Sunday, July 24, 2011
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.
Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
at 7:37 AM
Monday, July 18, 2011
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.
Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
at 8:03 AM
Thursday, July 7, 2011
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.
For more information on your rights in distressed real estate, consider seeing a Seattle Foreclosure attorney.
Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
at 8:26 PM