Real Estate News and Perspective from the Front Lines
President Obama greets Arizona high school students after announcing his housing plan Wednesday
2/20/09 Details continue to emerge on the President’s newest plan directed at helping those in trouble with their mortgage. One of the better summaries I’ve seen so far was in an e-mail I received from James Liptack, President of the California Realtors’ Association: (more…)
On July 8, 2008, California Governor Schwarzenegger signed S.B. 1137, an emergency bill designed to assist homeowners in foreclosure and tenants in foreclosed property.
At first we thought it would just make lenders more reluctant to lend in California, but on a closer look we now think that, overall, it’s another positive step in the right direction.
Because it was an emergency bill, many of the changes took place immediately. The bill applies only to loans made between 1/1/03 and 12/31/07– which are the loans most likely to go into foreclosure.
60 Days Notice for Tenants in Foreclosed Homes
According to the state legislative counsel,
Until January 1, 2013, this bill would give a tenant or subtenant in possession of a rental housing unit at the time the property is sold in foreclosure, 60 days to remove himself or herself from the property. . . .
From the bill itself:
A tenant or subtenant in possession of a rental housing unit at the time the property is sold in foreclosure shall be given 60 days’ written notice to quit pursuant to Section 1162 before the tenant or subtenant may be removed from the property as prescribed in this chapter.
(b) This section shall not apply if any party to the note remains in the property as a tenant, subtenant, or occupant.
The above provisions of the law expire 1/1/2013 unless extended by the legislature.
This is a new law, but it appears to give a tenant 60 days from when notice is given after the foreclosure, as long as neither the tenant nor anyone else living in the property was a signer on the loan that foreclosed. But those 60 cays could become as many as 180 before the tenant is actually out of the property.
Here’s the details, courtesy of the best property manager in Greater Long Beach, Dave Haas: It would probably take the lender at least a week to prepare and post the notice, often much more. After the 60 days had elapsed the owner would then have to obtain a court order if the tenant had not vacated. If the tenant did not vacate after the expiration of the 60 day notice, it would take and additional 30 days minimum if the tenant did not contest the Unlawful Detainer (eviction) proceeding; 60 if he contested it; and 90 if he filed bankruptcy.
About a week after the court order rules the marshall or sheriff posts the notice to vacate within 7 additional days. If the tenant hasn’t left by then, the owner and her locksmith meet the sheriff at the property and enforce the order with a “lockout.”
At that point, the tenant would be gone, but would have an additional 15 days to come back and claim any personal property that was left behind. (Lockouts usually happen early in the morning and generally consist of a brief but professional “Hello, time to go,” from the sheriff followed by a lock change by the owner’s locksmith.) 60 days notice, up to 90 days to get the order to evict, another 14 to the lockout, another 15 to store the tenant’s possessions for a maximum of about 180 days, worst case. Maybe longer over the holidays.
However, if the tenant stops paying rent during that initial 60 day notice, a 3 day notice would be posted and an eviction would start at the expiration of the 3 days, taking a maximum of another 120 days. This law does not allow for the tenant to stay rent free, nor does it apply to former owners, just renters.
Most tenants do not want a “U.D.” (Unlawful Detainer, or eviction) on their record, and will arrange continue paying rent and move within the 60 day time frame.
The 60 day notice is posted not at the beginning of the foreclosure process, but once the home is either taken back by the lender or sold to a new owner at the Trustee’s Sale on those legendary courthouse steps. That’s a minimum of 111 days from filing the “Notice of Default” which actually begins the foreclosure process. In most cases, the borrower has missed several monthly payments before the “N.o.D.” is filed.
The bill also has requirements concerning the lender filing that Notice of Default:
Required Notifications prior to filing a Notice of Default:
At least 30 days prior to filing a N.o.D. the lender or their representative must meet with the borrower either in person or by phone “in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” This notification can only be waived if the lender demonstrates “due diligence” by following a number of prescribed steps and still is unable to contact the borrower.
This provision becomes operative 9/6/08, to allow lenders time to set up procedures. N.o.D.s filed before then apparently are exempt.
Maintenance of Property
This one we think we really like. As usual, the devil’s in the details, but it’s indended to prevent foreclosures from ruining a neighborhood by requiring the lender or new owner to maintain vacant residential property acquired at a trustee’s sale. Included are excessive foliage, failure to prevent trespassers and squatters, and other conditions of public nuisance, including standing water and mosquito issues. Fines of up to $1,000 per day should ensure compliance. This provision takes effect immediately.
Provisions to Encourage Loan Modifications
This makes it easier for the loan servicer to work out a loan modification if such a modification is expected to ultimately save the lender money. (Remember, many loans are held in huge consolidated blocks by large investors from pension funds to insurance companies, who pay a servicing company to collect the payments and foreclose if necessary. You may make payments to Chase, but the Cal State Employees Pension Fund might actually own the loan. In that example, this provision give Chase more authority to act to achieve a mutually acceptable resolution on a loan secured by California property.
Three specific requirements must be met:
These provisions may facilitate workouts under the newly approved federal mortgage relief bill in the state of California.
On the whole, this bill appears better designed up close than we thought when we first read about it. As with the federal bill, there was give and take and consultation with the various interests involved.
As always, we value your input in the form of comments.
Click here for the text of the bill and the Legislative Counsel’s Digest.
(July 25, 2008) Let’s start off by reiterating that this is risky business. There are lots of variables that could change in the months ahead, from interest rates to employment to the international scene. That’s why we continue to insist that nobody can predict the bottom with absolute certainty, as Freddie Mac’s chief economist Frank Northaft told us last fall. (See “How low will prices go?“)
Be that as it may, everybody wants to take their best guess at what’s coming next, and recent developments are making us think it may be time to update our projections.
The Housing Relief Bill
A big reason for our increasing optimism is President Bush’s pragmatic decision this week to accept $3.9 billion for cities to buy up and fix foreclosed properties as a trade-off for federal guarantees for Fannie Mae and Freddie Mac which should calm both the stock market and stabilize lending.
Although the additional deficit spending the bill may create will put some more upward pressure on interest rates, we do think it will go a long ways to reducing the glut of foreclosures. On the whole it seems to be a surprisingly good example of well-crafted, bipartisan legislation.
Besides the money to buy up foreclosures, other features in the bill that we like include:
2. A “tax credit” (which is repaid over fifteen years interest free) of up to $7,500 for first time buyers who close escrow between 4/9/08 and 7/1/09. (Although the credit phases out for joint filers with income over $150,000 and individual filers over $75,000, Blair & I think this will increase demand significantly, especially early in 2009. In fact, we’ll break with our normal procedure here and actually recommend first time buyers contact us now so we can set them up with a personalized “web portal” which allows them to search, save, and categorize properties on the SoCal Multiple Listing Service. 562.822.SOLD.)
3. $11 billion in tax free municipal bond authority for states to set up low interest loans to first time buyers.
4. It tightens regulations to avoid future repeats of the recent mortgage meltdown.
5. Making FHA mortgages more available, especially for “work outs” of over encumbered (”upside down”) borrowers who qualify and whose lenders will participate by writing down the loan to 90% of the home’s current market value (details in the article below).
6. The complex but intriguing arrangement that encourages loan workouts instead of foreclosures or “short sales.” The lender reduces the loan amount to 10% below current market value in exchange for getting the loan off their books. The borrower agrees to share that 10% and future equity with the taxpayers. And we the taxpayers (also known as the government) guarantee the new loan through FHA, provided the buyer can qualify.
The total revised package is expected to sail through the Senate and Bush has now promised to sign it. While dangers of inflation and unemployment still threaten, we think the housing bill will have a more positive impact than we originally thought. Combine that with the fact that the market seems to be finding a bottom in terms of price, and we’re hopeful the positives will outweigh or at least neutralize the negatives of the normal summer slowdown, foreclosures, and shaky employment.
With that in mind, we’re now revising our projections as follows:
Our Current Best “Guestimate”
40% chance: Bottom sometime between now and the end of winter:
We think the limited time offer of $7,000 tax credits for first time buyers will provide a significant stimulus to a market where we’re already seeing multiple competing offers on well-priced bank REOs. At the same time, cities will begin bidding for some foreclosures, and others will see favorable workouts with the lenders which the bill makes possible.
Some of the bills provisions don’t kick in until October, but the tax relief is retroactive. We think the bottom will most likely coincide closely with our normal seasonal cycle, which bottoms in December or January. (We’re talking about escrows that open in December or January, which would close in February or March be reported by DataQuick a couple weeks later. See “Predictions 101: Our 2 market cycles” and “Two big problems with DataQuick’s monthly median price reports.“) However, it’s possible that the bottom may actually come earlier.
Of course, nobody will know for sure it’s a bottom until prices start rising in the months following. Then we’ll be wondering if it’s a false bottom through the following winter.
Which So Cal County will bottom first? All real estate is local, and we think Southern California’s Coastal Plane will hit the bottom first, followed by the desert and Inland Empire areas possibly a year later. This is due to the impact of gas prices on outlying areas plus overbuilding and more foreclosures there. Of the larger So Cal counties, we expect Orange County home prices to bottom first because it’s the most built-out and has the lowest percentage of starter homes. We expect either Los Angeles or San Diego County home prices to hit bottom next, followed by Riverside and San Bernardino Counties.
Of the smaller counties, Santa Barbara looks like it’s already bottomed, with June foreclosures there hitting a 14 month low. Ventura County homes may be nearing a price bottom, while the smaller inland counties are largely in the same boat as the Inland Empire.
The other 60%: There are at least three challenges to a bottom this winter:
40% chance: Bottom next winter. If the economy stabilizes and foreclosures slow down by year’s end, we could hit a bottom this winter. This is still the most common pick by most economists–recovery sometime in 2010, and has been consistently for the past year. We think the recent sharp decline in prices may speed things up. What would help even more would be a resumption of safe oil drilling offshore and in Alaska, with an excess profits tax being used to spur energy alternatives industries.
Again, we’re talking about the Coastal Plane areas of L.A. Orange and possibly San Diego Counties, with the Inland Empire and desert regions bottoming sometime in the following 14 months.
20% chance: Bottom later than next winter. Either a lengthy recession, or a bottom late winter of 2010-2011.
What to Do?
We still think market timing shouldn’t be as important as your personal situation in making housing or maybe even investing decisions. (See “What to do when nobody knows what’s next.”)
Sellers: Act now or be prepared to wait–maybe several years.
Buyers: There’s a significant chance that what we’re seeing now is as low as prices are going to go. But we’re saying there’s an equal chance that the bottom won’t hit until a year from this winter. And we’re also saying nobody can know for sure.
If you’re in a position to buy, start looking now & if you see something that works for you, make an offer at a price you can afford. You can use the MLS links in the right hand column to directly access any MLS in Southern California.
As a minimum, buyers should start saving your down payment (new concept, I know–check out wikipedia or google it) and get your credit in order (another new concept for some of us, but necessary now.) Do your Christmas shopping & card writing now, & see how the economy’s doing in November–it may be time to start writing lowball offers. Or to wait another year.
Although predicting a 40% chance of a bottom in the next five months hardly echos NAR’s “buy now!” theme, it’s dramatically more optimistic than we were just a few weeks ago. Of course, new developments could reduce or encourage our optimism. Stay tuned, & we’ll keep giving you our best projections based on what we’re reading, what we’re seeing on the front lines, & our experience of over 30 years in this amazing, interesting, and unpredictable business.
What Would Really Help
The “Housing Bailout Bill” seems like a pretty good example of Congressional give-and-take for the common good. We think there are two logical but somewhat radical additional steps our politicians need to take now to protect our economy and our way of life:
1. Modest steps to federal deficit reduction, specifically, reducing “pork.” I’m thinking of wasteful spending to get Legislators re-elected, like Alaska’s famous “Bridge to Nowhere.” Passing a bill eliminating such Congressional “earmarks” and also giving the next president a line-item veto would be a very simple step in the right direction. I’d also favor a mandatory deficit reduction bill that would impose across-the-board spending cuts and tax increases if our politicians couldn’t come up with budgets that meet a long term schedule to reduce the federal deficit. Taxing our great grandkids is the ultimate in “taxation without representation,” which our forefathers rightly considered tyranny.
2. Reduce the trade deficit by allowing careful new drilling for oil, but with a catch. The U.S. is sitting on more untapped oil reserves than any country in the world. I say use the revenue from that oil to create the best clean, renewable energy industries in the world. Open up more areas for safe drilling but dramatically increasing leasing fees on federal lands. Then split the billions in increased federal revenue between federal deficit reduction and renewable energy innovations.
That would undoubtedly strengthen the dollar, stimulate the economy, reduce the trade deficit, and lead to a cleaner environment. In the case of Alaska’s Arctic refuge, drilling would sacrifice less than .01% of ANWR to actual exploration in return for a $137 - $327 billion reduction in our trade balance (see Wikipedia, “Artic Refuge drilling controversy.”) We can keep sending our the money to the Saudis, or keep it here and use it for high paying jobs, deficit reduction, and energy innovations. Seems like a no-brainer to me, but I am a Realtor. . . .
We welcome your questions or comments
July 21 update: Yesterday the “The Housing and Economic Recovery Act of 2008” was passed by the House by an overwhelming 272-152 vote. It’ now goes back to the Senate where prompt approval is expected. Meanwhile, the Bush administration has dropped their opposition to the bill’s $3.9 billion in grants for local governments to buy and rehab foreclosed properties, as a trade off for propping up Freddie Mac and Fannie Mae.
Other provisions of the bill in it’s current form include:
Overall, we think this bill is a major step in the right direction, and it reinforces the projections we made yesterday for local home price bottoms occurring this winter or next. (See “Home price bottom near for Orange County?“)
Most of the information about the bill in the article below is still accurate, other than the fact that the bill has now passed the House in it’s revised form.
(July 14, 2008, 10:00 a.m.) I just received this info this morning from the National Association of Realtors’ Governmental Affairs Department. It’s the best I’ve seen yet of what the next steps are for the “Federal Housing Finance Regulatory Reform Act of 2008,” better known as the “Mortgage Relief,” “bailout,” or “housing” bill that the Senate approved last week. I’ll pass it on pretty much in it’s entirety:
The proposed $8000 homebuyer tax credit and the FHA and GSE reform and mortgage rescue legislation (H.R. 3221) has passed the Senate and now goes back to the House for what legislators hope will be a binding revision that can pass the House and Senate before the end of July. This “ping pong” effect arises because some Senate Republicans have lodged formal objections to the usual process of taking two differing versions of the bill to a House-Senate conference.
The House and Senate versions of the housing bill are now in very close alignment, with only a few issues to be resolved. Many of the issues revolve around the question of whether the bill will be “paid for.” The major focus of the pay-for problem is the provision in the Senate package that would authorize $4 billion for grants to local governments where communities have been particularly hard-hit by foreclosures. The grants would be made under the Community Block Development Grant program (CDBG). These CDBG provisions are not “paid for.” House Blue Dogs (fiscally conservative Democrats) insist that it be paid for. House Republicans, including President Bush, oppose the CDBG provision altogether. President Bush has threatened to veto the bill, in part because of the CDBG provision. Accordingly, the House has the choice of deleting the grant provisions or finding other, offsetting spending cuts.
Speaker Pelosi (D-CA) also hopes to maintain the 2008 high cost limits of $729,000, while the Senate has agreed to limits up to $625,500 for both the GSEs and FHA. While NAR continues to work for higher limits, it is important to note that even $625,500 is significantly higher than the $550,440 originally passed by the Senate Banking Committee.
Finally, additional tax revenues are needed to close a gap on the tax package. A non-real estate provision has been identified and will likely be added in this final House package, as well. The tax provisions themselves are not likely to be modified in the House.
Financial Services Committee Chairman Frank (D-MA), the architect of the housing and financial reforms, anticipates that the House can finish its work by July 18. If the bill does pass the House by then, the Senate should have adequate time to cast the final vote and send the package to the President for signature by the end of July.
Click here for a chart comparing House and Senate provisions in pdf form.
(Please note: the form is dated “April 2008,” and much has changed in both bill since then.)
Dave again. As I indicated last week, this legislation is turning out better than I thought. (See “Better than I thought: Taxpayer protections in the “bailout” bill.”)
It’s not going to reverse the home price declines by itself, but it will help reduce the damage caused by the continuing flood of foreclosures.
It’s our opinion that we may be reaching a bottom sooner than originally expected. More about that in a post to come today or tomorrow. But it’s also been our position since November that there are still more surprises ahead. (See “How low will prices go?“)
(7/12/08, 11 p.m.) I’ve been selling Los Angeles and Orange County real estate for 28 years. I’ve seen conforming loans at 18% in the early 80’s, S & L failures of the late 80’s and massive job losses in the early 90’s but I’ve never seen anything quite like the ongoing drama that’s unfolding before our eyes.
After working through the weekend, the Federal Reserve and the U.S. Treasury announced late Sunday a series of moves designed to show strong support for the two semi-private bulwarks of U.S. mortgages. (Details here.)
This is more of a reaction to the housing and mortgage mess than any real solution. They’re not stopping the bleeding–just trying to keep it from increasing at an even faster rate.
In the short run Sunday’s actions keep the collapse in housing values from accelerating even more. Over the longer term they may actually reduce interest rates, and actually slow the ongoing downward cycle.
How We Got To This Point:
In our humble opinion the current mortgage and housing mess was caused by a combination of:
The end result was a nightmare combination of extremely overvalued homes that were 100% financed or refinanced to shakey borrowers. Did I mention that many of the loans were written at ridiculously low “teaser” interest rates, which are now doubling, tripling, or worse.
All bubbles eventually burst, but the longer they last the further they must fall. Many of these loans, however, were based on the false premise that “real estate always goes up.” When the market stopped moving up, millions of serial refinancers had no place to turn, and the foreclosure parade began.
Eventually, prices dropped so low that even “prime” borrowers who put 20% down found out that they were upside down, which is how even Fannie and Freddie’s best loans began defaulting.
How’s that? The typical cost of selling a home is around 8 - 12% of a home’s value. That includes fees, escrow or closing, commissions, title insurance, termite, repairs, and, in this market, points for the buyer. Even without negative amortization, a 20% down borrower can’t break even after just a 10% decline in value. We’ve now passed a 25% decline in many Southern California markets. That doesn’t mean a borrowers with a fixed loan and good credit will defalut. . . . until one of them loses their job, or they get divorced, or have to relocate. Then they can’t sell the home, so their options are dramatically reduced. (For some of the options they still have, see “Trouble making your mortgage payment? 7 ways to get back on track“)
So, the lower prices go, the more people get in trouble, and the lower prices go, and the more people get in trouble, and the lower prices go. . . .
All of which makes investors very nervous about mortgage backed securities. Which makes it harder to qualify for mortgages, and also makes them more expensive. And which also makes it hard for Fannie Mae and Freddie Mac to sell their mortgage-backed securities. Which makes mortgages even harder to get and even more expensive. All of which makes prices go even lower.
That’s the vicious downward spiral we’re now in. That’s why I’ve been screaming that we desperately need the Federal Mortgage Act (bailout bill) that the Senate finally passed on Friday. (See “Better than I thought: Taxpayer protections in the “bailout” bill.”)
What the government did over the weekend was to take steps to simply keep solvent Fannie and Freddie, the guarantors of up to 80% of the mortgages now being originated. (Most of the other 20% are backed by the FHA or VA, although some S & Ls still “portfolio” or keep some of the loans they originate, rather than selling them off via Fannie, Freddie or FHA.)
The fall of IndyMac Bank, the third largest bank failure in U.S. history (in terms of dollars, but probably not adjusted for inflation), added further emphasis to the need for help.
So What’s Next?
The strong activity from buyers this year into summer gives good evidence that, even with rising interest rates and hard-to-get loans, prices have corrected enough to bring back buyers. But the ongoing flood of foreclosures expected well into 2009 will eventually swamp the limited pool of buyers, especially as we move out of the peak buying season. (See “Predictions 101: Our 2 market cycles“)
The weekend’s federal actions will at least keep the mortgage pipeline open, but it doesn’t solve the underlying problems. The Foreclosure relief bill will probably be fast tracked, but it will only help a limited number of borrowers. It will put a dent in the problem, but it won’t even come close to solving it.
Ongoing job losses in housing, finance, construction, home furnishings combined with auto industry problems and the huge losses being absorbed by investors don’t bode well for the future either.
(If you’re a homeowner or investor and are starting to feel a little like the Biblical patriarch, Job, you might appreciate my Pastor’s thoughts on the topic. For me, it helps keep things in perspective.)
We’ve been predicting further declines through this winter and possibly for another year or two. But, as we’ve been saying since November (See “How low will prices go?“), there are so many variables in play that nobody can predict what’s ahead with certainty. (Were you expecting this spring’s dramatic gas price rise?)
Bottom line: today’s prices are great, but they may be going lower. Maybe a lot lower. But there’s no way to know it’s hit bottom in advance. Because nobody really knows what’s ahead.
So you want to know”What to do when nobody knows what’s next.” Well, we already wrote that post, and it’s just a click away.
Note to potential sellers: The market has not died yet, and we have been consistently selling our listings in under 30 days by a combination of aggressive marketing, preparation, staging and negotiating plus accurate pricing. No, they’re not foreclosures, either. For details, check out “How to sell your So Cal home for top dollar in 30 days.” It could be a long time before prices return to today’s levels.
Buyers Southern California prices are expected to drop over the next 5 months and possibly for a lot longer, but you should also consider your personal situation and potentially rising interest rates. One thing’s for sure, if you buy today you’ll be paying a lot less than you would have a year ago! In any case, now’s definitely the time to start saving a down payment & get your finances in order, so you’ll be ready when you decide the time is right. Don’t run out and overspend on a car because you’re not buying a home.
For years I’ve been advising buyers to buy in November or December, but almost nobody has the time then–which is why it’s a great market for buyers. (For more thoughts for buyers see “Time to buy?“)
What we think needs to be done
Here’s where I’m taking an unexpected turn. The root problem became abundantly clear as gas prices rose this spring.
Because of our huge trade deficit, the U.S. is essentially becoming a third world nation, watching while Arab shieks buy up everything from Rancho Santa Fe horse property to the Chrysler building. And our oil dollars finance Al Queda, Hamas, and Iran’s nuclear program!
Meanwhile, we’re sitting on more untapped petroleum reserves than any other nation on the planet. I say it’s time to carefully open up offshore and Alaskan areas to oil drilling, but with a difference. As I understand it, current law allows oil companies remove oil from federal lands for free. I’ll bet Iran & Saudi Arabia don’t do that!
So I say, charge oil companies fair market for the oil they remove from our lands, but split that money between paying down the federal deficit and developing renewable energy sources. Let’s make the U.S. the number one source of clean petroleum alternatives.
Can you imagine the number of good jobs that would create, and the stimulus to our economy?
That’s what I think–& we’re eager to hear your thoughts!
Last night and this morning I got involved in an interesting discussion of the “Federal Housing Finance Regulatory Reform Act of 2008,” better known as the “mortgage bailout” or “foreclosure relief” act.
The discussion took place in the comments section of a post on the Irvine Company’s apartments in John Lansner’s always interesting OC Register real estate blog.
In the process, I learned some surprisingly positive things about that bill. Ultimately, it led me to the Congressional Budget Office’s June 9 Cost Estimate of the Federal Housing Finance Regulatory Reform Act of 2008, more commonly referred to as the housing “bailout bill.”
According to the generally reliable, non-partisan C.B.O., this bill should actually make $800,000,000 for the taxpayers. Yup, you read that right–it’s supposed to save us money, not cost us! I quote from the summary on p. 1 of the report:
CBO estimates that enacting this legislation would increase revenues by about$8.0 billion over the 2009-2018 period. . . . Over that period, we estimate that spending from those proceeds would total about $7.2 billion. The additional revenues would thus exceed direct spending by an estimated$800 million, decreasing future deficits (or increasing surpluses) by that amount over the next 10 years.
How is that possible? Well, far from giving borrowers and lenders a free ride, the bill actually makes participating lenders discount their note to 90% of current market value, and then makes the borrowers pay FHA 1.5% of the loan balance every year and then share 50% of their equity with the FHA when they eventually do sell!
Here’s how the C.B.O. explains it (p. 7, bolding mine):
This legislation also would require FHA to charge the borrower an annual fee of 1.5 percent of the remaining insured principal balance each year. Furthermore, the program would
provide that, upon sale, refinancing, or other disposition of the residence, the borrower
would pay to FHA a share of the new equity that would be created under the program.
(This new equity would be at least 10 percent of the property’s value because of the
required write down to no more than 90 percent of the current appraised value.) [note by Dave: Some or all of this 10% could disappear if the home declined further in value after the refinance]
FHA’s share would start at 100 percent of that newly created equity, and would drop to
50 percent in the sixth year of the term of the new loan; it would remain at that level for
the duration of the loan. In addition, upon sale or refinancing of the home, the borrower
would be required to pay FHA 50 percent of any appreciation in the appraised value of
the home since the date on which the mortgage was insured (excluding the initial
10 percent equity created by participating in the program).
In the discussion last night, one poster thought that was excessively harsh on the borrower. Maybe, but the lender wrote down the loan to 90% of current market value, so that 10% equity was a gift from the lender to begin with. I’m not shedding tears for the lender, either–they’re the ones who got us into this mess with those ridiculous loans to begin with. (see “How we got into this mess“)
I do sympathize with some of the naive borrowers who trusted their lender (who was often also their Realtor) way too much, I think the main focus should be on protecting the overall economy against a collapse. Protecting the taxpayer would come second, then the borrower and the lender.
So if the cost of the program is the owner giving up half their equity, so be it. Remember, the lender’s making a major discount on the principal balance, so that’s basically a gift to the borrower. Sounds like a pretty sweet deal for the borrower to me. And not a bad deal for the taxpayer, either. (See “How we got into this mortgage mess.”)
Sounds like maybe it won’t cost the taxpayers anything, and maybe we all win. Perhaps this specific bailout bill’s not such a bad idea after all!
Maybe I was right about the need for this bill after all! (See “Why we need a mortgage relief bill.”)
There’s lots more to the report, some good & some bad from my perspective, but much better than I expected overall.
That’s my opinion–for now, at least. Feel free to share your opinion below, in relatively polite language, of course. (There is a lot of passion about this topic.)
(4/15/08) Yesterday’s paper brought an uplifting story that helped put our real estate woes in perspective.
Today’s paper was a little more brutal. “The Next Big Quake: Big One Nearly Certain by 2038,” screamed the Register. The Times was a bit gentler: “Likelier here: the next Big One.”
Fortunately, I try to start each day with a something a little more inspiring. This year I’m reading through Wisdom for Today, a daily devotional by my Pastor, Chuck Smith.
Appropriately enough for April 15th, today’s devotional was taken from the Biblical book of Job.
It’s based on advice the troubled Job received from Eliphaz, a friend who had come to “comfort” Job in his distress. Possibly the oldest book of the Bible, Job could have been written yesterday for today’s California home owners.
Titled “Nothing + Nothing = Nothing,” today’s devotional is taken from Job 15:31, “Let him not trust in futile things, deceiving himself, for futility will be his reward.”
Here’s the first paragraph of “Pastor Chuck’s” thoughts on the passage:
“In his attempt to understand why God had stripped Job of all his possessions, Eliphaz reasoned that Job had foolishly put his trust in those possessions. Though Job had not done so, Eliphaz was right in speaking against the folly of those who are lulled into a deceptive sense of security by their wealth.”
Like maybe thinking Southern California real estate can only go up in value?
Bottom line, even if that were true, you still can’t take it with you!
1,500 years after Job, Jesus put it this way:
“Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also.” (Matthew 6:19-21)
I find that last sentence especially interesting. Jesus’ reason for not focusing on material wealth wasn’t so much that “you can’t take it with you,” as that it will distract our hearts from far more important things. Things that are eternal, like our family, our neighbors, our character and God.
Hopefully the last few year’s “shake up” in Southern California real estate values or the coming “shake up” reported in today’s paper will help us all focus more on things that can’t be shaken.
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