Government gives Bankers a Spanking
By now you already know about about the new legislation from the Obama Administration that put the “smack-down” on credit card issuers. But more importantly, you know that misery loves company. Well, what do I mean by that? Have you looked at your credit card statement lately? Trust me, you are not going to like what you see. I sure didn’t.
New fees, annual fees, higher charges on already existing fees, slashed credit limits, and raised interest rate (which is now variable instead of fixed, so it will keep going up as the Fed rate goes up). It’s enough to make you dizzy! I’m sick of all the mistreatment that has been thrust upon taxpayers. The government just keep making everything worse. These regulations just makes credit even tighter. Tighter credit isn’t the answer. Careful and selective lending practices is. It’s not brain surgery, for goodness sake! Why should financially conpetent people face the same terms of those less than competent? That makes as much sense as punishing a student for getting good grades.
First-Time Homebuyer Credit
Is the first-time homebuyers credit just a fancy incentive for a shaky investment? Then when we combine the scarcity element to it, it just gets more shady. Businesses or Sales People often use scarcity tactics to boost sales of under performing merchandise. Funny thing about incentives and scarcity campaigns are they are usually handed out when someone is trying to sell you something that isn’t any good. If the product was truly good, wouldn’t it sell itself? Homes should not be sold like unpopular new cars that has to get off the lot in the next month or so to make room for new and better inventory. A home should not have to be dressed up with several bonuses to look attractive. What are they going to do next? Throw in a air freshener with the house keys?
It’s never a good idea to make any decision under duress. If you do not have enough time to really think it through before taking action, then it would be in your best interest to pass on the offer until you are certain. But the whole point of incentives and scarcity is for the customer or buyer not to think, but to just act. To be impulsive. I don’t like the first-time homebuyers credit. I feel it does more harm than good in stabilizing the housing market. When the market is truly ready to recovery, it will happen naturally. When supply and demand become balanced.
Melvin Campbell
Equinox Properties, LLC
http://equinoxpropertiesllc.com
FHA Tightening up…Sorta
It’s no secret that the Federal Housing Administration (FHA) is sincerely trying to get the housing market back on solid ground. They make homes more affordable for borrowers with limited funds and not so great credit. Hmm…wait a second here…wasn’t lax and wreckless lending practices the main reason why we got into this housing mess to in the first place. Oh brother, it never ends. Although, I must admit that FHA doesn’t simply give away houses like many lenders were doing before the crash with their exotic loans. Borrowers actually have to bring some sort of down payment to the table (3.5% which they can borrow by the way) and have a steady job. I bet you’re thinking that’s not hard to pull off, and you’re right, it isn’t. But at least FHA requires that the borrower have more than a pulse.
Nevertheless, the foreclosure wave is starting to wash over FHA as well. Loans insured by FHA briefly after home prices started free falling in 2007 and 2008 are now defaulting. I hate to say it, but this doesn’t come as a surprise. Those homebuyers jumped in way too early and FHA’s loan program wasn’t restrictive enough to make them think twice. But, don’t get me wrong, FHA is doing it’s best to keep the housing market afloat, while at the same time attempting not doing more harm than good. It is a difficult task.
In response to the defaults on their insured loans, FHA has tightened up their policies. Borrowers will soon have to pay a higher initial insurance premium. 2.25% of the value of the loan (up from 1.75%). Sellers will not be able to offer as much help to buyers to pay their closing costs. The maximum amount of assistance will drop from 6% to 3% of the value of the property. Borrowers who want to put the minimum down (3.5%) will now be required to have credit scores of at least 580, which is a relatively poor figure. However, previously there was no minimum score.
I think these changes are good. Maybe they could be a bit more restrictive, but I know FHA will tweek it again if needed as we work our way through our next wave of foreclosures.
Melvin Campbell
Equinox Properties, LLC
http://equinoxpropertiesllc.com
Happy 2010
Happy New Year! 2010 is underway and uncertainty in the housing market persists. There are many warning signs that a “real” upswing is unlikely. The “pseudo” upswing we’ve seeing thanks to the the First-Time Homebuyer Tax Credit has no legs to stand on. Let me explain: (1) Apartment vacancy rates are rising, so rents are falling. True this is partly due to new home purchases, but its also due to people moving back in with parents and people sharing bigger living space by renting 2 or 3 bedrooms together leaving smaller units empty. Ultimately this weakens the rental buying market. (2) A massive foreclosure wave is ramping up thanks to the resetting of Option ARMs and Alt-A loans. This means we are going to see massive growth in inventory again. (3) Unemployment is high. Employers are still not comfortable expanding their workforce when consumer confidence is still weak. This means there will be less buyers in the market if unemployment continues to rise. (4) Rapid inflation is soon approaching. Interest rate will go up, so home prices will not only see downward pressure from increasing foreclosure, but also from increasing interest rates causing even deeper discounts.
It’s going to be an interesting year…
Melvin Campbell
Equinox Properties, LLC
http://equinoxpropertiesllc.com
The Home Crisis & Politicians
Melvin here.
I have some humorous, yet troubling news for you. Some time ago I saw this video clip that proves to me that politicians are not the answer to finding a solution to the housing market troubles. Truth be told, it’s up to us, the people, to get ourselves out of this mess. Tune in by clicking the link below and be prepared for a good laugh.
Why are Unconventional Short Sale better?
Are you a Real Estate Agent seeking a better way to close short sales? Do you think the process is flawed? This presentation will address your concerns and will introduce you to a unique process that will break through the barriers that kill your deals.
Click on the thumbnail below to view the presentation.
Feel free to leave comments.
Enjoy!
More to Come
The 2nd wave is coming
It’s pretty clear that the second wave in 2011 is going to be worse than the first one in 2008 because this time it’s a two-headed monster. Option ARMs and Alternative A-paper (Alt-A) mortgages will be resetting in huge quantities. To fully understand the problem, I’ll pause here to examine the two mortgages. An Option ARM is a 30-year ARM that initially offers the borrower four different monthly payment options: a specified minimum payment, an interest-only payment, a 15-year fully amortizing payment, and a 30-year fully amortizing payment. So you see, the borrower has the option to “pick-a-payment” and if a borrower makes a payment that is less than the accruing interest, there is “negative amortization”, which means that the unpaid portion of the accruing interest is added to the outstanding principal balance. Also, Option ARMs are often offered with a very low teaser rate (often as low as 1%) which translates into very low minimum payments for the first year of the ARM. Alt-A is considered riskier than A-paper, or “Prime”, but less risky than “Subprime,” the riskiest paper. Alt-A’s are typically utilized by borrowers with less than full documentation, lower credit scores, higher loan-to-values, and investment properties.
Okay, now that I covered the nuts-and-bolts, it should be obvious why we are in for a world of hurt all over again. These toxic mortgages made buying a home way too easy, just like Subprimes did. The end result, people spent more money on a home that they never should have qualified for. I am especially disgusted with Option ARMs. Anytime the customer has the opportunity to pay whatever they want and the product (in this case, a mortgage) is marketed by how little you could pay per month instead of how much it cost as a whole, that’s a recipe for disaster. But we live in a capitalistic society and so people will say and do just about anything to make a sale, which is fine, but now that we are in hot water we have to acknowledge the severity of the damage, so we can act accordingly.
In the 2nd & 3rd quarters of 2009, have seen improvement in the marketplace, but is it sustainable improvement? Yes, home sale statistics were up, but that was largely due to government tampering ($8,000 first-time homebuyer tax credit and the Foreclosure Moratorium) and the cool down in subprime defaults. However, as we approach 2010, I expect to turn on the TV and hear less talk questioning whether the recession is over and more talk about the 2nd Wave in Defaults and more government programs to battle the wave by keeping interest rates low, so prices stay up and more incentives to attract buyers. I don’t think the real estate market will get better until 2012, so in the meantime I’m monitoring the chaos.
Melvin Campbell
Equinox Properties, LLC
http://equinoxpropertiesllc.com
Revamped Mortgage Refinance Program
Are you having a hard time keeping up with all the government housing programs? I find it exhausting at times. They poke and prod at the problems hoping they will go away with the least bit of effort and expense on their part. And then when it doesn’t go away, they start poking at it again. Their latest attempt at trying to save the US housing market involves tweaking the refinance plan they made in February (just 5 months ago). That program allowed borrowers who never missed a payment and who owed 105% or less of their home’s current value on their 1st mortgage to refinance to take advantage of the historically low interest rates. With home price dropping so rapidly due to raising foreclosures, Obama’s plan has been changed to allow borrowers who owe 125% or less of their home’s current value on their 1st mortgage to refinance.
Although, I’m pretty certain the government will modify the refi plan again in the months to come (probably raise the limit to 150%), I believe this plan, is the better of the two recovery plans introduced by the government. People who have been weathering the storm and staying current on their debt are more likely to continue making their payments will added cushioning. However, the loan modification plan, designed for people in dire need for help, I have little to no faith in. Borrowers who qualify for a loan mod have been missing payments. There are a variety of reason why they have been missing payments, such as: lose of job, pay-cuts, high medical expenses, divorce, adjustable rate mortgage payment are astronomically high, they bought more house than they could afford with a no money down loan so their DTI is through the roof, they used equity lines of credit to pull money out of their house to splurge on luxuries or to buy another home they cannot afford. Candidates for loan mods tend to have permanent, on-going financial problems that, if not corrected, will still default after a modification to their loan.
The blame for the housing crash lies partially on the shoulders of predatory lenders and partially on the shoulders of the borrowers. Although, I am more sympathetic to the borrower because they put their trust in the hands of the loan professionals. I wish homeowners in default good luck and I encourage them to stay positive and actively seek solutions to their housing problem. Foreclosure should be your last resort.
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