Large year over year housing price drop in Seattle

AP: Excerpts from a recent Seattle Times article:

King County home prices tumbled to a new post-boom low in October, and no one is sure exactly why.

Weitz – no one can figure out why?!....hmmmm?.... Perhaps the greatest Asset Bubble in the History of America that we experienced in Real Estate is imploding? Perhaps the excessive un-employment? Perhaps the constantly rising cost of commodities because we continue to thrash the dollar via the Federal Reserve's QE programs? Perhaps the decreasing incomes for most of America? I can’t place my finger on it... Someday, we’ll figure it out.

As real-estate insiders offered a host of possible explanations for the drop Thursday, they also debated whether it's a harbinger of a new, long-term decline — or a one-time statistical blip.

The median price of houses that sold last month was $320,000, down nearly 15 percent from October 2010, according to statistics released by the Northwest Multiple Listing Service.

Weitz – 15%! That’s a large number. I’ve been writing on this for some time and don’t recall Seattle posting a YOY decline that bad.

The previous low, $334,000, came this March. The median had fluctuated in a narrow range, between $345,000 and $350,000, since then.

October's median condo price, $178,500, was down even more sharply year-over-year — 23 percent.

Weitz – Wow – a ¼ drop in 1 year –scary.

Single-family-home prices in Snohomish County were down 13 percent, to $235,000.

Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, said he expects prices will continue to slip for another year.

"There's little pressure on buyers to be active, especially with interest rates not expected to rise for some time," he said. Mortgage rates have been at historic lows — even dipping below 4 percent for a 30-year term — for much of this year.

Compared with the same month in 2010, sales volumes were up in October for the fifth straight month. Buyers closed on 14 percent more houses and 30 percent more condos in King County, and 37 percent more houses in Snohomish County.

Weitz – that’s an odd dichotomy - Sales are up dramatically, but prices are down dramatically. Clearly, there is a dis-connect in the market. My conclusion: the high end is not selling. Conversely, cash buyers are coming in and collecting investment properties they can immediately cash flow with.

But those gains were overshadowed by the big decline in prices. King County's single-family median sales price was off more than 33 percent last month from its July 2007 peak.
The last time it was lower: March 2005.

Some possible causes of the October drop:

1) Tighter limits on "jumbo" loans: On Oct. 1 the limit on federally backed mortgages dropped from $567,500 to $506,000. That left buyers of higher-priced homes with fewer financing options, OB Jacobi, Windermere Real Estate's president, said in a prepared statement.

"It's only natural that this would cause downward pressure on October's median price," he said.

But Ellis, who also is a researcher for online brokerage Redfin, said homes likely to be affected by the new limit account for less than 4 percent of the King County market.

Weitz - I'm with Tim. I think it played a role (and will continue to play a role), but there are much bigger issues going on here.

2) "Distressed" properties: Bank-repossessed homes tend to fetch less from buyers, as do "short sales" for less than the seller owes its lenders.

Together, they made up about 31 percent of all King County single-family-home sales in October. That's about the same share as the last few months.

Weitz - this isn't going away - it's impractical to call this an excuse for a bad year. This is the new reality.

3) Cash offers: More buyers, especially investors, are making all-cash offers, Crellin said — and buyers are accepting them, although they often are lower, to avoid the uncertainties of financing.

Sellers of higher-priced homes also are starting to drop their asking prices, he added, and that could be pushing the median sales price lower.

4) Apples and oranges: The 1,489 King County houses that sold for a median price of $320,000 this October can't be compared accurately with the 1,309 houses that sold for a median price of $375,000 last October, some argue, because the mix has changed.

For instance: Ellis said that while Redfin's research also shows a big year-over-year drop in the median sales price last month, the price per square foot fell much more modestly.
That suggests "for whatever reason, people bought smaller houses," he said.

Weitz - See my comments on this below.

The geographic mix also shifted. Listing-service statistics show King County's lowest-priced areas — Southwest, Southeast and North King County — saw the biggest increases in sales last month. They also experienced the biggest price drops, and that brought the countywide number down.

In higher-priced Seattle and the Eastside, price declines were in the single digits.

Weitz – If I had to make a prediction, I expect the lower tier will continue to drop, but will be the first part of the market to recover as it simply makes sense to purchase these properties that can immediately provide cash flow via renters. Conversely, it is my opinion that the high end market will be much slower to drop (as has been shown), but will nevertheless drop and it will have a difficult time finding a bottom in the foreseeable future as incomes stay stagnant and the cash flow analysis vs. renting a similar property is way off – time will tell.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
(425) 889-9300

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New Foreclosure Review Program in Washington State

Weitz- a new agreement was announced in which servicers (Banks) have agreed to provide “thorough” reviews of the foreclosure process for millions of homeowners. As usual, I’ll provide thoughts throughout.

WASHINGTON — More than 4 million borrowers who have faced foreclosure since early 2009 will have the chance to have their cases reviewed for potential wrongdoing, federal regulators and some of the nation's largest mortgage servicers announced last week.

The reviews stem from a deal earlier this year in which 14 servicers agreed to hire independent consultants to evaluate whether borrowers suffered financial injury during the foreclosure process. If a review finds errors or abuses by the financial firms, the consultants will determine what recompense wronged homeowners deserve.

Weitz – Note that the “Independent Contractors” are hired by those that they are conducting reviews of – how’s that for a conflict of interest?! You think these “Independent” contractors will have the incentive to be harsh on those writing their checks?

On Tuesday, servicers began mailing letters to the estimated 4 million borrowers whose loans were in the process of foreclosure between Jan. 1, 2009, and Dec. 31, 2010, detailing how to request a review of an individual case.

Officials at the Office of the Comptroller of the Currency (OCC), which crafted the April servicer agreement along with the Federal Reserve, said the mailings would continue through the end of the year and be accompanied by a large-scale marketing campaign to make borrowers aware of the effort.

Additional information is available at www.IndependentForeclosureReview.com or 1-888-952-9105.

Requests for review must be received by April 30.

"There is no cost to the borrower for this review," said Joe Evers, deputy comptroller for large banks at the OCC.

Under the agreement, the servicers are required to foot the bill for the outside consultants conducting the reviews. Evers and other OCC officials said Tuesday that "a great deal of effort has been taken to ensure that the independent consultants are truly independent" and that the servicers will be prohibited from influencing the findings.

Weitz – Riiiiiiight.

While eight consultants are working on behalf of the servicers involved, officials said they had spent months developing a common website and call center, as well as common branding and marketing materials, in an effort to make the process equitable for each eligible borrower.

Examples of financial injury might include unwarranted or miscalculated fees charged to borrowers, a foreclosure that happened while a borrower was already in bankruptcy protection, or a property that underwent a foreclosure sale even as the borrower was awaiting word on a loan modification from the servicer.

Details about how long it will take to conduct the reviews, what sort of redress homeowners stand to gain, and what rights they might have to sign away in exchange for compensation remain unresolved.

These will be thorough reviews, reviewing every aspect of the foreclosure," Evers said. He said officials hope to complete the reviews in a matter of months after the final deadline, but he acknowledged the mountain of work involved

OCC officials on Tuesday also said no decision had been made yet about what type of compensation borrowers will be entitled to if the reviews show they were the victims of errors or misrepresentations.

Weitz – another major pitfall of the program. How do you quantify an improper foreclosure? You can’t just get your house back – someone else is now the rightful owner of it. The only compensation will be monetary in nature and I’m guessing that the banks are not going to be proactive in writing large checks.

It also remains unclear whether borrowers might be required to waive their right to sue the financial firms involved in exchange for compensation.

The April deal also imposed a host of other requirements on the servicers involved, including that they provide a single point of contact for struggling borrowers, many of whom have complained of getting the runaround when they try to get help.

Weitz – Despite all my criticisms, I will still encourage clients to pursue this option if they have been foreclosed upon. Its free to apply and its certainly possible there will be some compensation involved.

For more information on your rights in foreclosure, short sale or other distressed property situations, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
(425) 889-9300

Weitzlawfirm.com

New HARP Guidelines overview

The Home Affordable Refinance Program (“HARP”) was created to assist troubled homeowners in refinancing their loans to reflect current conditions within the housing market. Under the program, qualified homeowners were often permitted to refinance their mortgages at lower rates.

Restrictions on qualification and the general costs involved with HARP application lead to very few homeowners seeking relief under this program. In order to make HARP more accessible, the White House and federal regulators are implementing modifications to homeowner qualification requirements and reducing the costs associated with application this program.

Below is a brief outline of qualification requirements, the announced modifications to such requirements and the limitations of HARP:

(1) Who is eligible for HARP?
- Those whose loans are owned or backed by Fannie Mae or Freddie Mac, which the government took control of three years ago. Homeowners can determine whether their mortgage is owned by Fannie or Freddie by going online:
Freddie’s loan tool is at freddiemac.com/mymortgage;
Fannie’s is at http://www.fanniemae.com/loanlookup/

To qualify under HARP, a loan must have been sold to Fannie and Freddie before June 2009.

- Homeowners must be current on their previous six mortgage payments. One late payment within six months, or more than one in the past year, would automatically disqualify the homeowner from eligibility.

(2) What modifications have been made to HARP?- Previously, HARP only permitted homeowners who owed less than 125% of their homes fair market value to qualify for the program. Now, there is no restriction on how much value the home has lost in order to qualify if all of the other requirements are met. It should be noted that additional qualifications still exist if there are multiple mortgages on the property.

- Under the original program, many fees associated with closing, processing and appraisal were necessary costs borne to the homeowner. The modified program will eliminate certain fees for closing, title insurance and lien processing, making the refinance cheaper.

Additionally, loan fees will drop and will be waived for homeowners who reduce their loan term, and fewer homeowners will be required to have their homes appraised prior to seeking a refinancing. Lenders will also benefit in some instances because they won’t have to buy back the mortgages from Fannie or Freddie, as they previously had to when dealing with some risky loans.

- HARP was originally scheduled to terminate in June 2012. The modification has extended this program an additional 18 months, through 2013.

(3) The Major Limitation of HARP

Homeowners interested in HARP need be aware that lenders will remain free to reject a refinancing even if the homeowner meets all of the programs requirements, limiting the ultimate impact of this program.

For more information in your rights in modification, or other options including foreclosure, short sale, or bankruptcy, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425 889-9300

weitzlawfirm.com

Washington State Emergency Home Loan Program

Weitz - below is the my summary of the Department of Housing and Urban Development (HUD) Emergency Homeowner Loan Program. My initial thoughts are 1) that it is arguable a huge waste of taxpayer dollars that favors the banks more than anyone; and 2) for the right client, its a great opportunity to get some easy government money - I will explain in more detail below.

I found the picture to the right assuming for this topic - while amusing, its not too far from the truth.

Click here for actual report.

The Dodd-Frank Wall Street Reform and Consumer Protection Act provided $1 billion to HUD to implement the Emergency Homeowners Loan Program (EHLP) Program. The program will offer a declining balance, deferred payment “bridge loan” (non-recourse, subordinate loan with zero interest) for up to $50,000 to assist eligible homeowners with payments of arrearages, including delinquent taxes and insurance plus up to 24 months of monthly payments on their mortgage principal, interest, mortgage insurance premiums, taxes, and hazard insurance.

Weitz: Let me paraphrase for the government: “Come get your free money!” We will pay up to $50,000 of your arrearages and assist with future payments with a loan that is 1) secured by your property; but 2) NON-RECOURSE (this means that if you stop paying, they can not pursue you for the debt).

While I hate the ideology of the program because I truly think it simply 'kicks the can down the road' for many and there are considerable issues with ‘fairness’ in who qualifies and who does not, I would always encourage clients to take a $50,000 INTEREST FREE, NON-RECOURSE loan.

Looking big picture, I also hate the idea because the parties that benefits the most are the banks as they will be paid with taxpayer money IN FULL.

Below are the details of the program, its qualification, and other important issues.

Qualifications:

Income Thresholds: The homeowner a total pre-event household income equal to, or less than, 120 percent of the Area Median Income (AMI), which includes wage, salary, and self-employed earnings and income.

Significant Income Reduction: The homeowner has a current gross income that is at least 15 percent lower than the pre-event income.

“Pre-event income” is defined as the income prior to the onset of unemployment, underemployment, or medical emergency, while “current income” is the income at the time of program application, as well as income during the period that the homeowner continues to receive assistance from the fund.

Employment type: Both wage and salary workers and self-employed individuals are eligible.

Delinquency and Likelihood of Foreclosure: the homeowners must be at least 3 months delinquent on payments and have received notification of an intention to foreclose. This requirement can be documented by any written communication from the mortgagee to the homeowner indicating at least three months of missed payments and the mortgagee’s intent to foreclose. In addition, the homeowner can self-certify that there is a likelihood of initiation of foreclosure on the part of their mortgagee due to the homeowner being at least three months delinquent in their monthly payment.

Ability to Resume Repayment: Has a reasonable likelihood of being able to resume repayment of the first mortgage obligations within 2 years, and meet other housing expenses and debt obligations when the household regains full employment, as determined by: The homeowner must have a back-end ratio or DTI below 55% (principal, interest, taxes, insurance, revolving and fixed installment debt divided by total gross monthly income). For this calculation, gross income will be measured at the pre-event level.


Principal Residence: the homeowner must reside in the mortgaged property as principal residence. The mortgaged property must also be a single family residence (1 to 4 unit structure or condominium unit).

Termination of Monthly Assistance: Assistance is terminated and the homeowner resumes full responsibility for meeting the first lien mortgage payments in the event of any of the following circumstances:

1. The maximum loan ($50,000) amount has been reached;
2. The homeowner fails to report changes in unemployment status or income;
3. The homeowner’s income regains 85% or more of its pre-event level;
4. The homeowner no longer resides in, sells, or refinances the debt on the mortgaged property; or
5. The homeowner defaults on their portion of the current first lien mortgage loan payments.

Income re-evaluation: After initial income verification at application intake, the homeowner shall be required to notify the fiscal agent of any changes in the household income and/or employment status at any point throughout the entire period of assistance.

Forms of Assistance

Use of Funds for Arrearages: On behalf of the homeowner, the fiscal agent shall use loan funds to pay 100% of arrears (mortgage principal, interest, mortgage insurance premiums, taxes, hazard insurance, and ground rent, if any).

Homeowner Payments: Homeowner contribution to monthly payment on first mortgage will be set at 31 percent of gross income at the time of application, but in no instance will it be less than $25 per month.

Use of Funds for Continuing Mortgage Assistance: The fiscal agent will make monthly mortgage payments to the servicer of the first lien mortgage in excess of the payments made by the homeowner.

Duration of Assistance: If at any time the household’s gross income increases to 85% or more of its pre-event level, assistance will be phased out by the fiscal agent over a two month period. In any event, assistance with monthly payments may not continue beyond 24 months.

Repayment Terms

Transition Counseling: The designated counseling agent shall contact each homeowner that is approaching the last months of program eligibility and remains un/underemployed (3-6 months before the assistance ends) and require the homeowner to meet with a HUD approved counseling agent to explore other loss mitigation options, including loan modification, short sales, deeds-in-lieu of foreclosure, or traditional sale of home.

Repayment of HUD Note: Following the last payment on behalf of the homeowner, the fiscal agent will process the homeowner’s “HUD Note” and record a mortgage with a specific loan balance. The note and mortgage will be in the form of a five year declining

Repayment Terms

Transition Counseling: The designated counseling agent shall contact each homeowner that is approaching the last months of program eligibility and remains un/underemployed (3-6 months before the assistance ends) and require the homeowner to meet with a HUD approved counseling agent to explore other loss mitigation options, including loan modification, short sales, deeds-in-lieu of foreclosure, or traditional sale of home.

Repayment of HUD Note: Following the last payment on behalf of the homeowner, the fiscal agent will process the homeowner’s “HUD Note” and record a mortgage with a specific loan balance. The note and mortgage will be in the form of a five year declining 5 balance, zero interest, nonrecourse loan, and the mortgage shall be in the form of a secured junior lien on the property.

Terms for Declining Balance Feature: No payment is due on the note during the 5 year term so long as the assisted household maintains the property as principal residence and remains current in his or her monthly payments on the first mortgage loan. If the homeowner meets these two conditions, the balance due shall decline by twenty percent (20%) annually, until the note is extinguished and the junior loan is terminated.

Weitz – NO PAYMENT IS DUE FOR 5 years! In fact, it may never actually have to be paid back!

Events Triggering Note Repayment: The homeowner will be responsible for repayment of the applicable balance of the HUD note to the fiscal agent or its successor, if, at any time during the five year repayment period, any of the following events occur:

1. The homeowner rents out the property to a 3rd party;
2. The homeowner defaults on its portion of the current mortgage; or
3. The homeowner receives net proceeds from selling or refinancing debt on the home.

Net proceeds - after paying outstanding applicable brokers fees, first balances (and second lien balances, as applicable), and an allowance of $2,000 to the homeowner for relocation expenses when the home is sold -- will go towards paying down the HUD note. In the event that proceeds of a sale or loan refinance are not sufficient to repay the entire HUD note, the remaining applicable balance of the HUD note shall be considered to have been met, and the lien against the property shall be released.

Provisions for Underwater Homeowners: At all stages of the program, “underwater” homeowners2 will be encouraged to explore participation in short sale or short refinancing programs offered by their servicer and/or the federal government (i.e. Home Affordable Foreclosure Alternatives)3, which will not trigger repayment of the HUD note.

Note: Washington State received $56 Million dollars for this program!

For more information on your rights in Foreclosure or other alternatives, I would encourage you to discuss with a Seattle Foreclosure Attorney, or a Seattle Bankrutpcy Attorney.

Our Firm:
Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425.889.9300

www.weitzlawfirm.com

The HARP Program - the skeletons within

Visit msnbc.com for breaking news, world news, and news about the economy

An overview of a terrific segment from the Dylan Ratigan show (video above):

1) Home prices down 3.8% from 12 months ago
2) The Government unveiled the HARP program today in Las Vegas (more on this soon)
Update: click here for further information on the new HARP program.
3) 11 Million homes (25%) are underwater (at least this many according to Mr. Black)
4) the government program will assist less than 10% (LESS THAN TEN PERCENT!!)
5) the deal gives the Banks a 'free out' from past liabilities

Our Firm can help guide you. If you are looking for a Seattle Foreclosure Attorney, Seattle Bankruptcy Attorney or a Seattle Short Sale Attorney, consider contacing us:

Weitz Law Firm, PLLC
520 Kirkland Way, PLLC
Kirkland, WA 98033

425 889-9300

New Government Mortgage Modification Plan

A great interview with Beau Biden (the Attorney General of Delaware)

Visit msnbc.com for breaking news, world news, and news about the economy

Here is the new Mortgage Plan Facts:1) its speculative right now; and 2) it applies to less than 20% of loans as 80%+ are owned by Fannie Mae and Freddie Mac

* Mr Biden has some other great facts regarding the current mortgage mess including some tough questions about Fannie and Freddie.

Why are Fannie and Freddie not doing more?
- they are 'owned' by the government as a Government Sponsored Entities (GSEs)
- thus, we the taxpayers have control over our mortgages - why are Fannie and Freddie not doing more to prevent foreclosure?...your guess is as good as mine.

Weitz - as usual, the 'government plan' falls dreadfully close and is misleading at best as most mortgages are even going to be considered

For more information on your rights in Short Sale or Foreclosure, consider contacting a Seattle Short Short Attorney or a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425 889-9300

401k withdrawls to pay your Mortgage? Know the facts.

WASHINGTON — With hundreds of thousands of homeowners facing imminent foreclosure and estimates of 2 million or more in the wings, are there any financial tools available to distressed borrowers that haven't been tried yet? Equally important politically: Is there a way to help owners that won't rack up huge federal expenditures and add to the deficit?

Weitz - this is disgusting and I’ll tell you why: Did you know your 401k is entirely protected from creditors and in Bankruptcy? So your politicians (who probably are getting some rather large contributions from banks) are working to allow you to empty your fully protected retirement account so you can pay that money in the form of interest to a Bank for a loan that is likely more than what your property is worth.

Why don’t they simply tell you to go burn that money over a camp fire as that is essentially what you are doing if your property does not appreciate in the near future.

Anyone who is considering taking out money from a retirement account to pay their mortgage should seriously consider the pros/ cons of such a decision prior to acting. The reality is that there are many other options available if you can’t afford your mortgage that are worth exploring prior to liquidating your retirement account(s).

The Obama administration has been exploring options — including a new refinancing program expected later this month — but a concept has surfaced on Capitol Hill that might offer modest help with no revenue cost to the government: Amend the tax code to allow homeowners who have 401(k) retirement plans to pull out money to save their houses from foreclosure without the usual tax penalties.

The change would work like this: Under current rules, anyone making what's known as a "hardship" early withdrawal of funds from their 401(k) must pay the IRS a 10 percent penalty on top of ordinary income taxes. A new bill introduced Oct. 5 would waive the penalty if the purpose of the distribution is to make loan payments to avoid loss of a primary home to foreclosure.

Co-authored by Sen. Johnny Isakson and Rep. Tom Graves, both Republicans from Georgia, the bill would allow owners to pull out up to $50,000. The money could be used in a lump sum to pay down the delinquent mortgage balance or to fill shortfalls caused by reductions of household income. It could also be used as part of loan-modification agreements with lenders designed to avert a foreclosure. However the money is used to resolve the mortgage delinquency, it would need to be spent within 120 days of receipt and could not exceed 50 percent of the current amount of funds in the retirement account.

Owners would still be subject to income taxes on the amounts withdrawn, but would escape the penalty. Though neither of the co-sponsors claims the bill would actually raise revenues — they simply say it wouldn't cost the government anything — some pension-program experts say it might. Edward Ferrigno, vice president for Washington affairs at the Plan

Sponsor Council of America, a group that represents employers who offer workers 401(k)
accounts, said that by triggering taxable distributions from otherwise untouched, tax-deferred plans, the bill "should generate revenues." Ferrigno declined to comment on the bill overall, pending further review of its provisions.

Weitz – so let me get this straight – you take out your fully protected retirement money, you write and check to the bank so they don’t have to ‘write down’ the loss on the mortgage, and then you write a check to the IRS for the right to do it. Don’t do it, folks!

Titled the HOME Act, the proposal sheds light on the potential foreclosure-avoidance resources — and the drawbacks — connected with tapping employee pension accounts. Many, but not all, 401(k) plans allow for loans to participants, including for housing-related purposes. Retirement advisers generally recommend taking a loan from a plan because the money withdrawn is not taxed or penalized. Borrowers are required to pay interest on the loan, but in effect they are paying it to themselves to offset the earnings forgone on the balances taken out.

Many 401(k) plans also provide for "hardship" withdrawals. However, these come with much stricter rules, fewer eligible uses, plus the tax penalties. The Internal Revenue Code limits hardship distributions to situations where there is an immediate and urgent financial need, and there are no other funds available to meet this need. On top of that, the rules require that taxpayers must opt first for a loan from the retirement plan — if permitted — before pursuing a hardship withdrawal.

Though avoiding foreclosure is one of the permitted hardship uses under the code, the 10 percent penalty discourages potential users, Isakson and Graves argue. Their bill would remove that disincentive and provide an emergency escape hatch for owners sliding fast toward foreclosure.

Putting aside the potential positives, are there downsides to making a hardship withdrawal from your 401(k), even penalty-free? You bet. Pulling out 401(k) dollars early — with or without a tax penalty — is still an expensive way to raise money. Not only does it deplete the tax-deferred savings you've set aside, but in the case of hardship withdrawals, you are prohibited by IRS rules from making new contributions to your plan for six months.

Weitz – AND MOST IMPORTANTLY, THIS MONEY IS FULLY PROTECTED FROM CREDITORS!!
Even if the HOME bill makes it through Congress — and there's no assurance it will — taking the hardship route should never be your first choice. It should be your last resort, when there's nothing else that will save your house and you don't want to walk away.

However, also consider the pension plan alternative that may already be buried away in your plan documents: a save-the-house loan to yourself. If the numbers work, and you have a reasonable chance of avoiding foreclosure and repaying the loan, check it out.

It just might be your solution.

For more information on your rights in Foreclosure or Bankruptcy, consider contacting a Seattle Foreclosure Attorney or a Seattle Bankruptcy Attorney.

Our Firm:
Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425 889-9300

Nationwide Foreclosure Update for Q3 2011

Some interesting stats:

1) The average foreclosure process in non-judicial states (like WA) is about 330 days.

2) In judicial states like Flordia, it is over 700 days!

3) the notice of default filings (the beginning of the foreclosure process) are up 14% year over year nationwide

For more information on your rights in Foreclosure or non-foreclosure options, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425 889-9300

Mortgage Financing Update - retreat of Fannie and Freddie?

Three years after virtually nationalizing the U.S. mortgage market, the government has embarked on a pullback to see whether private industry picks up the slack.

Some people in the housing industry worry that Washington's move will cause fresh pain in many regions where demand has yet to recover amid the sluggish economy.

Weitz – this is a big issue that many may not consider. Obtaining a private loan has been increasingly difficult in the past 3 years. Should Fannie and Freddie exit the lending business, the ability to get financing will become even more difficult.

At issue are the loan limits that Congress expanded in 2008, allowing Fannie Mae and Freddie Mac to buy mortgages that exceeded the national cap of $417,000.

When the mortgage market melted down four years ago and sent private mortgage investors fleeing, interest rates rose sharply on "jumbo" mortgages—those too large for backing by Fannie, Freddie or agencies such as the Federal Housing Administration. That accelerated home-price declines in high-end markets throughout California and the Northeast, where many pricey homes couldn't be bought with a government-backed loan.

To stem the fallout in prices, Congress raised the loan caps to as high as $729,750 in markets such as Los Angeles and New York. It then passed a series of one-year extensions to keep the higher limits in place. But this year, Congress and the Obama administration opted against an extension.

As a result, the limits in hundreds of counties fell by 10% or more on Oct. 1. For loans backed by Fannie and Freddie, the limits declined to between $417,000 and $625,500 in about 200 counties.

More worrisome to real-estate agents are declines in the FHA limits, which fell to between $271,050 and $625,500 in 600 counties. Those changes are causing heartburn because the FHA allows buyers to make down payments of just 3.5%, and it has financed as many as half of all home purchases in recent quarters.

Weitz - Note that nearly half the loans issued as of late are 3.5% down FHA loans - if you take that government aide away, the demand side of the supply/ demand analysis will fall considerable - my estimate is that it will lead to further price declines.

Policy makers allowed the limits to fall because they want private companies to hold more mortgage risk, and dialing down loan limits is one way to carve out space for those investors. Fannie, Freddie, and the FHA currently back nine in 10 new mortgages. Taxpayers already are on the hook for $141 billion in losses at Fannie and Freddie, and the FHA's reserves have plunged to razor-thin levels.

Mortgages that don't qualify for government backing typically have higher borrowing costs, including interest rates around 0.75 percentage point above conforming loans.

Mortgage rates currently are very low, but jumbo loans also require bigger down payments—at least 20%—and can have tougher qualification rules.
"The net-net here is that the available pool of credit for housing is shrinking.

Prices will have to decline," said Christopher Whalen, co-founder of risk-management consultant Institutional Risk Analytics.

On one side of the debate are mortgage investors who say the government needs to give the private sector more room to compete if a vibrant market for nongovernment-backed loans is to re-emerge. "The banking industry, flush with excess deposits, will fund those loans," said Mike McMahon of Redwood Trust, a real-estate investment firm in Mill Valley, Calif.

Assuming a 20% down payment, the new limits still allow homeowners in parts of California to qualify for a government-backed mortgage on a $780,000 home. Critics say there's little public policy rationale to subsidize loans for those borrowers, who need substantial incomes.

On the other side are real-estate agents and some economists who say sellers are in for a nasty surprise when they find that fewer potential buyers qualify to purchase their properties. They say the changes also could hamstring "trade-up" buyers who typically used home equity, which has plunged during the bust, as their down payment to move to a bigger residence.

Gisella Olivares closed on a home in Upland, Calif., on the day before the new loan limits went into effect. Without the FHA-backed mortgage, "there would be no way I could afford to get the house," said Dr. Olivares, who qualified for a $448,000 mortgage. In California's Inland Empire region, the metropolitan area an hour east of Los Angeles, the FHA loan limit fell to $355,350 from $500,000.

If Dr. Olivares, a 42-year-old physician, had to make the $100,000 down payment for a jumbo mortgage, she said she would have waited at least two years to buy a home.

The seller, meanwhile, was able to avoid foreclosure by completing a short sale, where the bank allowed the house to sell for less than the amount owed.

The loan limits wouldn't appear to have much of an impact on the overall housing market. In 2009, about 1.5% of home-purchase loans backed by government entities wouldn't have been eligible under the new limits, according to a study by the Furman Center for Real Estate and Urban Policy at New York University.

But the same study emphasized the outsize local impact. Some 9% of purchases would have been affected in San Jose, Calif., and 5% in San Diego.

Meanwhile, banks would have to increase the number of jumbo loan originations by 56% to make up the gap, "which the private sector could be hard pressed to fill," said Mark Willis, one of the study's authors. "If you want to get the market moving, why would you decrease the availability of credit for any part of it?"

Ultimately, the loan-limit issue shows the broader challenge in bringing back private capital and reducing taxpayer exposure: Housing markets are shaky, and the government is still offering better terms than private lenders.

Steps that raise borrowing costs could attract private investors, but if that pushes home prices down in the process, it may do more harm to the economy and to individual housing markets still reeling from the real estate bust.

Weitz - this is a tough issue - Do we want to continue to 'prop up' and 'subsidize' real estate to prevent further declines in prices, or do we want capitalism to take hold and see how far prices will fall - I guess the answer to that question depends on your perspective (property owners vs. non-property owners). Whatever your position, this lending issue is one to keep an eye on as it will inevitably play a big role in property values.

For more information on your rights in Foreclosure, or Short Sale, consider contacting a Seattle Short Sale Attorney.

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Real Estate Debt and the General Economy

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A clip from the Dylan Ratigan show regarding the interplay between our Real Estate Debt problems and the general economy. Some high-lights include:

1) Trillions of dollars are trapped in the system in the form of debt in underwater mortgages

2) The root of our financial issues is an overwhelming amount of debt at the consumer level, the corporate level, and even the governments at all levels.

3) Fannie and Freddie became the primary source of financing to assist the housing boom as they issued loans with little or no capital requirements for borrowers – note that these governmental agencies warped the true capitalist economic principals.

Dylan discusses the potential of mass debt restructuring, which is an interesting idea that has been used in the past (Post Civil War, Post WWII).

Here is my take: there is simply no easy way to overcome the debt issues we face: in essence, we have two options, we can

1) print money to ‘monetize’ the debt – this is the route that we have choose thus far, and it negatively effects the dollars while spreading the printed dollars in an incredibly inequitable manner – to the banks and to the government – this does the people no good as while most of us will not benefit greatly, we see the negative effects of a depreciated currency at the gas pump, home energy costs, and at the grocery store; or

2) cancel debt at all levels – this would negatively effect the banks, but would it injure the American people? – it most certainly would be difficult and the unintended circumstances are uncertain, but I would argue that most people would probably benefit more from option 2 than option 1. At the end of the day, there is no easy way out of our mess. I believe the focus should be on focusing on a system that we can build from (rather than trying to save a financial system that is clearly broken and unsustainable).

Seattle Real Estate Update - hint...it was a bust

WASHINGTON (AP) –

The home-buying season was a bust.

March through August are typically the peak buying months. But this time, Americans bought fewer new homes in that stretch than in any other six-month period since record-keeping began a half-century ago.

And sales of previously occupied homes didn't fare much better. They nearly matched 2009's total for the peak buying months. And that was the worst since 1997.
Combined, total sales this spring and summer were the weakest on records dating to 1963. The figures underscore how badly the housing market is faring and suggest that a recovery is years away.

Weitz – even with depressed pricing, the home sales were the lowest in 50 years! That doesn’t include the population growth – which makes things even worse by comparison.

Because the economy is barely growing and unemployment exceeds 9 percent, many people see a home purchase as too big a risk. Some worry about losing their jobs.

Others can't afford the 20 percent down payment that most lenders now require.
Not even shrunken home prices and the lowest mortgage rates in six decades are convincing would-be buyers.

"The job engine has really sputtered out, and without jobs, Americans really can't purchase homes," said Celia Chen, a housing economist at Moody's Analytics.
Plunging stock prices and renewed recession fears have led many economists to push back expectations for a housing recovery.

Chen expects prices to bottom at the start of 2012. And she doesn't expect sales and prices to make a healthy recovery until 2015 at the earliest. In hard-hit areas such as California and Florida, it could take decades for prices to return to normal, she said.

Pierre Ellis, an analyst at Decision Economics, said that until wages increase and hiring picks up, sales will languish.

The "bad news is the evident absence of optimism that sales will pick up to any degree," Ellis said.

Roughly 168,000 new homes were sold from March through August, the Commerce Department said Monday. That's fewer than the 180,000 for the same period last year -- and last year's sales were boosted by a temporary buyer's tax credit. Over the same period in 2009, roughly 208,000 new homes were sold.

In a healthy six-month buying season, about 400,000 new homes would sell.

Among re-sales, about 2.8 million homes sold from March through August this year.

That's roughly as many as in the same periods in 2009 and 2010. In a healthy market, about 3.3 million would be sold in that six-month stretch.
Michael McGrew, who runs McGrew Real Estate in Lawrence, Kan., said many families won't buy until the economy strengthens. Even in Lawrence, which had a low unemployment rate of 6.4 percent in July and is home to the University of Kansas, people are worried, McGrew said.

What would help most would be a relocated company that's ready to hire in the Lawrence area, McGrew says. But hopes for the housing market to turn around soon are dim, he said.

"We're actually seeing more people trading down their home or trading out of our market entirely," McGrew said.

Nationally, prices are still falling. Prices for previously occupied homes have sunk more than 5 percent over the past year to a median of $168,300. New-home prices have fallen even further, by 7.7 percent, to $209,100.

That suggests builders and Realtors are slashing prices to compete with low-priced foreclosures and short sales. Short sales occur when lenders allow homes to be sold for less than what's owed on the mortgage.

Combined, foreclosures and short sales are selling at an average 20 percent discount. And they're lowering neighboring home values.

Weitz – the combination of unemployment, stock market fall, and lack of financing is leading to continued struggles. As I’ve said since I started this blog- we must go through the pain before we can truly recover. Unfortunately, I see the pain continuing for awhile given the weak demand demonstrated in these numbers and continued distressed owners.

For more information on your rights in Foreclosure, Short Sale or Bankruptcy, consider contacting a Seattle Foreclosure Attorney.

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Federal Housing Finance Administration (FHFA) Sues Bank

The FHFA is suing the banks for mortgage securitization practices. This is rather odd given that Fannie and Freddie (whom the FHFA's sole purpose is the regulator and oversee) are implicitly in bed with the banks as they have 'bought' (or been ordered to buy) trillions would of mortgage paper from the banks to help get the banks healthy.

Here is an interesting video from CNBC Realty Check:

MERS Update - its a bad argument

Mortgage Electronic Registration Systems (MERS), the operator of an electronic registry of mortgages, and lenders won a U.S. appeals-court ruling upholding dismissal of claims by Arizona borrowers challenging their lending and foreclosure procedures.

Note my previous post on the issue:Mers problem in plain english.

An excerpt:

“My guess: Just as we don't depend on horses to transport us anymore or cook our meat over an open fire, we must adopt to a new era of technology and adopt the MERS system (warts and all). I think its fairly obvious that the courts/ politicians will take the easy way out and alter the law rather than create a tidal wave of title issues that could cripple the national real estate market.

Of course, they must first "investigate the problem" as they are now doing in all 50 states. This is purely my opinion, but I believe the investigation is mainly a political ploy to appease the constituents”.

The federal court in San Francisco ruled Wednesday that a district court properly threw out a lawsuit filed by three borrowers alleging conspiracy and fraud.

In addition to MERS, defendants included Bank of America and JPMorgan Chase.

"The plaintiffs' claims that focus on the operation of the MERS system ultimately fail because the plaintiffs have not shown that the alleged illegalities associated with the MERS system injured them or violated state law," the three-judge appeals panel said.

MERS, a unit of Reston, Va.-based Merscorp, bills itself as a provider of "support services to the mortgage industry," specifically tracking the servicing rights and ownership interests in mortgage loans.

The company lets banks electronically register their sales of home loans so they can avoid trudging down to the county records office.

The Arizona borrowers, who are Hispanic and didn't speak or read English, had executed deeds naming MERS as the "beneficiary" and "nominee" for the lender.

After the borrowers defaulted on the loans, MERS recorded documents assigning its interest in the deeds to a bank appointed by the lender as trustee to foreclose on the properties, which were sold at auction, the ruling says.

The borrowers sued, alleging that MERS members conspired to commit fraud by using the registry as a sham beneficiary, promoting predatory lending practices and making it impossible for borrowers or regulators to track when their loans changed hands.

The Arizona district court dismissed the case without giving the plaintiffs an opportunity to amend the suit to add wrongful foreclosure claims related to MERS' procedures.

"This is a very good opinion for MERS," said Janis Smith, a company spokeswoman.
"The court found that borrowers were in no way injured by any action taken by MERS," Smith said.

Robert Hager, a Reno, Nev.-based lawyer for the borrowers, said that while "these particular plaintiffs were denied relief because of the particular facts and because they're in Arizona, there's a great deal of good analysis and law about MERS and the recording system in general that will help" other plaintiffs in the San Francisco-based appeals court.

Weitz – Until I see otherwise, I continue to believe that Attorneys attempting to utilize the MERS argument are wasting their client’s money. The only advantage I can see is that the law suit, however frivolous could delay a foreclosure proceeding.
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Seattle Real Estate Price to Income Analysis

Weitz – Below is an interesting article from the WSJ on the link between home prices, and median income. This is a very important data set in my opinion. First, I will outline provide the entire article, and then we’ll compare it to the local Seattle Market market and see how the theory applies.

AP - Home prices in some of the nation's hardest-hit metro areas have fallen far below pre-bubble levels, stirring concerns that properties in those markets are undervalued.

In a recent analysis, real-estate firm Zillow Inc. studied the correlation between home prices and annual incomes over the 15-year period that ended in 2000, before home prices began to surge.

For decades, price-to-income levels have moved in tandem, with a specific housing market's prices rising or falling in line with local residents' incomes. Many economists say that makes the price-to-income ratio a good gauge for determining whether housing is undervalued or overvalued for a given market.

Zillow found property prices in one-third of nearly 130 housing markets across the nation were undervalued, when compared with residents' current income and the pre-bubble trend.

Weitz – that seems amazing; the issue is that with more un-employed currently than is historically expected, and the lack of down payment ability for many, I would argue that 1) the needed demand for the excess inventory of housing is simply not available financially for many, and 2) the lack of financing availability will be an issue for years to come. The banks have gone in the complete opposite direction from what caused this mess – 5 years ago, a pulse was all that stood between a buyer and a bank loan. Now, standards have gotten extremely harsh and loans can be much more difficult - certainly much more difficult than in the boom.
"At a broad level, it is helpful to understand that if people in certain markets paid three times their average income in housing before the bubble, those markets are probably going to get back to that level," said Stan Humphries, chief economist at Zillow.

The analysis underscores a broader point: While the nation's housing markets largely fell and rose together during the housing boom and bust, they aren't likely to hit bottom and begin recovery at the same time or pace. The Zillow analysis shows that many markets still appear to be overvalued.

For the U.S. as a whole, home prices were around 2.9 times incomes from 1985 to 2000. But during the housing boom, values increased at a much faster rate than incomes. The price-to-income ratio peaked at around 5.1 in 2005. Home prices have since fallen so that on average, nationally, prices are around 3.3 times incomes, or about 14% above the historical trend.

Of course, prices have fallen much faster in certain markets. In Las Vegas, home prices are now 25% below their historic price-to-income trend of 2.7. During the housing bubble, that ratio more than doubled to 5.6. Home prices have been falling for the past five years, and by March, prices were just 2.1 times household incomes.
Home prices are undervalued by 35% in Detroit; by 18% in Modesto, Calif.; and 13% in Fort Myers, Fla.

"Values dropped so far that there are just great bargains," said Dan Elsea, president of brokerage services for Real Estate One in the Detroit area. For years, layoffs in the automobile sector contributed to a "total freeze on activity," he said. But over the past six months, as the industry has recovered, "you have this dam burst of people saying, 'We're ready to buy.'"

Elsewhere, prices are so low that more investors are scooping up foreclosed properties and renting them out. Since March, Ron Leis, a real-estate agent in Sacramento, Calif., has spent about $500,000 to buy four foreclosed properties that have been converted to rentals. Investors can cover their monthly costs and make an 8% to 12% profit "pretty easily," he said. "We haven't seen that in 20 years."

Prices could keep falling in "undervalued" markets that are struggling with an oversupply of foreclosures or where high unemployment limits the pool of potential home buyers. "There's no iron law that says a market will return to its historical average," said Mr. Humphries.

Housing also has grown more affordable thanks to mortgage rates falling to near their lowest levels since the 1950s. Last week, the 30-year fixed-rate mortgage averaged 4.32%, according to a survey by Freddie Mac.

Aaron Holley hadn't even thought about buying a home until he looked into consolidating his student-loan debts and saw how interest rates and home prices had fallen. "I never actually thought there was going to be the possibility of me owning a home in the state of California," said Mr. Holley, 29, who last month bought a three-bedroom home in Santa Rosa, Calif., for $260,000. He locked in a 4.38% fixed rate on a 30-year mortgage.

Zillow's report shows that home prices in Santa Rosa are around 4.9 times area incomes, down from a peak of 9.4 in 2005 and back to levels not seen since 1999. Prices are still higher than the 1985-2000 average of 4.1 times incomes. The prospect that home prices will decline further "bothers me a little bit," says Mr. Holley, who works as a concept artist for a videogame company. "But at the same time, I feel like I got a good deal."

Some of the most overvalued housing markets, according to the Zillow analysis, include Virginia Beach, Va.; Honolulu; and Charleston, S.C. In Virginia Beach, for example,prices would have to fall by 50% to hit their traditional relationship to incomes.

Other areas where price-to-income levels show that housing is still overvalued, such as Washington, D.C., may not see prices fall further due to structural changes in the economy. Second-home markets that have more out-of-market homebuyers also tend to have more volatile price-to-income levels.

SEATTLE ANALYSIS BASED ON Price = 3x Income

For the purposes of this analysis, let's assume household median income for King County is $66,000 based on the 2010 projections of the Washington Office of Financial Management. 2011 numbers are not posted, but I think its fair to say the incomes would be relatively close to 2010 numbers.

Turning to Zillow.com for our Seattle Median Home Price, we have an average home price of $348,000 as of 8/1/2011.

Clearly, numbers are easy to skew in any direction you'd like, but I think these are relatively un-bias numbers from independent sources.

Bottom line: if home values are historically 3x income, Seattle's range of approximately 5.2 (348k / 66k) is still far above that 3x average. In fact, for prices to get in line (based on these numbers), we would be looking at a 44% drop in Real Estate prices. I'm not sure I'm willing to predict further declines that excessive as we are already 33%+ off of the peak, but it is certainly something to think about, and I'm not willing to entirely rule it out given the number of foreclosures and distressed homeowners in the market today.

Markets Collapse; Ratigan explodes

Every so often, I see some non-real estate stories/ opinions that are worth sharing as the reality of our situation is that the Real Estate and the Economy are truly hand in hand. As one improves, so does the other. As one continues to fall, it will drag the other with it.

Below is a video clip from the Dylan Ratigan show where Dylan gets pissed. He calls out both Republicans and Democrats and focuses on the complete lack of response from BOTH sides, neither of whom address some of the underlying issues that continue to hinder a real recovery (both in Real Estate and the general economy).

Enjoy!

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Washington State sues Bank of America

AP - Washington state sued a subsidiary of Bank of America Corp. on Friday, arguing that the company has improperly handled thousands of foreclosures in the state.

Attorney General Rob McKenna claimed ReconTrust Company has repeatedly broken the law by failing to act as a neutral third party on behalf of both the lender and the borrower. He argued that the company has repeatedly broken the law and refused to cooperate in an investigation.

"ReconTrust's illegal practices make it difficult, if not impossible, for borrowers who might have a shot at saving their homes to stop those foreclosures," McKenna said.

McKenna said the company also violated state law by failing to maintain an office in the state where borrowers can go to make last-minute payments or discuss the process. He also said ReconTrust gave confusing information to borrowers about how they could go about curing their default.

Weitz - we've stopped numerous foreclosures from this very argument. Its a requirement that the trustee be located in Washington state. It's been a great stall tactic for our clients.

Bank of America spokeswoman Jumana Bauwens said ReconTrust operates in compliance with the law and that the company disagrees with McKenna's concerns. She said the company has added physical locations to provide in-person support for customers while also hosting events so that consumers can review all possible solutions to keep them in their homes.

"We make every effort to reach out to delinquent customers to offer home retention options as well as foreclosure avoidance programs," Bauwens said. "Foreclosure is always our last resort."

The lawsuit seeks civil penalties of up to $2,000 per violation as well as restitution for consumers. The attorney general's office believes ReconTrust failed to comply with state law in every foreclosure it has conducted since June 2008.

ReconTrust has issued 9,900 foreclosure notices over the past three years in King, Pierce and Snohomish counties, according to the attorney general's office, but the company operates around the state. McKenna's office said it doesn't know how many foreclosures could have been prevented if the company had complied with state laws.

The attorney general's office says it is investigating more than a dozen other trustees for suspected violations.

Myra Cole, a single mother from Spanaway, was in the process of working on a possible loan modification with her loan servicer when ReconTrust sold the home at foreclosure. She called it an injustice, saying they were taking the proper steps to try and save the home.

"I just can't believe that the company that's supposed to be helping me is foreclosing on me," Cole said in a statement provided through McKenna's office.

Weitz - This will be an interesting case to follow. My money is on a settlement that is minimally evasive to Bank of America's operations - that seems to be the status quo for governments of all levels...talk a big game in regards to the banks and then fold over when the Banks argue back.

For more information on your rights in Foreclosure or Short Sale, consider contacting a Seattle Foreclosure Attorney.

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Uncle Sam as a Landlord?

AP- The Obama administration is examining ways to pull foreclosed properties off the market and rent them to help stabilize the housing market, according to people familiar with the matter.

Weitz- Interesting- tell me more. Initial thoughts: I think it would help falling prices and would inevitably lower rents. Here is the scary part - I envision a country full of government owned rental properties - thus I'm feeling an overwhelming itch of communism in this plan. Further, lowering rents may encourage more people to walk away from their homes and take shelter in a low cost government rental, thus encouraging the very behavior they would lead to the very thing this plan seeks to prevent.

While the plans may not advance beyond the concept phase, they are under serious consideration by senior administration officials because rents are rising even as home prices in many hard-hit markets continue to fall due to high foreclosure levels.

Trimming the glut of unsold foreclosed homes on the market is "worth looking at," said Federal Reserve Chairman Ben Bernanke in testimony to Congress last week.
Nationally, home prices in May were 7.4% lower than a year earlier, but after excluding distressed sales, prices fell just 0.4%, according to CoreLogic Inc.

Weitz - I love this stat: "excluding distressed sales, prices fell just .4%" - this is the equivalent of saying 'excluding the summer, Phoenix is a very comfortable year round climate'.

Foreclosures and other distressed sales now account for about 30% of homes sold each
month and sales from government-related entities make up about one third of that number.

"Adding more stock simply increases that overhang. If that can be avoided, it should be," says Jared Bernstein, an economist who left the White House in April and is now a senior fellow at the Center on Budget and Policy Priorities, a liberal think tank in Washington. Because rents are firming up, "this idea could have some legs," he said.

Renting out homes could cover the costs of holding the properties until they can be resold once markets stabilize, potentially turning a profit for mortgage titans Fannie Mae and Freddie Mac or the Department of Housing and Urban Development, which handles foreclosures on loans backed by the Federal Housing Administration.

But scattered-site rental programs could require the government to become a national landlord, an area where the mortgage firms have little experience. They also pose accounting challenges that could produce big upfront losses.

One proposal winning support among some federal officials would sell thousands of foreclosed federal properties to private investors who agree to rent them.

Investors would rehab homes, run the leasing process, and contract with national property management firms to handle day-to-day tenant demands.

The government could keep a stake in the venture, modeled on loss-share transactions by the Federal Deposit Insurance Corp. Officials have received interest from around a half-dozen private investors, according to people familiar with the matter.
HUD owned about 69,000 homes at the end of April and sold 11,000 homes in that month. Fannie and Freddie held another 218,000 at the end of March.

Weitz - This is an important paragraph- note the 'modeled on a loss-share transaction by the FDIC' statement. This essentially means that investors will buy the home, and if they lose money, the government will pay them back. Great deal....for investors...not so great for the taxpayer when we write checks to investors who didn't have to take any risk. Its a classic 'heads, I win; tails you lose situation' that the government has mastered (for the benefit of banks) during this crisis (see TALF, TARP, PPIP, and FDIC small bank closings).

Analysts at Credit Suisse estimate that reducing Fannie and Freddie's foreclosed-property sales to around 30,000 each month, from the current rate of 50,000, would cut total distressed sales by one third and avoid a further 3% to 5% decline in home prices.

By flushing foreclosed properties onto markets with few traditional buyers, Fannie and Freddie are "undermining their own recovery," says John Burns, the head of a homebuilding consulting firm in Irvine, Calif., who backs the public-private rental approach.

Bank-owned properties are "concentrated in certain places where lower prices are not going to get more demand," says Kenneth Rosen, chairman of the Fisher Center for Real Estate Research at the University of California at Berkeley. Simply liquidating homes at "auction prices" will drop values for all homes by another 10% to 20%, he says, pushing more homeowners underwater. Fannie and Freddie, which were taken over by the U.S. three years ago, currently rent a few thousand homes to former owners and tenants.

But the Obama administration can't enlist Fannie and Freddie's participation in a wider rental program without the approval of the firms' regulator, the Federal Housing Finance Agency. An FHFA spokeswoman says the agency is "open to considering initiatives that are consistent with the goals of the conservatorship."

Two years ago, investors began scooping up cheap properties at auctions in the hopes of reselling them for a profit. But with home values declining, "flipping is tough to do," says Eric Peterson, a former homebuilder and co-founder of Praxis Capital of Santa Rosa, Calif., which has launched a $10 million fund focused on renting out foreclosures.

Meanwhile, as more Americans go through foreclosure, the number of households opting for single-family rentals over the past five years has grown at about five times the pace of that for overall shelter , according to research firm Zelman & Associates.

"Do you really think a 38-year-old with two kids and two cars who was foreclosed on is really going back to an apartment? It's not going to happen," says Ivy Zelman, the firm's chief executive.

Weitz - This is an interesting theory: if it happens, the consequences, whether good or bad, will likely be different from the the initial plans.

For more information on your rights in Foreclosure, Short sale or other Real Estate issues, consider seeing a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
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Kirkland, WA 98033
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Can the Government help in the housing market?

What can the government do to help out the housing market? Can anything they do actually help? Here are some of the ideas discussed in the above interview:

1) create more jobs
2) assist with financing of the housing market
3) a national moratorium of foreclosures - this would be an utter disaster that would actually encourage defaults and generally 'kick the can down the road'.

Weitz- In my opinion, the best thing the ghttp://www.blogger.com/img/blank.gifovernment can do is to get out; let the market do what the market is going to do and things will work themselves out in time. In sum, the faster we hit a bottom (wherever that may be), the faster we actually recover.

For more help with your rights in foreclosure or short sale, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
(425) 889-9300

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Effects of Fannie and Freddie lowering mortgage caps

The federal government is readying its first retreat from the mortgage market, with the size of loans eligible for government backing set to decline in October.

Weitz – as I’ve said awhile, the government is playing a huge role in propping up the real estate mortgage with tools like the FHA lending program, the tax credit, and Fannie and Freddie. If the involvement begins to wane, I question how the market will fair on its own. If I had to guess, I would estimate that we will be in for some difficult times ahead.

As an emergency measure three years ago, Congress raised to as high as $729,750 the maximum loan amount that Fannie Mae, Freddie Mac and federal agencies could guarantee.

That made it easier—and cheaper—for borrowers in pricey housing markets to obtain mortgages, because the government guarantees that investors receive payments on those mortgages even if homeowners default.

Weitz – A prime of the government propping comments above.

Now those limits are set to decline modestly in hundreds of counties across the U.S. as the government attempts to reduce its outsized footprint in the mortgage market and create room for private investors to compete.

Government-related (Weitz - 'related' should be omitted and exchanged for sponsored or backed) entities stand behind more than nine of 10 new mortgages, and taxpayers have sunk $138 billion into Fannie and Freddie, underscoring the eagerness to dial down the government's share.

The new limits will vary widely by location, but will drop to $625,500 in top-tier markets such as New York, Los Angeles and Washington, D.C.

Even though the new limits won't take effect until Oct. 1, some lenders are already warning borrowers that they will stop accepting applications for loans that exceed the new limits much sooner, to ensure the loans are funded before the cutoff date.

Industry groups are making the case on Capitol Hill that reducing current limits in some of the largest markets is "the exact wrong way to go," said Jerry Howard, president of the National Association of Home Builders. But Obama administration officials say the limits should fall as scheduled, and Republican lawmakers have introduced measures to shrink the Federal Housing Administration's reach more aggressively.

Weitz - I agree that this will cause trouble in the real estate market, but I also believe that it will eventually lead to a healthy market that will be based on true market fundamentals and provide the fundation for job growth as we truly do hit a bottom and start to rebuild our economy.

Had the lower limits been in place last year, Fannie and Freddie would have backed 50,000 fewer loans, according to the Federal Housing Finance Agency. The bulk of the affected loans —about 60%—are in California, with another 20% in Massachusetts, New York and New Jersey.

Parts of the country with less expensive homes also would be affected; their limits are scheduled to fall as low as $417,000 for Fannie and Freddie loans and as low as $271,050 for FHA loans.

Limits for Fannie and Freddie-eligible mortgages will fall in 250 counties, and FHA limits will drop in about 600 counties. While that is a fraction of the nation's 3,000 counties, economists at the National Association of Home Builders say those densely populated areas account for 27% and 59% of the nation's housing stock, respectively.

The possibility of lower loan limits is causing considerable anxiety in coastal California and other high-end housing markets that will serve as test cases for how the government's withdrawal from housing will affect the market and local economies.

Homeowners whose mortgages are too big to qualify for a government-backed mortgage must seek a so-called jumbo loan, which often carry higher interest rates as well as larger down-payment requirements, sometimes more than 20%.

Weitz - this higher downpayment and higher interest rate requirement will be very difficult on Seattle - which I would consider to be on higher end of real estate prices when compared to the rest of the country.

Mr. Barr, who owns a wine-making machinery company, said he has excellent credit but a recent divorce left him with little cash for such a purchase. "I don't have any other alternative," the 48-year-old said. Without the loan backed by the FHA, which allows for down payments as low as 3.5%, "the sale won't happen."

Scaling back loan limits underscores a broader challenge facing the government: It wants more private players to hold mortgage risk, but it doesn't want to destabilize fragile housing markets.

Craig Van Sant is looking to pay $500,000 for a home with a $20,000 down payment in Rancho Cucamonga, Calif. Once the FHA limit drops to $335,000, he would need to more than double his down payment. The only upside, he said, is that "home values slide even more, allowing us to buy more house, if we can pull together all the cash."

Investors and some academics say the government needs to shrink its footprint if private markets are to re-emerge, and that big loans for pricey homes are a reasonable place to start. "Credit unions, small banks, and hedge funds are all eager to buy these loans," said Brian Brady, a mortgage banker at World Wide Credit Corp. in San Diego.

For now, interest rates for jumbo loans are relatively low, which could cushion the impact of changing loan limits. Rates on 30-year fixed-rate jumbos averaged 5.07% last week, compared with 4.62% on government-backed loans, according to financial publisher HSH Associates. The jumbo rates are near the lowest mark since HSH began its count in 1986, and the spread is the lowest since mortgage markets seized up four years ago.

But rates are only part of the equation. Because jumbos aren't being securitized, banks must keep them on their balance sheets and are generally requiring larger down payments and stringent income qualifications."It'll be a real test of private lenders and their ability to fill the void," said Mark Zandi, chief economist of Moody's Analytics.

Weitz - note that 9 out of 10 loans are backed by Fannie and Freddie (see above)- do we really think the private lenders are going to fill that void? - don't count on it.

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Emergency Homeowners Loan Program - Washington

Weitz - Here we go again! The government has rolled out a new program - first we paid people to buy homes (See Homeowner Tax Credit)...now we're paying people to stay in there home. I see why they do it, I simply think its inherently unfair

Real Estate Opinion in WSJ - worth the read

Weitz- a terrific opinion piece by ALEX J. POLLOCK in the Wall Street Journal.

It is nearly five years since the peak of the housing bubble, and that highly leveraged sector, with its $11 trillion in residential mortgage debt, continues to struggle. Home values just posted their biggest quarterly decline since late 2008, largely due to a steady stream of foreclosures.

But if we consider that the housing bubble inflated from roughly 1999 to 2006, that made seven fat years. An ancient authority would suggest that seven lean years should follow. That would mean two more lean years to go—not a bad prediction.

Actually, what we experienced was a double bubble: one in housing and a parallel one in commercial real estate, which has mortgage debt of $2.4 trillion. Both of these sectors used the opening years of the new century to run up leverage and asset prices to an unsustainable 90% increase, with housing peaking in the second quarter of 2006, and commercial real estate in the fourth quarter of 2007.

The causes of the housing bubble—subprime mortgages, adjustable-rate mortgages, government-mandated loans, etc.—are well known. The role of traditional lending by the heavily regulated banking system in the commercial real-estate bubble has received less attention, yet its toll in subsequent bank failures is apparent.

The inevitable bust brought a national price drop of 32% from the peak for housing, and an even steeper 42% drop from the peak for commercial real estate. These erased trillions of dollars of illusory bubble "wealth." The combined drop in market values was greater than $8 trillion—that's more than the GDP of China last year.

Why did house prices fall proportionally less than commercial real-estate prices after they both inflated to the same extent? In part, at least, this reflects large government programs and subsidies to support house prices. But even with this support, the asset prices on which huge amounts of debt had been built shriveled, leaving the debt under water. As an old banker told me long ago, "Just remember this, young man: Assets shrink—liabilities never shrink!" The credit markets for housing and commercial real estate obviously did not remember this classic principle.

We all know too well the result: huge defaults, losses, TARP and more than 350 bank failures—not to mention the failures of government-sponsored enterprises Fannie Mae and Freddie Mac. Even this long after the peaks of the double bubble, much of the debt overhang—or better, hangover—remains to be worked through. The industrial sector has recovered and is growing, with strong profits, cash build-ups, and a bull market in stocks. But the huge real-estate debt hangover continues to weigh down overall economic performance.

Perhaps with some poetic justice, this is the inverse of the situation in the early 2000s, after the collapse of the tech-stock bubble. Then we had an industrial recession and the deflationary pressure from past euphoric overinvestment. Japanese-style deflation was feared and widely discussed. And an answer was found by the Federal Reserve: A housing boom could balance the effects of the industrial recession.

This was the Greenspan Gamble, which intentionally fostered a boom in housing in the 2000s to counter the drag in the aftermath of the 1990s equity bubble. Then-Fed Chairman Alan Greenspan explained to Congress in 2002 that the negative wealth effect from the losses in the stock market was being offset by the positive wealth effect of the rise in housing prices. So it was, at that point. But the desired housing boom grew into another massive bubble.

We now have the Bernanke Gamble to foster high prices for debt and equity securities, thus a positive wealth effect to offset the negative wealth effect of the huge losses in real estate and real-estate debt. Fed Chairman Ben Bernanke's gamble is being wagered on a long period of zero short-term interest rates and by the remarkable expansion of the Fed's own balance sheet, including the purchase of about $1 trillion in mortgage debt—making the Fed, in a sense, the largest savings and loan in the world.

Will it work? Perhaps. But large unrealized losses still need to be realized and swallowed. We will continue to move sluggishly through an extended period of negotiating how these losses will be distributed. Who will take the hit? Delinquent borrowers, banks, investors (domestic and foreign), the government and government-sponsored entities, and the strapped deposit insurance fund are all involved in these contentious negotiations.

The negotiations also involve the role of Fannie Mae and Freddie Mac, which although hopelessly insolvent and having their losses paid for by taxpayers, are nonetheless funding the majority of new mortgage loans with government-backed debt. Their supporters want to continue having them fund mortgages as big as $729,750 to help prop up high-end housing prices. Opponents like me point out that this prevents the necessary return of private capital to mortgage finance.

As the debt hangover works its way through the system, the outlook is for housing to continue along an extended rocky and bumpy bottom, generally moving sideways in nominal terms. Since we will have an overall inflationary regime, real house prices will be falling. After working through the concluding lean years, housing prices can reasonably be expected to regain their long-term trend of increasing a little over 3% per year in nominal terms.

This would take them back to their highs in 10 years or so. If this happens, it will be far better than the performance of Nasdaq stocks, which a decade later have never even remotely approached their bubble high.

Weitz - As tough as it may be, I believe the government needs to stop trying to control the market and let it work itself out. Only then will we achieve a 'real' recovery.