October 14, 2008
By Joel Persinger
With all the news about the recent Wall Street bail-out, you may have forgotten the Federal Housing and Economic Recovery Act that was signed into law by President Bush earlier this year. As a quick reminder, this Act was designed to provide ways for struggling homeowners to stay in their homes and avoid foreclosure. One of the key components, which became available this month, is the FHA Hope for Homeowners program.
Hope for Homeowners is a program designed to provide homeowners a way to: reduce the amount they owe on their homes, refinance their existing loans into FHA-insured mortgages, stay in their homes and avoid foreclosure. For lenders, the hope is that this program will provide another viable option for mortgage lenders wishing to avoid costly foreclosures. But, make no mistake, the lenders will take a hit.
Among other things, the program requires mortgage lenders to write off a portion of what is owed to them. This amount could be significant since the program requires the property to be re-appraised. The original lender is then required to “write down” the current loan to a maximum of 90% of the home’s new appraised value. For example, if a lender is owed $500,000 on a home which has been dropped in value to $400,000, the lender would be required to accept 90% of the $400,000 (or $360,000) as full satisfaction for the debt. That means the lender would have to agree to take a $140,000 loss in this example. This may sound ridiculous, but given the losses lenders are currently taking in foreclosure, participating in this program may make good business sense.
At the end of the day the lender at least receives some payment, foreclosure is avoided and the homeowner gets a new, FHA-insured mortgage for around 90% of the home’s current value. Many homeowners may find that this program will work for them and allow them to stay in their homes while reworking their home loan into a much more manageable payment. However, this program will not work for everyone and it does have other requirements and drawbacks.
Among the things homeowners should know are these: only 30-year fixed rate mortgages are offered, the home loan the borrower wishes to replace must have been originated on or before January 1, 2008, the home must be owner-occupied and the original lender must agree to take the loss. In addition, the homeowner must agree to share any current or future equity in the home with the federal government. That means, when the homeowner sells, Uncle Sam is going to take his cut.
For more information on this program, homeowners can call the Hope Now Alliance at 888-995-HOPE or visit the U.S. Department of Housing and Urban Development website at www.HUD.gov.
Thursday, November 13, 2008
The Bail-Out Passed! Are The Problems Fixed?
October 6, 2008
By Joel Persinger
By late morning on Monday San Diego time, I had received three telephone calls from folks lamenting the fact that the stock market had taken an almost 800 point dive. This, in spite of the fact that the much touted government bail-out plan had actually passed both Houses of Congress just days before. Although I desperately wanted to say, “I told you so,” I decided to wait a bit longer to find out if the markets would level out by the end of the trading day. All things considered, it was worth the wait. By the end of the day the Dow had climbed back up a bit, but still closed down some 328 points and below the 10,000 level for the first time since October 2004.
What this means for real estate in San Diego County remains to be seen. But, what it teaches us about government bail-outs and market reactions would fill volumes. The financial markets react to most things one way or the other and overreact to just about everything. Many thought that passing the bail-out plan would spur Wall Street to new heights based upon a new found confidence in the American and worldwide economies. No such result has materialized. Some seemed to feel that government intervention was a panacea that would cure the ills of suffering homeowners across the nation. I suspect that this will fail to come to pass as a direct result of the bail-out as well.
The unfortunate fact is that government, in most cases, is not the answer to what ails us. Even in the rare instances in which government is the answer, any effect government action such as the bail-out may have doesn’t typically materialize for quite some time. However, there are three things that are fairly certain to come out of such government intervention: Politicians can brag about having done something, money will be skimmed off by the wrong people and probably not get to the right people, and the very practices which got us into this mess in the first place will remain unchanged and unaffected.
If you disagree with my thinking, consider this; the same Congressional leaders who legislated and leveraged us into a high risk system in which borrowers who could not pay the money back were given loans, are still in power today. If that isn’t enough, those same leaders have just been given almost a trillion dollars more to waste. Still, they are only half of the problem. The same average Americans who took out crazy loans so they could use their homes like ATM machines or who lived off of the equity in homes they should never have been able to buy in the first place, are going to have their actions validated and be officially dubbed “victims” by a political process all too eager to buy a vote. Thus, they will not only be allowed to repeat their actions, but will most likely be encouraged to do so once more.
So, if you want a prediction from a fellow who knows real estate, here it is. If you were thinking about buying because prices are low and there are hundreds of distressed homes for sale, have at it. The situation is not likely to change any time soon.
By Joel Persinger
By late morning on Monday San Diego time, I had received three telephone calls from folks lamenting the fact that the stock market had taken an almost 800 point dive. This, in spite of the fact that the much touted government bail-out plan had actually passed both Houses of Congress just days before. Although I desperately wanted to say, “I told you so,” I decided to wait a bit longer to find out if the markets would level out by the end of the trading day. All things considered, it was worth the wait. By the end of the day the Dow had climbed back up a bit, but still closed down some 328 points and below the 10,000 level for the first time since October 2004.
What this means for real estate in San Diego County remains to be seen. But, what it teaches us about government bail-outs and market reactions would fill volumes. The financial markets react to most things one way or the other and overreact to just about everything. Many thought that passing the bail-out plan would spur Wall Street to new heights based upon a new found confidence in the American and worldwide economies. No such result has materialized. Some seemed to feel that government intervention was a panacea that would cure the ills of suffering homeowners across the nation. I suspect that this will fail to come to pass as a direct result of the bail-out as well.
The unfortunate fact is that government, in most cases, is not the answer to what ails us. Even in the rare instances in which government is the answer, any effect government action such as the bail-out may have doesn’t typically materialize for quite some time. However, there are three things that are fairly certain to come out of such government intervention: Politicians can brag about having done something, money will be skimmed off by the wrong people and probably not get to the right people, and the very practices which got us into this mess in the first place will remain unchanged and unaffected.
If you disagree with my thinking, consider this; the same Congressional leaders who legislated and leveraged us into a high risk system in which borrowers who could not pay the money back were given loans, are still in power today. If that isn’t enough, those same leaders have just been given almost a trillion dollars more to waste. Still, they are only half of the problem. The same average Americans who took out crazy loans so they could use their homes like ATM machines or who lived off of the equity in homes they should never have been able to buy in the first place, are going to have their actions validated and be officially dubbed “victims” by a political process all too eager to buy a vote. Thus, they will not only be allowed to repeat their actions, but will most likely be encouraged to do so once more.
So, if you want a prediction from a fellow who knows real estate, here it is. If you were thinking about buying because prices are low and there are hundreds of distressed homes for sale, have at it. The situation is not likely to change any time soon.
Monday, September 29, 2008
Why the Bail-Out May Not Matter
By Joel Persinger
As of this writing, the House of Representatives, under pressure from constituents who vehemently opposed the 700 billion dollar bail-out of the country’s financial system, defeated the measure on a vote of 226 to 207. Both Democrats and Republicans opposed the measure in large numbers. Stocks tumbled on the news with the Dow losing nearly 800 points. But, what does this mean for the real estate market?
To answer this question, let me take you back in time. In spite of what you may have heard, the U.S. Congress has been pressuring Fannie Mae and Freddie Mac to increase the availability of home loans to low income families for many years. That is how the “sub-prime” market was born. Many high ranking members of government argued against the expanding of such lending practices without success. Most notably, then Treasury Secretary Snow made such arguments and urged Congress to change its ways and further regulate Fannie and Freddie back in 2001. Former Fed Chairman Greenspan did the same some time later. In fact, for the past seven years, members of the current administration have been warning Congress that the financial system might well collapse under the strain if Fannie and Freddie were not reigned in. Congress did nothing. Thus, if we are honest about it, we can clearly see that Congress’s effort at forcing our financial system to provide loans to those who have no way to pay them back was a recipe for disaster.
Now that we’ve figured that out, we must ask why the same Congress which refused to address the coming train wreck, even after having been warned repeatedly, is now attempting to use the White House’s proposed bail-out for the purpose of rescuing the failed system they refused to correct. Instead of allowing the marketplace to replace homeowners who cannot pay their mortgages with new homeowners who are financially sound, many in Congress would like to keep those who cannot pay in their houses by passing the cost along to the taxpayers. In order to accomplish this, the news has spread the notion that nobody can get loans because lenders aren’t lending and banks are collapsing all over the place. Nothing could be further from the truth!
The truth is that homebuyers are buying! Prices are low, interest rates are great and the banks which are strong because they did not get involved with the sub-prime market are happily lending to qualified buyers. In addition, the banks which are failing are being gobbled up by banks which are financially strong. I had money in Washington Mutual and guess what… my money is still there because a strong bank purchased WAMU when it failed.
Our financial system is working, but it isn’t pain free. People who acted wisely are winning and those who acted foolishly are losing. That is how life works and if the government stays out of it, the market will heal itself. The problem is, you don’t win an election by letting people experience the natural consequences of their choices.
Does the bail-out really matter? The answer is both yes and no. If you are trying to win an election, then perhaps the answer is yes. If you are concerned about the health of the market and the future of our country, then the answer is a resounding no. If left alone, the real estate and financial markets will take care of themselves.
As of this writing, the House of Representatives, under pressure from constituents who vehemently opposed the 700 billion dollar bail-out of the country’s financial system, defeated the measure on a vote of 226 to 207. Both Democrats and Republicans opposed the measure in large numbers. Stocks tumbled on the news with the Dow losing nearly 800 points. But, what does this mean for the real estate market?
To answer this question, let me take you back in time. In spite of what you may have heard, the U.S. Congress has been pressuring Fannie Mae and Freddie Mac to increase the availability of home loans to low income families for many years. That is how the “sub-prime” market was born. Many high ranking members of government argued against the expanding of such lending practices without success. Most notably, then Treasury Secretary Snow made such arguments and urged Congress to change its ways and further regulate Fannie and Freddie back in 2001. Former Fed Chairman Greenspan did the same some time later. In fact, for the past seven years, members of the current administration have been warning Congress that the financial system might well collapse under the strain if Fannie and Freddie were not reigned in. Congress did nothing. Thus, if we are honest about it, we can clearly see that Congress’s effort at forcing our financial system to provide loans to those who have no way to pay them back was a recipe for disaster.
Now that we’ve figured that out, we must ask why the same Congress which refused to address the coming train wreck, even after having been warned repeatedly, is now attempting to use the White House’s proposed bail-out for the purpose of rescuing the failed system they refused to correct. Instead of allowing the marketplace to replace homeowners who cannot pay their mortgages with new homeowners who are financially sound, many in Congress would like to keep those who cannot pay in their houses by passing the cost along to the taxpayers. In order to accomplish this, the news has spread the notion that nobody can get loans because lenders aren’t lending and banks are collapsing all over the place. Nothing could be further from the truth!
The truth is that homebuyers are buying! Prices are low, interest rates are great and the banks which are strong because they did not get involved with the sub-prime market are happily lending to qualified buyers. In addition, the banks which are failing are being gobbled up by banks which are financially strong. I had money in Washington Mutual and guess what… my money is still there because a strong bank purchased WAMU when it failed.
Our financial system is working, but it isn’t pain free. People who acted wisely are winning and those who acted foolishly are losing. That is how life works and if the government stays out of it, the market will heal itself. The problem is, you don’t win an election by letting people experience the natural consequences of their choices.
Does the bail-out really matter? The answer is both yes and no. If you are trying to win an election, then perhaps the answer is yes. If you are concerned about the health of the market and the future of our country, then the answer is a resounding no. If left alone, the real estate and financial markets will take care of themselves.
Is The Proposed Market Bail-Out a Good Thing?
By Joel Persinger
Sept 22, 2008
A few days ago the Secretary of the United States Treasury proposed a massive bail-out of U.S. (and foreign) financial institutions. The details of the plan are sketchy at best, but the initial price tag was estimated at around 700 billion dollars at the time it was announced. This is in addition to the already astronomical costs associated with bailing out insurance giant A.I.G and financial hulks Fannie Mae and Freddie Mac.
Apparently, the idea is for the government to buy up all the bad mortgages out there and use tax-payer money to do it. That way the banks, which made the foolish decisions to provide shaky loans in the first place, won’t have to suffer the consequences of their foolishness. The U.S. tax-payer will simply pick up the tab and along with it, the risk of failure. According to the Secretary of the Treasury, this is a good thing.
Some members of Congress want to provide a bail-out plan for homeowners as part of the package. If John and Jane Doe can’t make their house payments, the Congress believes that its only fair that the tax-payer step up to the plate and make sure that John and Jane don’t have to suffer the consequences either. Never mind the fact that, in many cases, John and Jane are not victims at all, but rather, folks who made foolish decisions and dug themselves into a financial hole. But, we can’t let them fail! That would be un-American… wouldn’t it?
There was a time when Americans held the deep and abiding belief that the opportunity to succeed also included the opportunity to fail. Immigrants came to this country from all over the world in search of the very opportunity provided by that strong belief. Only in America did every person have the right to embark upon the dream of owning a business, buying a home and enjoying prosperity without government interference in the form of unfair taxation and crushing regulation. However, it was implicit in the design that having an opportunity to take a crack at success came with the very real risk of ending in failure.
That is not today’s America. In today’s America, people are not supposed to succeed too much, lest they be taxed and their money distributed to those who have failed. In today’s America, people are not supposed to fail. If they do, they can count on the government to give them some of the money it has taken forcefully from those who have succeeded. Dear reader, this is the essence of socialism and it bares no resemblance to the freedom upon which this nation was built. While it may serve to prop up the real estate and financial markets in the short term by controlling what happens at the top, it has every possibility of eliminating opportunity and freedom by destroying the foundations at the bottom.
Sept 22, 2008
A few days ago the Secretary of the United States Treasury proposed a massive bail-out of U.S. (and foreign) financial institutions. The details of the plan are sketchy at best, but the initial price tag was estimated at around 700 billion dollars at the time it was announced. This is in addition to the already astronomical costs associated with bailing out insurance giant A.I.G and financial hulks Fannie Mae and Freddie Mac.
Apparently, the idea is for the government to buy up all the bad mortgages out there and use tax-payer money to do it. That way the banks, which made the foolish decisions to provide shaky loans in the first place, won’t have to suffer the consequences of their foolishness. The U.S. tax-payer will simply pick up the tab and along with it, the risk of failure. According to the Secretary of the Treasury, this is a good thing.
Some members of Congress want to provide a bail-out plan for homeowners as part of the package. If John and Jane Doe can’t make their house payments, the Congress believes that its only fair that the tax-payer step up to the plate and make sure that John and Jane don’t have to suffer the consequences either. Never mind the fact that, in many cases, John and Jane are not victims at all, but rather, folks who made foolish decisions and dug themselves into a financial hole. But, we can’t let them fail! That would be un-American… wouldn’t it?
There was a time when Americans held the deep and abiding belief that the opportunity to succeed also included the opportunity to fail. Immigrants came to this country from all over the world in search of the very opportunity provided by that strong belief. Only in America did every person have the right to embark upon the dream of owning a business, buying a home and enjoying prosperity without government interference in the form of unfair taxation and crushing regulation. However, it was implicit in the design that having an opportunity to take a crack at success came with the very real risk of ending in failure.
That is not today’s America. In today’s America, people are not supposed to succeed too much, lest they be taxed and their money distributed to those who have failed. In today’s America, people are not supposed to fail. If they do, they can count on the government to give them some of the money it has taken forcefully from those who have succeeded. Dear reader, this is the essence of socialism and it bares no resemblance to the freedom upon which this nation was built. While it may serve to prop up the real estate and financial markets in the short term by controlling what happens at the top, it has every possibility of eliminating opportunity and freedom by destroying the foundations at the bottom.
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