Possible Tax Credit Extension.....And My Opinion

I just read that there are bills pending in both the House and the Senate to extend the first time home buyer credit of up to $8,000 which expires on November 30 of this year. If you want my opinion, then make sure to read to the end.

The Senate version, co sponsored by Chris Dodd (D-Conn) and Johnny Isakson (R-GA), would extend the tax credit to up to $15,000 and make any owner occupant home buyer eligible. Senate majority leader, Harry Reid (D-NV), is in favor of extending the tax credit as it stands currently which is 10% of the purchase price up to $8,000 for first time buyers or someone who has not owned a home in at least 3 years.

The article that I read indicates that the most likely scenario is one where a tax credit would be the same as it stands currently at 10% of the purchase price up to $8,000, but open to all owner occupant buyers instead of just 1st time buyers.

My Opinion:

As a REALTOR, I have benefited from the 1st time tax buyer credit. It has infused into the market place of home buying, a number of 1st time buyers that may not have otherwise been buying thus keeping me busy selling houses both on the listing side and on the buyers side. Maybe we needed that first credit to stave off something much larger than what we have gone through....or maybe not.

But is this new tax credit really a good idea? Was it a good idea in the first place?

We just went through a "Housing Bubble" due to putting too many unqualified buyers into home ownership. By doing this, it created a housing demand. When demand is high, prices go up. But it was an artificial demand. Putting people into homes that should not have been able to buy a home is an artificial demand. Now we are dealing with a large default rate and a saturation of the market with all of these homes that have been defaulted on.

Now, don't get me wrong, there are a lot of people that defaulted that were not in the sub-prime category. They defaulted because of rising unemployment, divorce, lack of good health care causing large medical bills....there are a lot of reasons why people default. But this mess started with the sub-prime loans.

With the sub-prime loans gone, unlike before, these new buyers are qualified buyers that probably moved up their timetable of buying to take advantage of the credit. But isn't the $8,000 credit just inflating the price again?

This "Crash" in the housing market that we are seeing, is the market adjusting itself from being over valued. If we offer $8,000 or $15,000, as one bill suggests, aren't we just inflating the market again? Causing a demand when there should not be a demand?

Why do I say "when there should not be a demand?". I know this person that is not in love with his house, he thinks his house is just ok, but he does not need to sell it. He is settled into it. If this tax credit for everyone goes into effect, especially the $15,000 credit, then his house is going up for sale and he will be building a new house somewhere. Who is this person? It is me. Isn't that artificially putting me into the market, when I had no intention on being in the market? Just because I may disagree with the government giving out this credit does not mean that I will not take advantage of it.....because I will, and others will too.

The other big question is: What is going to happen when this credit goes away? It seems to me that we just are putting off the inevitable of a really really slow real estate market. When you give people incentives like this, they grow to expect it. Just look at the car industry. For years and years, the only way American car makers have been able to sell cars is by giving huge rebates on their product-something that our government just found out with the "cash for clunkers" that brought a lot of buyers onto car lots. In the housing industry, we are in danger of creating the same type of mentality. Several times per week I am asked about a zero down or sub-prime mortgage as a way to buy a house. Most zero down and all sub-prime has been gone for almost 2 years and people are still asking for it. People are looking for the edge or the loop hole. Zero down does have a place, just not to those with poor credit. And it is typically those with poor credit that are asking for those programs.

So, what is my solution if there is no tax credit?......Smart and responsible lending programs that reward people with great credit but don't eliminate as many buyers that our current programs do. In my opinion, there is no reason why someone with an 800 credit score should not be able to buy with zero down if they would like to. I feel that someone with a moderate score, say in the 680 to 720 range, should be able to buy with very little down--like 2% down. Those with a 580 to 679 need to put 3.5% to 5% down. You reward those with the good credit with lower rates. I also feel that banks should allow closing costs to be wrapped up into the loan without a penalty in the interest rate and that down payment assistance programs were not necessarily a bad thing. I know this will not create the number of buyers that are out shopping because of the tax credit as there is right now, but is that a bad thing?

Lets use our tax dollars for giving health insurance for those in need of it. After all, it may very well be the leading cause of bankruptcy in this country which is something that we all pay for. Lets use our tax dollars to build the finest schools possible. If we do those 2 things, I think you will see far more wealth in this country. And if there is more wealth, there are more home buyers.......But that is just my opinion. And I know that this idea would not create a fast enough response in this "give me now" society that we live in. I know that this post will probably not be too popular with my fellow agents, but it is my opinion. And if the government passes a new tax credit, I will push the heck out of it because I need to make a living. But this blog was created in part to voice my opinion, which is what I have done. Feel free to let me hear yours by leaving a comment.

Strong Gain In Existing Home Sales

Here is a press release that I found from the National Association of Realtors about the current market conditions:

For the first time in five years, existing-home sales have increased for four months in a row, according to the National Association of REALTORS®.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 7.2 percent to a seasonally adjusted annual rate of 5.24 million units in July from a level of 4.89 million in June. Sales are 5.0 percent above the 4.99 million-unit pace in July 2008. The last time sales rose for four consecutive months was in June 2004, and the last time sales were higher than a year earlier was November 2005.

Largest Gain in a Decade

Lawrence Yun, NAR chief economist, said he is encouraged. “The housing market has decisively turned for the better. A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales,” he said.

The monthly sales gain was the largest on record for the total existing-home sales series dating back to 1999.

“Because price-to-income ratios have fallen below historical trends, there are more all-cash offers. In some recovering markets like San Diego, Las Vegas, Phoenix, and Orlando, the demand for foreclosed and lower-priced homes has spiked, and a lack of inventory is becoming a common complaint,” Yun said.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 5.22 percent in July from 5.42 percent in June. The rate was 6.43 percent in July 2008.

"First-Time Buyer Tax Credit is Working"

An NAR practitioner survey showed first-time buyers purchased 30 percent of homes in July, and that distressed homes accounted for 31 percent of transactions. NAR President Charles McMillan said the first-time buyer tax credit is working. “In addition to first-time buyers, we’re also seeing increased activity by repeat buyers. While many entry-level buyers are focused on the discounted prices of distressed homes, they’re also freeing some existing owners to sell and make a move,” he said.

“Realtors are the best resource for consumers in these changing market conditions because the transaction process has become more complex. Since it’s now taking longer to complete a home sale, first-time buyers who want to take advantage of the $8,000 tax credit should try to make contract offers by the end of September,” McMillan said. “Otherwise, they may miss the November 30 closing deadline.”

Inventory Up, Prices Down

Total housing inventory at the end of July rose 7.3 percent to 4.09 million existing homes available for sale, which represents a 9.4-month supply at the current sales pace, which was unchanged from June because of the strong sales gain. Raw inventory totals are 10.6 percent lower than a year ago when the number of unsold homes was at a record.

The national median existing-home price for all housing types was $178,400 in July, which is 15.1 percent lower than July 2008. Distressed properties continue to weigh down the median price because they typically sell for 15 to 20 percent less than traditional homes.

Single-Family Homes and Condos

Single-family home sales increased 6.5 percent to a seasonally adjusted annual rate of 4.61 million in July from a pace of 4.33 million in June, and are 5.0 percent higher than the 4.39 million-unit level in July 2008. The median existing single-family home price was $178,300 in July, which is 14.6 percent below a year ago.

Existing condominium and co-op sales jumped 12.5 percent to a seasonally adjusted annual rate of 630,000 units in July from 560,000 in June, and are 5.9 percent above the 595,000-unit level a year ago. The median existing condo price was $178,800 in July, down 18.9 percent from July 2008.

By Region:

The Northeast surged 13.4 percent to an annual pace of 930,000 in July, and are 3.3 percent higher than July 2008. The median price in the Northeast was $236,700, down 15.0 percent from a year ago.

Existing-home sales in the Midwest jumped 10.9 percent in July to a level of 1.22 million and are 8.0 percent above a year ago. The median price in the Midwest was $157,200, which is 5.9 percent less than July 2008.

In the South, existing-home sales rose 7.1 percent to an annual pace of 1.95 million in July and are 5.4 percent higher than July 2008. The median price in the South was $164,500, down 7.1 percent from a year ago.

Existing-home sales in the West slipped 1.7 percent to an annual rate of 1.13 million in July, but are 1.8 percent above a year ago. The median price in the West was $202,300, which is 28.0 percent below July 2008.

Source: NAR

I Believe........

I Believe.........That when Jesus said "Love thy neighbor as thyself" that this was a command and not a request. That this command crosses geographical boundaries, political views, religious beliefs, sexual orientation, the rich, the poor, the homeless and anyone else you can think of.

I Believe..........That a great way to start my day is to roll on the floor playing with my 2 pugs.

I Believe..........That the news media is more interested in making the news then they are reporting the news.

I Believe..........That it is a shame that our Government cannot find the money to help the poor, the sick, the un-educated and the homeless of our country but can easily find $700 billion when it appears a bank or two might go out of business.

I Believe..........That we should all stop watching the news for awhile.

I Believe..........That Hank Aaron is, without a doubt, the greatest baseball player to have ever played.

I Believe..........That Barry Sanders was the most exciting football player to have ever played.

I Believe..........That we try to help God across the road like he was a little old lady, when we are the ones that need his help to get across the road.

I Believe..........That whoever thought up of Little Casesars "Crazy Bread" is a culinary genius.

I Believe..........That Weird Al Yankovic is a musical Genius, and I know that I am in the minority on this belief.

I Believe..........That once in awhile a movie is made that can make you completely see something differently and "Blood Diamond" was one of those movies for me.

I Believe..........That Pete Rose should be in the Baseball Hall of Fame for what he did as a player.

I Believe..........That Pete Rose should be banned from baseball for gambling on games while he was a manager.

I Believe..........That no matter what our political beliefs are, we need to pray that the leaders of our country succeed.

I Believe..........That I need to go feed the Pugs!

Facing Foreclosure? Experts Advise Action

Here is an article that I was fortunate to participate in again that was published on the front page of the South Bend Tribune today. The photo to the right was used by the tribune in the article.

Homeowners can take steps to minimize fallout.

By KIM KILBRIDE
Tribune Staff Writer

Consumer advocates have a message for homeowners mired in foreclosure: Your situation is not hopeless.

Even if your house can't be saved, they say, there are steps you can take to lessen the fallout.

"When people see the foreclosure (notice) come to the door, they just give up," said Debra Voltz-Miller, an attorney in South Bend.

This, she said, is the time for homeowners to take action.

Those who call foreclosure-prevention hot lines, such as the one in Indiana, will be referred to local counselors who will serve as go-betweens for homeowners and lenders.

If nothing else, area experts say, homeowners should become their own advocates.

Call your lender and explain your situation, they say. Ask for a modification of the terms of your loan. And follow up to ensure the paperwork is received and your request is considered.

If you've already received a notice of foreclosure from the courts, respond to it in writing, advising that you're trying to work with your lender.

And finally, the experts say, do not pay in advance for the services of a for-profit "foreclosure-rescue" company.

What's new in Indiana?

Indiana Attorney General Greg Zoeller announced recently a new collaborative foreclosure-prevention effort among multiple state agencies.

Part of the initiative is to train attorneys across the state to assist homeowners — for free — in dealing with and preventing foreclosure.

And new foreclosure-related laws have been enacted, said Judy Fox, an attorney who teaches at the Legal Aid Clinic at the University of Notre Dame.

One piece of the new legislation, she said, is a requirement that lenders give homeowners a 30-day notice before filing foreclosure.

The other new part, Fox said, is that homeowners — beginning July 1 — now have the option of taking part in a settlement conference with their lenders.

The conference offers the opportunity for the borrower and lender to settle on new loan terms, though there is no absolute requirement for the lender to make concessions, Fox said.

At the meeting, the borrower can bring a representative and though the law is ambiguous, she said, she would argue it requires the person at the conference representing the lender to have the authority to settle with the borrower.

The settlement conferences, Voltz-Miller hopes, will be able to help slow down the foreclosure problem in the state.

"If the lender and the homeowner go in (to the conference) in good faith," she said, "I think it has the potential to stop a lot of foreclosures.

"If a homeowner doesn't have a job or any monetary resources, she said, the outcome will undoubtedly be worse, though perhaps not completely unworkable.

No settlement

If a home can't be saved, Voltz-Miller said, the homeowner and lender might be able to negotiate a deed in lieu.

Essentially, the homeowner would turn over the home voluntarily, and would avoid having a foreclosure on their record. Since the ownership of the home would be transferred to the lender, the homeowner also would no longer be responsible for keeping the house up to code, she said.

But if the house is worth less than what's owed on it, a deed in lieu may not be possible.

Fox said lenders may sometimes hold the homeowner responsible after foreclosure for deficiency balances, the amount he or she owes that's above and beyond what the house can be sold for.

At the settlement conference, she said, homeowners may be able to negotiate that amount with the lender.

Also, she said, homeowners may be able to arrange a move-out date that better fits their needs.

"Saving your home is number one," Fox said, "but (if that isn't an option) it's still a good idea to go to the settlement conference.

"Voltz-Miller acknowledged the new laws won't completely solve the foreclosure issue.

"But, we've got to start somewhere. If we don't stem this problem, it'll snowball," affecting the county's tax base, and residents' quality of life, among other things. "It's this vicious circle," she said.

Another option homeowners in foreclosure might consider is trying to sell their homes via a short sale.

Barry Skalski, with Prudential One Realty, specializes in short sales.

A short sale is when the lender agrees to accept an offer on a home that's less than what the current owner owes on it.

Short sales are a way of helping homeowners avoid foreclosure, he said, though selling a home via a short sale does affect a person's credit record for two years.

Also important to note, he said, is that the shortage must be reported to the IRS as income for the homeowner. But, he said, a law was enacted that says any tax liability on that income will be forgiven through the end of this year.

Good candidates for a short sale, he said, include those who are out of work and have no prospects for employment; people who have relocated for their jobs; and homeowners who care about their credit and the neighborhoods they're leaving behind.

Homes in limbo

Fox said she's dismayed by the number of homes in the area that are sitting empty with seemingly no action being taken to formally foreclose on them and get them on the market.

There are a couple of scenarios playing out, she said.

Banks are foreclosing on properties, but are not bringing them to sheriff's sale.

In Indiana, she said, homeowners should know they're allowed to stay in their homes until the sheriff's sale has been completed.

Also, she said, "We're hearing from some banks that the housing market is too depressed. They're not filing foreclosure.

"In this situation, she said, homeowners often move out thinking the foreclosure is complete or will be completed.

Another problem is that some lenders are writing off loan balances for homeowners who have been in foreclosure.

"Consumers think they have a free house," she said, "but they don't."

The debt could be sold to a third party who could seek payment from the homeowner later. Plus, she said, there still would be a lien on the property, which means the homeowner could not sell it.

Homeowners in this situation, she said, should try to keep making payments.

Two local banks and one branch office of a national bank were contacted for this story. Two of them would not go on the record and the third did not return a phone call.

Fox, meanwhile, is not alone in noticing the number of homes in the area that seem to be in limbo.

Among other responsibilities, Jessie Whittaker, director of the LEND Homeownership Center with the South Bend Heritage Foundation, is currently trying to identify five homes in specific areas of the city that have been abandoned or foreclosed on for potential rehabilitation.

Driving around those areas on the west side of South Bend, she said, it's been difficult to find five homes that are suitable, not because there aren't enough abandoned homes but because there are too many.

"We've got to know that when we rehab it, someone is going to buy it," she said.

And one rehabbed home sitting among five or six that are boarded up is not going to look very appealing to a buyer.

So, she's considering recommending the organization buy, with special grant money that's available, all five homes on the same block.

"Maybe that'll have an impact," she said.

Staff writer Kim Kilbride:
kkilbride@sbtinfo.com
(574) 247-7759

Banks Express Hope for Fed Short-Sale Effort

Here is an article out of the USA Today:

The federal government is launching a program to simplify and speed up the short-sale process by providing standardized documentation, cash incentives to lenders, and a $1,500 moving allowance to borrowers. Holders of second liens will get up to $1,000 to relinquish their claims.

Banks say the short-sale process has been taking so long because both their employees and real estate practitioners are learning as they go.

David Sunlin, vice president in charge of short sales at Bank of America, says he hopes the new government plan will help. "About half of short sales never close. We see it as a big lost opportunity, and we need to improve the rate we close them," he says.

Wells Fargo says it has cut its short sale average turnaround time from 90 days to 30 days by preparing a guide from real estate practitioners and putting in place procedures to handle short-sale requests.

Source: USA Today, Stephanie Armour (08/05/2009)

More Home Owners Underwater as Prices Fall

Here is a story that I found in the Wall Street Journal:

A report from Equifax and Moody's Economy.com shows that falling prices have left 24 percent of owner-occupied, single-family home owners with mortgage debt greater than the values of the residences.

At the end of this year's second quarter, more than 16 million Americans were in this predicament, an increase from 10 million a year earlier.

Almost 5 percent of owner-occupied dwellings are saddled with mortgage debt worth 150 percent of the property value. Nevada, where 40 percent of owner-occupied homes are "upside-down," is the hardest-hit state, followed by Arizona and California.

Source: Wall Street Journal, Nick Timiraos (08/05/09)

Feds Scold BofA, Wells Fargo on Loan Modifications

Here is a story that I got from the AP. It is my experience that this article is dead on accurate:

The Treasury Department on Tuesday announced that only 9 percent of eligible home owners had been helped by the federal program to modify home loans and prevent foreclosure.

It scolded banking giants Bank of America and Wells Fargo, both of which received federal bailout money, pointing out that these banks have been among the least willing to assist troubled borrowers.

Bank of American modified 4 percent of eligible loans, and Wells Fargo modified 6 percent.

Big banks that did better included JPMorgan Chase & Co., which modified 20 percent of eligible loans, and Citigroup Inc., which modified 15 percent.

The bank with the best results was Saxon Mortgage Services Inc., which helped about 25 percent of its eligible borrowers.

Source: The Associated Press, Alan Zibel (08/04/2009)

FHA Drops Lender on Suspicion of Fraud

This is a pretty big deal of a story that just broke. What it means, is that the 3rd largest FHA lender can no longer do FHA loans effective immediately, even if there is a FHA loan is progress. Locally, Mutual Bank is the biggest lender that is effected by this.

The FHA's third-biggest lender, Taylor, Bean and Whitaker Mortgage Corp., has been dropped from the agency's loan program due to possible fraud.

An independent auditor found "irregular transactions that raised concerns of fraud," but FHA said the Florida-based firm failed to file a mandatory annual financial report and indicated that there were no outstanding issues related to the audit.

Experts say it could fold as a result; and with less competition in the industry, mortgage rates could rise.

"It's just a question of demand and supply," stated Equity Now Inc. President Michael Moskowitz. "If Taylor Bean goes down, it's a pretty big deal."

Source: Bloomberg David Mildenberg and Jody Shenn (08/05/09)

T.H.I.N.K.

With the popularity of blogs, Twitter and Facebook etc... these days, everyone has and wants to voice their opinion . This is not always a bad thing as we all have different view points and life experiences that shape our beliefs and opinions. But, I do keep thinking back of something that the pastor of my church said back in May about being aware about what you are saying and writing for people to to listen to and read:

Stop and T.H.I.N.K. before you speak.

T = True
H = Helpful
I = Important
N = Necessary
K = Kind

He went on to say:

The wrong thing said any time misses.
The right thing said at the wrong time misses.
The right thing said the wrong way misses.
The right thing said the right way at the right time has a chance.

I don't always abide by this guideline, but I do try. There have been posts that I have taken time to write, only to remind myself of this guide which resulted in me eliminating the post. I wish that the news media would remind themselves of this guide before going ahead with some of the stories that they do.