before the modification stands to pay an additional $15,500 a year for five years on housing payments — a total of $77,500. Adding $50,000 to your income adds $77,500 to your expenses: the mortgage lender gets more than 100% of your extra income! Economists call this a marginal “tax rate” that exceeds 100%, because the person earning that income is obligated to give all of it to a third party (the lender, in this case), and then some. 

Economists may argue about how high tax rates should be, but we all agree that marginal income tax rates of 100% (or more) are terribly destructive. And the terrible incentives in the federal mortgage modification guidelines were known even before the Obama administration put together its program.  Because of its destructive economics, the modification program was proposing changes that were only marginally beneficial to borrowers and massively costly for banks.  Rather than overtly contradicting the Treasury by denying eligible borrowers, banks are encouraging borrowers to deny themselves by requiring those borrowers to endure deluge of paperwork.  Both the Bush and Obama administrations have run roughshod over incentives, and the housing market and the wider economy continue to suffer because of it.

GOP wins House, seats in Senate

Republicans won control of the House of Representatives as voters dealt a stiff rebuke to President Barack Obama and the Democratic Party in a wave that swept the GOP to power in states and districts across the country.  Republicans also made gains in the upper chamber, picking up five seats as of early this morning. The GOP won a series of state houses and governorships as well.  At midnight, Mr. Obama phoned Rep. John Boehner, who is in line to become the next Speaker of the House, to offer congratulations, and the pair briefly discussed ways to work together. The White House said the president told Mr. Boehner that he wanted to “find common ground, move the country forward and get things done for the American people.”  In House races, Republicans defeated both veteran lawmakers and freshmen swept into office with Mr. Obama just two years ago. The size of the GOP majority would not be known until votes are tallied for dozens of undecided races, but it was clear that voters had delivered the GOP a victory of historic proportions. 

At a Washington victory party, Mr. Boehner said Republicans will focus on cutting spending and shrinking government. “We hope President Obama will now respect the will of the people, change course and to commit to making changes that they are demanding,” he said. “To the extent he is willing to do that, we’re ready to work with him.”  He also spoke of his own rise to power, choking up as he recalled his early days putting himself through school and “working every rotten job there was.”  Even before the votes were counted, Democrats were pointing fingers over whom to blame for the drubbing. Some are calling for major changes in the tight circle of political advisers Mr. Obama keeps in the White House.  The election will end Nancy Pelosi’s four-year tenure as the first female Speaker of the House. She was lauded by Democrats for her political skill in moving energy and health-care bills through the House. But that success turned into a liability when the campaign got under way.  Republicans have promised to cut federal spending, return unspent money from last year’s stimulus act to the Treasury and repeal Mr. Obama’s health-care law. Before those legislative battles begin, a lame-duck Congress must return to Washington this month to pass bills to fund the government and deal with expiring tax cuts, including all of the income, estate, capital gains and dividend tax cuts approved under President George W. Bush.

MBA – purchase apps up, refinance apps down

The Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 29, 2010 decreased 5.0% on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 5.3% compared with the previous week.  The Refinance Index decreased 6.4% from the previous week. This is the third straight week the Refinance Index has decreased.  The seasonally adjusted Purchase Index increased 1.4% from one week earlier. The unadjusted Purchase Index increased 0.2% compared with the previous week and was 28.0% lower than the same week one year ago.  The four week moving average for the seasonally adjusted Market Index is up 0.1%.  The four week moving average is down 2.7% for the seasonally adjusted Purchase Index, while this average is up 0.8% for the Refinance Index.  The refinance share of mortgage activity decreased to 81.3% of total applications from 82.3% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.4% from 5.3% of total applications from the previous week.

 Private sector creates 43,000 jobs

According to ADP, private employers added 43,000 jobs in October compared to a revised loss of 2,000 jobs in September.  The figure was originally reported as a loss of 39,000.  The ADP figures come ahead of the government’s much more comprehensive labor market report on Friday, which includes both public and private sector employment.  That report is expected to show a rise in overall nonfarm payrolls of 60,000 in August, based on a Reuters poll of analysts, but a rise in private payrolls of 75,000.  “Today’s ADP National Employment Report shows that U.S. private sector employment remains frustratingly stagnant,” said Gary Butler, CEO of ADP, in a prepared statement. “The new Congress has a great opportunity to make job creation priority one by taking actions that both reduce uncertainty across the economy and incentivize businesses to invest and expand.”  Meanwhile, planned layoffs edged up slightly in October from the month before, while the pace of job cuts remained near a record low, outplacement company Challenger, Gray & Christmas announced earlier Wednesday.  US companies planned to cut 37,986 jobs last month, up 2.2% from the 37,151 layoffs planned in September. The number of planned cuts is down 32% from the same month of 2009. 

Olick – housing mess affects everyone

“I know I tread housing stats all day every day, but two particular numbers struck a nerve today.  A condo expert I was interviewing in Miami Beach told me that at the current sales pace there is an 18 year (yes, year) supply of condos on the market here.  As I was trying to digest that, the Census released its quarterly home owner/vacancy report, and noted that there are close to 19 million vacant homes in America today.  And that’s a quarterly improvement.  There will be plenty of election night discussions on CNBC and other outlets, I’m sure, on how the outcome of elections will affect economic policy and trickle down to housing. Some will argue that a Republican surge will quash any hope of more government stimulus in housing, while others will argue it will give the banks more breathing room and help investors back into mortgage investment.  I don’t know what to believe today when I look at the sheer numbers.  Nine out of 10 buyers here are foreign, many of them Venezuelan, looking to secure their money somewhere outside their country due to financial turmoil at home. There are very few U.S. buyers because there is just no financing out there. Some cagey investors are actually buying with cash and then refinancing the cash out, because apparently the banks are more willing to refi than originate new purchase loans. But this is Miami Beach, which is not really America.  In the rest of the country millions and millions of homes are sitting empty and household formation is near historic lows.

The troubled U.S. economy isn’t all that enticing to immigrants anymore, so you’re losing even more demand there. The critical confidence needed to bring buyers back is nowhere to be found, even in some of the nation’s more healthy markets.  The foreclosure freezes may stem the tide of bank repossessions temporarily, but eventually more distressed properties will flood the housing market, pushing home prices lower yet again. Yes, it will be largely in the former boom states, but the headlines will spread their doom and poison as they did before.  So here we sit at the precipice of possibly a new force in government.  This as we have nothing less than the restructuring of our entire mortgage finance system (Fannie Mae and Freddie Mac) all warmed up on our plates.  No question, the coming year will be historic for housing’s future. I would just caution those who shape it to keep an eye on the numbers, always keeping in mind that there are homes, people, communities and jobs behind them. While the fixes may not be fair to some, they may just be the bitter pill we all need to swallow to build our wealth once again.”

Fed’s call now

The Federal Reserve is about to take a huge risk in hopes of getting the economy steaming along again. Nobody is sure it will work, and it may actually do damage.  The Fed is expected to announced today that it will buy $500 billion to $1 trillion in government debt, and drive already low long-term interest rates even lower.  The central bank would buy the debt in chunks of $100 billion a month, probably starting immediately.  Economists call it “quantitative easing.” It gets the name “QE2″ (like the ship) because this would be the second round. The Fed spent about $1.7 trillion from 2008 to earlier this year to take bonds off the hands of banks and stabilize them.  Many analysts and even supporters of the plan see dangers. It could make the weak dollar even weaker and lead to trade disputes with other countries. It could lead bond traders to believe that higher inflation is on the way, and they could derail the Fed’s efforts by pushing rates higher.  Here is a look at the ways the Fed’s strategy could backfire:

-  As word trickled out over recent months that the Fed was planning a new round of bond purchases, the dollar sank. It hit a 15-year low to the Japanese yen Nov. 1. A drop in the dollar can help companies like Ford that sell their products abroad. When the dollar weakens against the euro, for example, one euro buys more dollars than before. Foreign customers notice the price of the Explorer they’ve been eyeing is lower in their currency, yet Ford still pockets the same number of dollars for every sale. The downside is that a weakened dollar pinches people in the U.S. because anything produced in other countries becomes more expensive, like oranges from Spain or toys from China.  “Look around you,” says Thomas Atteberry, a fund manager at First Pacific Advisors. “How many things can you find that were made in the U.S.A?”

-  Buying bundles of Treasurys knocks down interest rates, making borrowing cheap. But it also motivates investors to move out of safe investments into riskier ones in search of better returns. The stock market, for instance, rises in value and everyone with some of their savings in stocks feels wealthier. Ideally, it produces what economists call a “wealth effect”: People who feel better off spend more.  The problem, according to some critics, is that cheap borrowing costs and buoyant markets make a fertile environment for bubbles, which eventually pop.

-  For others in the bond market, the greatest worry isn’t that the Fed will flood the economy with dollars and lets inflation run wild. It’s that the Fed will prove too timid.  News reports that the Fed may spend less than the $500 billion bond traders have been betting on has helped push long-term rates higher in the last three weeks. David Ader, head of government bond strategy at CRT Capital, sketches one scenario if the Fed shoots too small. Say the Fed announces a $250 billion plan. The yield on the 10-year Treasury note, which is used to set lending rates for mortgages and corporate loans, could jump from 2.6 percent to maybe 3.2 percent.  “If the Fed’s efforts fail we suddenly look like Japan,” Ader says. “Japan started off wimpishly, then did it again, and again and then they wound up losing a decade.”

Lord Abbet & co – recovery slow, but here

According to Lord Abbet & co, despite poor housing sales this past spring, the residential real-estate market fundamentally seems to have found stability. Its conclusions deserve elaboration:  “The latest volatility in housing sales is almost surely a transitory reaction to the April termination of the government’s $8,000 first-time home buyer’s tax credit, itself never sufficient enough to affect housing fundamentals. Whatever claims Washington may have made for its policy, families hardly seemed likely to incur mortgage debts for $200,000, $300,000, or more just to save $8,000 on their tax liability. But if the credit has had little effect on the fundamentals, it has influenced the timing of people’s purchases.  Once it became apparent that the tax break would end in April, those who were thinking of buying anyway had every reason to accelerate their closing from May or June, for instance, back into April, when they could still secure the credit. Accordingly, housing sales surged in March and April, rising almost 16%; but since many of those closings took from sales that would otherwise have occurred later, succeeding months into July saw a sales decline of almost 34%. Mirroring sales, new residential building activity also gyrated, surging by almost 9.0% into spring and then, after the termination of the tax credit, falling almost 8.5% into July.  But for all these ups and downs in sales and construction, price behavior has consistently spoken loudly to more stable fundamentals.

Throughout the months of weakness last spring, the prices of existing homes and condominiums continued to rise, actually accelerating from a 4.4% rate of gain between January and April to a 5.6% rate of gain between April and July (the most recent month for which data are available).  Now, as if to confirm the message of pricing, August sales of existing homes picked up, rising 7.6% from July’s low level, and new housing starts nationally rose almost 2% in August, or almost 24% at an annualized rate. It is, of course, always dangerous to rely on one month’s data, but in this context, with other supporting evidence, the focus on a single month may well be appropriate.  If the spring scare was misplaced, however, the future can promise only very slow recovery. Default and delinquency problems remain intense, allowing only the most halting pace of financial healing. To be sure, default gauges have improved. The Mortgage Bankers Association reports a drop in the rate by 45% from a year ago. Lender Processing Services reports about a 5% drop in delinquencies, as well. But even with this undoubted improvement, both defaults and delinquencies, at 4.67% and 9.85%, respectively, remain high by historical standards.  High vacancy rates also point to a slow housing recovery. Homeowner vacancies, at 2.5% in the second quarter (the most recent period for which complete data are available), are modestly better than they were in the first quarter, at 2.6% 2.7% at the end of 2009, and 2.9% in 2008. But they remain much worse than long-term historical averages of 1.5%. Rental vacancy rates, at 10.6% nationally, also have improved from 11.1% a year ago, but similarly remain well above the longer-term historical average of 6.0%.  Even in the best circumstances, it would take a long time to work off these excesses, but it is also clear that the data disguise other constraints. Anecdotal evidence suggests strongly that banks and other mortgage lenders are holding back on foreclosures.

No doubt they reason in part that a family in the house, even if they are not paying, is better than hiring security to protect a vacant structure.  More, these lenders must fear the market effects of thoroughgoing action on foreclosures, specifically that the rise in houses for sale would glut the market and send prices spiraling downward again. While managing the foreclosure process has helped produce the recent stability, it will prolong it as well, as banks and other lenders gradually feed this “shadow inventory” of homes out for sale and in the process limit the upward move in pricing and new construction.  The upside in this situation lies in the hope that the economic recovery will eventually enable homeowners to resume their obligations, obviating any need for even delayed foreclosures and sales, and allowing the market to improve sooner than it otherwise might. The downside is that lenders will mismanage the “shadow inventory,” foreclose too rapidly, putting too many of these properties out for sale, and precipitating another round of downward pressure on housing markets.  On the positive side, the slow speed of general economic recovery limits likelihoods. On the risk side, the success of lenders to date raises the probability of effective management. On balance, then, probabilities point to a very slow housing recovery indeed, one in which moderate sales only gradually reduce vacancy rates and moderate income growth fosters only slow financial healing.”

Now for our real estate education section…

What’s the Deal with Owner Finance & The SAFE Act?

The SAFE ACT went into effect October 1, 2010 and since that time, there has been an avalanche of rumors, false information, fear mongering and outright confusion surrounding the facts and status of owner financing. Today we are going to spend a few minutes dealing with the details every real estate agent and investor needs to know about owner financed real estate.

The SAFE ACT in a Nutshell

The SAFE Act essentially says that you must have a license to sell an owner financed property. The original intent is to crack down on fraud and confusion surrounding the sale of a home but there are some inadvertent consequences of potential interest to investors as well as agents; especially those that use a “mortgage assignment” when dealing with investment property. Keep reading to see if you are in the clear or need to make adjustments.

It’s All in the Details

Don’t believe everything you read or hear; seller financing is not dead (contrary to popular opinion) but is in fact, quite alive and well. If you have a license, no problem…chances are you are completely in the clear. However, if you are an investor and do not hold a current license, then it may be a good idea to understand the difference between a land contract and/or contract for deed versus a pure seller finance situation where the title changes hands at closing.

A land contract involves a type of sale where the owner holds the title until the property is paid in full whereas in the other situation, the owner holds a note and acts like the bank by issuing a mortgage. The title changes hands during the closing just like it would if bank financing was obtained. Land contracts do not fall under the provision of the SAFE ACT because the title is not transferred until the completion of all payments. On the other hand, if you hope to sell a property and act like the bank by issuing a mortgage and transferring the title at closing, a license may be required.  It does not stipulate that the homeowner must obtain a license but simply that you must work with either a licensed broker or real estate attorney.

Other Exemptions

There are other exemptions to the SAFE ACT including:

Homeowner is selling their own personal/private home via owner financing. The SAFE ACT stipulates a homeowner may sell their own primary residence via owner financing (including the type where the title changes hands at closing) without obtaining the help of a licensed professional. However, this does NOT apply to rental or investment real estate.

Lease with option exemption(s). Investors may still sell a property via lease to own as well as land contract or a land contract with lease option.

Bottom Line: When in doubt, speak with your attorney or tune in to learn more via our free webinars.

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!
    * 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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