Thursday, November 5, 2009

US Government Provides Funding For 95% Of Mortgages

US Government Provides Funding For 95% Of Mortgages

According to this article, Recent Developments in Mortgage Finance, in the October 26, 2009 edition of the Federal Reserve Bank of San Francisco newsletter, the US government (via Fannie Mae, Freddie Mac and Ginnie Mae) are now providing unprecedented support for the US housing market by "owning or guaranteeing almost 95% of the new residential mortgage lending."  In other words, the US government is currently providing the funding for 95% of all residential mortgage loans.  Therefore, when you hear that "the banks are starting to lend again", what is really happening is that the banks are operating as little more than glorified loan brokers by selling nearly all their loans to the federal government via Fannie Mae, Freddie Mac and Ginnie Mae (see the graph below courtesy of the FRBSF).


The article goes on to state "This shift in mortgage finance has had a profound impact on the types of borrowers receiving loans. In the fourth quarter of 2006, approximately 10% of originations in our sample were labeled by originators as "subprime." For the entire universe of mortgages, subprime loans are estimated to have made up about 20% of originations in 2006. By the first quarter of 2008, the subprime share was effectively zero. Since then, increased FHA lending—identified here by Ginnie Mae's share—has revived this segment of the market. After plummeting in early 2008, the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20%, the same share as when subprime securitization peaked in 2006. The collapse of nonconforming loan originations has had a particularly strong impact on the higher end of the market. The share of jumbo mortgages was nearly 9% at the peak in 2006. By the end of 2008, jumbo loans accounted for just 3% of new originations. Meanwhile, in another big shift, option ARMs made up about 6% of originations in the fourth quarter of 2006. By year-end 2008, option ARMs had vanished from the data set." What this means is that the US government has taken the place of the subprime lenders that went belly up due to making too many bad loans and that the US government, as a % of total loans made, is making just as many subprime loans as the now defunct subprime lenders did during the peak of the subprime feeding frenzy. In my opinion, the result of this will be more foreclosures and short sales which will cause massive losses that the US taxpayer has to ultimately pick up all because we refuse to tell people that they cannot afford to buy a home. Common sense has truly left this country.

The article concludes "With the vast majority of current mortgage lending now intermediated in some form by the GSEs, it will be difficult for the housing market to return to normal." What this means is that it is going to be nearly impossible for the housing market to be weaned off of artificial and unsustainable government support. The end result will be disastrous when the government "market proppping" is eventually discontinued. That is why I know for sure that the housing market is not recovering. What we are seeing is a mirage created by artificial artificial support. Even the mirage is not that pretty, so the reality is that much worse. The US housing market will continue to suffer for the next several years with the worst to come within the next 3 years.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage (due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth, please contact me to discuss your options including loan modifications or short sales. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Wednesday, November 4, 2009

New Subprime Lender: The US Government

New Subprime Lender: The US Government

According to this City Journal article, Our Subprime Federal Government, "President Obama’s mortgage plan imitates the lenders who inflated the housing bubble." The article references the 10/9/2009 Congressional Oversight Panel report, October Oversight Report: An Assessment of Foreclosure Mitigation Efforts After Six Months, for its data.

On 10/9/2009 the Congressional Oversight Panel released its first analysis of the Obama Administration's Making Home Affordable (MHA) initiative (Through the US Treasury, the MHA is "the federal government's central tool to combat foreclosures. MHA consists of two primary programs. The Home Affordable Refinance Program (HARP) helps homeowners who are current on their mortgage payments but owe more than their homes are worth, refinance into more stable, affordable loans. The larger Home Affordable Modification Program (HAMP) reduces monthly mortgage payments in order to help borrowers facing foreclosure keep their homes.") via the report mentioned above, October Oversight Report: An Assessment of Foreclosure Mitigation Efforts After Six Months. According to the report, the US Treasury's stated goal for the HAMP program is to "prevent as many as 3 to 4 million of these foreclosures." The report goes on to say that "there is reason to doubt whether the program will be able to achieve this goal."

The article states "The analysis shows that the Treasury, in trying to keep people in homes they can’t afford, is relying on the same perverse principle that inflated the housing bubble in the first place: namely, that it’s fine to borrow recklessly to buy a house, because house prices can only go up and up. Trying to maintain a bubble mentality, rather than help people adjust to life after the bubble has burst, will hobble economic recovery."  I absolutely agree with this statement.  The question I keep asking myself is why when the real estate market was going up rapidly did we repeatedly hear the cry of "affordable housing" with the result of more and more low down payment and easy to qualify for mortgage loans combined with federal, state and local housing grants, bond programs, etc. (the result of these loans and subsidies was to artificially increase buyer demand and push home prices up further), and now that the real estate market is finally moving home prices back into affordable territory we have the federal government intervening to artificially prop up home prices?

The article states "President Obama first announced HAMP eight months ago. The program helps struggling borrowers slash their monthly mortgage payments to 31 percent of their gross income (from participants’ original median of 45 percent). To encourage the financial industry to modify the loans, the government offers inducements to mortgage “servicers” (the companies that handle paperwork for borrowers and lenders), including a $1,000 payment each year for the first three years of a successful “workout.” The government also offers lenders partial compensation for the losses that they will take on the workouts. And the government gives borrowers $1,000 a year for up to five years for staying current on their modified loans; the extra money will help pay down their loans. Reworking bad loans isn’t a bad idea; it can prevent even bigger losses for both borrower and lender. Say you purchased a house worth $220,000 in 2006, borrowing 100 percent of the value, and the house’s value has since fallen to $150,000. If you can afford a mortgage on $175,000 worth of debt, it likely makes more sense for your lender to cut your mortgage debt down to $175,000 than to sell your house for $150,000. Indeed, such write-downs should be a healthy part of the economy’s readjustment to a post-bubble world. They would help address the housing bubble’s legacy: one-quarter or so of homeowners now owe more than what their houses are worth.  Healthy write-downs of bad debt are not what the White House is encouraging, though. HAMP has been reducing people’s mortgage payments not by cutting the amount they owe in line with realistic home values, but by slashing the interest rates on their mortgages. Of the nearly 2,000 completed workouts so far, mostly of initially fixed-rate mortgages, under 1 percent have included forgiveness of any debt, the congressional oversight panel said; instead, mortgage administrators have cut payments "almost exclusively" through interest-rate reductions. The HAMP borrowers’ median annual interest rate has thus fallen from 6.85 percent to an absurdly low 2 percent annually. The cuts have made a big difference in monthly payments, which have dropped from a median $1,419 to just $849.  But there’s a catch: the cuts are temporary. Five years from modification, the interest rate on each modified mortgage will begin to increase, either to the original mortgage rate or to the market mortgage rate at the time the loan was modified. As the congressional report notes, “the affordability of the loans will move back toward [original] levels eight years from now.” Treasury has taken fixed-rate mortgages that borrowers can’t afford and transformed them into the very “teaser-rate” mortgages that grew so popular during the housing bubble—to mask and exacerbate the same problem: the house costs too much for the buyer."

Even worse than the loan modifications being temporary is the fact that the mortgage lenders and servicers can add on some of the costs of missed mortgage payments and other fees to the homeowner's original mortgage balance.  Therefore, unless there is a substantial increase in housing prices, these homeowners could be even more underwater/upside down than when they started!  According to the article, "The median homeowner in HAMP owed an untenable 122 percent of the value of his house before entering the program; today, the same owner owes an even more untenable 124 percent. Worse, before modification, 474 of the 2,000 HAMP borrowers weren’t yet “underwater”—that is, owing more than the value of their homes. Now, only 424 remain in that relatively good position. Will the $5,000 (maximum) in government payments to borrowers who stick to their new mortgages cut the amount they owe by more than the lenders will eventually increase it?  So far, it looks to be close to a wash.  Notwithstanding the government’s best efforts to sustain a bubble, home prices are falling to about where they should be so that people can afford to buy houses again without incurring impossible debt burdens."  I have been saying this for some time now.  Home prices need to fall to a point that they are sustainable based on peoples' incomes and not their ability to take on debt. The result of this "false propping" will be more short sales and foreclosures for years to come.

The article goes on to state "Consider the Treasury’s small universe of HAMP participants. Treasury balks at releasing the raw data behind its program, but the interest rates and monthly payments detailed in the congressional report make it easy to determine that the average HAMP borrower likely owed about $220,000 on his mortgage before and finds himself with a house worth about $180,000 today. Suppose, in an ordinary process of healthy write-downs, lenders reduced that average loan to today’s value and lenders of any second mortgages or home-equity loans—which are supposed to offer less protection—lost all of their money (as they should, but don’t, under HAMP). In that case, the borrowers’ median monthly payment would be less than $1,200, even at the original 6.85 percent interest rate. And at the record-low 5 percent rates that qualified borrowers can secure today—something that the government could more reasonably support than the 2 percent rates—payments would fall below $1,000.  The White House, instead of letting the market bring prices down to where they should be, is kicking the problem five years down the road. It hopes that five years from now, home prices will have risen so much that borrowers will no longer be underwater. Borrowers would then be able to sell their homes at prices higher than their mortgage balances, getting out of their still-unaffordable original mortgages without huge losses for lenders. Washington is trying to prearrange this outcome through other programs, such as its $8,000 tax credit for first-time homebuyers—another attempt to keep home prices artificially high with taxpayer money. But this policy isn’t good for the economy. Overvalued houses force people to continue borrowing too much and keep their financial resources from going into savings or investments—that is, into more productive, job-creating industries. Using borrowed federal money to further this goal also takes funding away from infrastructure and other public investments that a healthy economy needs.  Nor is this policy good for the homeowners whom Treasury is purporting to help—those who can’t afford their mortgages. If housing prices aren’t substantially higher in five years even after the government’s best efforts at distortion, the Treasury program will only have discouraged people from cutting their losses and moving on with their lives.  HAMP’s beneficiaries could better adjust to reality without this government intervention. Borrowers are generally free to walk away from their houses without declaring bankruptcy. Under the contracts that mortgage lenders and servicers drew up as well as precedent, mortgage debt is understood to be backed by the value of the house, not by a borrower’s full pledge to pay the debt with his personal resources. (In fact, that’s why mortgage interest rates have historically been lower than credit-card rates: lenders know that a valuable physical asset secures the home, not a person’s ability and willingness to pay his debt.) A borrower who can’t afford his house under normal conditions may have to leave the property and start renting instead, but that’s hardly sufficient reason for the government to sink tens of billions of dollars into maintaining an irrational environment of high prices—one in which it makes perverse sense to keep mindlessly buying houses.  Instead, the White House should help the economy adjust to lower home prices and force lenders and borrowers to recognize their losses—both key elements to a recovery. Treasury should say that it won’t subsidize mortgage administrators that offer temporary interest-rate cuts; it should use any subsidy to encourage lenders to forgive principal. Someone who couldn’t afford a mortgage based on his home’s current value—or less, if the mortgage administrator thinks fit—would have to move. All of these steps would make far more sense than Washington’s current policy: becoming the biggest predatory lender of them all, and eating the economy alive."

I normally would not quote so much of an article, but the author, Nicole Gelinas, hit all the points so well that I did not want to mess with such a well written and reasoned piece of journalism. The conclusion of all of this information is that you cannot buy into any of the home sale figures offered by the US government showing a "real estate recovery" because they are all based on temporary housing programs and incentives, which will only serve to delay (not prevent) the inevitable: more foreclosures and short sales resulting in lower home prices in the future.

If you are a homeowner in Middle Tennessee who cannot pay your mortgage (due to losing your job, having your income reduced, illness, health problems, etc.), or your home is already in foreclosure, or you owe more than your home is worth, please contact me to discuss your options including a loan modification or a short sale. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN. If you do need to short sell your home (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), or you need a quick sale due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

New Home Sales Drop in September 2009

New Home Sales Drop in September 2009

According to this Nashville Business Journal article, New home sales drop unexpectedly, "New home sales took a surprising turn downward last month, according to newly released government figures." According to the article, on 10/28/2009, the US Commerce Department reported that sales of new homes declined by 3.6 percent in September 2009 to a seasonally adjusted rate of 402,000 new home sale units.

The article stated the following new home sales figures:
  • The number of unsold new homes fell for the 29th straight month to 251,000.
  • The supply of new homes at current sales rates remained unchanged at 7.5 months.
  • The median time it takes to sell a home remained unchanged at 13 months.
  • The number of completed new homes for sale fell to 109,000 units.
The article quotes Patrick Newport, a U.S. economist for IHS Global Insight, as saying "September’s decline is hard to explain."  According to the article, Newport offered the following possible explanations for the "unexpected" decline in new home sales:
  • "One possibility is that inventory has fallen so low that builders do not have enough completed homes on hand, and are losing sales to the market of existing homes."
  • "A second possibility is that September's reading was simply an aberration, just like the August drop in existing home sales was an aberration, and that sales will take off in October."
  • His final possible explanation is that due to the deadline for the first-time homebuyer tax credit nearing on 11/30/2009, would be new home buyers do not think they will be able to close in time and so these buyers decided not to buy.
I have to say that I do not find this "unexpected" decline in new home sales to be unexpected at all. The fundamentals of the real estate and housing market are poor. Unemployment is over 10%, foreclosures and other distress sales are at record levels, banks are failing in record numbers (in terms of dollar losses). The only things keeping home prices (including new construction) at current levels (i.e. preventing home prices from falling to sustainable levels) is artificial government intervention in the form of:
  • The $8,000 home buyer tax credits.
  • Expanded FHA and other government backed mortgage loans (see my blog post Real Estate Recovery or More Problems (Short Sales and Foreclosures)?, which shows that "of all the home sales that have occurred in 2009, 59% of all buyers relied on low down payment government financing programs.").
  • Extraordinary government purchases of mortgage loans (95%+ of all mortgage loans are purchased by the government owned agencies Fannie Mae, Freddie Mac and Ginnie Mae - see Recent Developments in Mortgage Finance).
With the $8,000 tax credit coming to an end soon (even with the proposed extension it will only last for an additional 8 months), continued unemployment, record foreclosures and a pending pull back in FHA and other government loans due to the record default rates (see my blog post FHA in Deep Trouble: Default Rates Skyrocketing) new home sales should decline.  Only the government nonsensical intervention is fooling buyers into thinking things are OK.

If you are a home buyer or real estate investor in Middle Tennessee who is interested in purchasing new construction (new single home, new townhouse or new condo), do not be fooled by builder hype and marketing. If you want a great deal on new construction, you will need knowledgeable, aggressive and professional buyer representation. Please contact me, or visit my website Search the Middle Tennessee MLS - Find New Single Homes, New Townhomes and New Condos in Middle TN. I help home buyers in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN.

On the other hand, if you are a home builder in Middle Tennessee who is in financial trouble due to being unable to pay your mortgage payments, or owe more in mortgage debt than you can sell your newly constructed homes for, or you are already in foreclosure please contact me to discuss selling your new homes via short sales. I am a Middle Tennessee distressed real estate, short sale, pre-foreclosure (preforeclosure) and foreclosure REALTOR and Expert. I serve real estate owners, homeowners and investment property owners in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN. If you do need to short sell your new homes (a real estate short sale occurs when the sale proceeds are not sufficient to pay off all the mortgages and liens on the property/home), or you need quick sales due to being in foreclosure, you can request short sale and foreclosure help and assistance on my website at Get New Construction Short Sale and Foreclosure Help and Assistance from a Middle Tennessee Short Sale and Foreclosure REALTOR and Real Estate Expert.

Tuesday, November 3, 2009

Buying a Foreclosure Is Harder Than It Should Be

Buying a Foreclosure Is Harder Than It Should Be

This video, How to Buy a Bank-Owned Home (see below), is both hilarious and infuriating because it is true. I really believe that banks choose the most incompetent and ignorant foreclosure and REO agents to market their bank owned foreclosures.



If you are a home buyer or real estate investor in Middle Tennessee who is interested in purchasing a Fannie Mae foreclosure, a Freddie Mac foreclosure, bank foreclosure or REO, a short sale, or other distressed real estate in order to get a great home or investment property at an attractive price without dealing with the difficult REO/foreclosure listing agents and you want aggressive and professional buyer representation, please contact me, or visit my website Search the Middle Tennessee MLS - Find Middle TN Short Sales, Pre-foreclosures, Foreclosures & REO's so that you can find foreclosures, short sales and other distressed real estate and homes in Middle TN. I help home buyers in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN.

Thursday, October 29, 2009

Terrazzo to Auction Condo Units Due to Slow Sales

Terrazzo in Nashville Gulch to Auction Condo Units Due to Slow Sales

According to this Nashville Business Journal article, Terrazzo to slash prices, auction condos, Crosland, the developers the Terrazzo, a $68 million 117 unit luxury high rise condo project in the Gulch section of downtown Nashville Tennessee, will auction off up to 30 units at 1:00 PM CST on November 21st at the Renaissance Hotel. According to the article, sluggish sales are the reason that the developer opted to auction off some condo units.

The article quotes Bill Barkley, president of Crosland's Tennessee division (the developer of the Terrazzo) as saying that the auction "offers Terrazzo the opportunity to sell a significant number of condominium homes and instantly build the growing community at Terrazzo — all in a single day."  The article goes on to state the following terms and conditions of the Terrazzo auction:
  • "Minimum offering bids will range between 40 percent and 50 percent of list price. Minimum bids for one-bedroom units will range between $159,000 and $225,000, two-bedroom units will start between $250,000 and $310,000, and three-bedroom units will start at $399,000. Bids will include one parking space in the mixed-use building’s underground garage."
  • "Interested buyers are required to register and preview the units before bidding. According to the Terrazzo’s Web site, bidders will need to come prepared with a cashier’s check or money order for $5,000 and a blank personal check, which will be added to the $5,000 to equal 5 percent of the winning bid price."
I would like to say a couple of things about this auction:
  • The minimum bid prices are still too high.  This will result in very light bidding.
  • Overall, I do not think many units will sell at these prices. See my previous blog post, Birmingham Auction Ended Abruptly After Too Many "Low Bids", for the results of a condo auction in Birmingham Alabama. The highest bids at that auction were only about one-third of the original list prices.
  • According to the City Federal Condos (the Birmingham condo project mentioned above) website, the developer is now trying to sell the condo units that fetched $80,000 at the auction for $139,000.  My guess is that this project will be bankrupt in less than 12 months.
  • Even if the developers do sell some some units at 50% of the original list prices, what happens to the people who already purchased condos before the price drop?  If they have to sell due to a job loss, job relocation, illness, or other reason, they will lose over $100,000, or be forced to short sale their condos.
  • Based on the above information, I think that the Terrazzo will end up being auctioned off by the lenders who financed the project.  Until the developers accept the fact that there is only a limited number of high income young people and wealthy "empty nesters" they will never price their condo units where the overwhelming majority of the market is.  It seems like the developers are still in denial.
If you are a home buyer or real estate investor in Middle Tennessee who is interested in purchasing a Fannie Mae foreclosure, a Freddie Mac foreclosure, another foreclosure, REO, short sale, auction home, or other distressed real estate in order to get a great home or investment property at a low price, please contact me, or visit my website Search the Middle Tennessee MLS - Find Middle TN Short Sales, Pre-foreclosures, Foreclosures & REO's so that you can find foreclosures, short sales and other distressed real estate and homes in Middle TN. I help home buyers in Rutherford County TN, Williamson County TN, Davidson County TN, Murfreesboro TN, Smyrna TN, La Vergne TN, Eagleville TN, Lascassas TN, Rockvale TN, Christiana TN, Brentwood TN, Franklin TN, Nashville TN and Belle Meade TN.