Sue the Germans to Save our Economy! Well..maybe not.

I know we all want a villan in this financial meltdown we have experienced the last 5 years.  We would love that villan to be an entity we can dispise and can easily never do business again. 
Hey, I know, lets blame the Germans…our old enemies from the last two world wars!  That’ll be an easy one for everyone to jump on the bandwagon to hate!  I hope this sounds as rediculous to you as it does to me…but that appears to be just what our federal government is doing us right now as they proceed to begin a lawsuit against Deutschebank. 
The lawsuit claims that Deutschebank made a $5 Billion worth of bad loans that they sold into government backing (FHA) and then didn’t continue to track those loan’s default rates after they initiated them.  In short…Deutschebank is accused of making the same loans that every American bank was making (which, by the way, conformed to the overly loose underwriting guidlines that were established by the federal government during that time to encourage home ownership for “all” and economic growth) and then after it was too late to revoke those loans they weren’t “doing enough” to track them and stop them from defaulting further after they sold the loans to investors (again like every other bank was doing at the time). 

When this exact same scenario happened with Bank of America, Wells Fargo, Chase, Citi, and hundreds of other American banks showed similar losses and have caused mortgage giants Fannie Mae and Freddie Mac to hemorrage money like a politician with a hankering for pork, we decided to give the banks $700 Billion in bailouts to help them get back on their feet (and off the books the Federal Reserve has pumped Billions more into keeping Fannie Mae and Freddie Mac afloat).  The American banks made the same Billions in bad loans, stuck taxpayers with the bill, sold them to investors in toxic packages that were destined to fail (but somehow were still rated as safe investments by the rating bureaus…those same rating bureaus who have yet to face any repercussions or regulation changes in this meltdown) and once they started failing were extremely slow to start doing anything to try to save or track any of the loans defaults to prevent more of them.  Hmmm…sound familiar to anyone?

The only real difference in this entire scenario that I can see is that the American banks, if they fail, have to have the FDIC pay back all of their account holders up to $250,000 of lost money.  The FDIC almost went broke over the last few years handling those payouts for banks like IndyMac and the hundreds of others that closed their doors over the last 5 years.  The FDIC could hardly have afforded to protect the money of account holders for banks like Citi, Wells, Chase, or BoA  without going bankrupt…they are too big (which is why they are “too big to fail.” If FDIC failed to back the accounts on one collapsing bank it could cause a real great-depression-like meltdown of our ENTIRE financial system).  So these banks we bailed out.  Since Deutchebank is a foreign bank, only their American divisions receive FDIC protection (Deutschebank has two American Trust divisions that are set up to be covered under FDIC but their international operations beyond our borders would not be).  While Duetschebank is one of the world’s largest banking institutions if we sue them into oblivion our goverment would only have to cover a small portion of their account holders losses.  The rest of the losses would have to be dealt with by people in other parts of the world.  I know we want to blame someone for this mess, but I just don’t see how Deutschebank is really the one to shoulder the blame for all of this while the rest of the banks (and the rating agencies) get off scott free…but then again I didn’t feel blaming the loan officer and cutting his/her pay for helping people getting loans that followed every rule of the day was really the right way to go either (but that’s just what we did 4/1/11 with the Frank-Dodd Bill). 

I could be off base with this analysis, but I don’t think so.  If you have a different opinion, voice it in the comments. 

I look forward to the debate, and Keep Dreaming!

Regulators Gone Wild!

I wanted to share today an article I read in Inman News which brings up the fact that some of the rules being enforced upon our real estate industry go far beyond the scope of the laws that were passed to create them.  This is mainly due to federal regulators going way too far with their interperetations of “congressional intent” when passing the bills.  In some cases the regulators blatently ignored the intent of the laws that were passed and used their ability to interperet and regulate as an open invitation to create public policy that is the direct opposite of the original congressional bill. 

Read the article to find out more about these regulators going “wild” with their power and responsibilities…and Keep Dreaming!

http://lowes.inman.com/inmaninf/lowes/news/141101

Is the “Shadow Inventory” Overblown?

So I’m reading Yahoo! today while checking my email and come across this article which claims that my home state of Maryland has one of the largest inventories of distressed homes in the nation, and claims that more are on the way with this mysterious “Shadow Inventory” experts have been talking about for the last 2-3 years. 

I have to wonder where their statistics are truly coming from, as I have been following the active inventory of houses, both distressed and not, throughout our region for the last few years extremely closely, and I’ve watched the inventory of foreclosures DECREASE by over 40% throughout the state of Maryland over the last 3-4 months.  Will that news get put up on Yahoo?  I doubt it.  This bad news sells mantra has reverberated through the media for the last few years, and honestly I’m getting tired of the media trying to scare the public worse than they already are, especially when things least justify it. 

There are legitimate signs of recovery in our local housing market, with jobs coming to the region the thousands this year to our local military base, inventory shrinking as a whole since the first of the year, and more buyers active in our office right now than any other time in the last 6 months (our office sales board is full for the first time since September ’10).  Maybe instead of focusing on this massive number of 1.8 million houses which MAY become foreclosures on our market (these 1.8 million homes include all homes 90 days late on payments.  90 days late is when banks can start the foreclosure process, but often they wait much longer to give people a time to make good on their payments or work out modifications/short sales) lets also think about the fact that these homes will be spread out across the entire country.  It is extremely unlikely that in most markets you will see more than 10-15 homes from this “Shadow Inventory” appear in your neighborhoods.  Chances are that many of these homes are already on the market anyways as short sales, so they really aren’t going to add any MORE supply to the market, just move the supply from the short sale catagory to the foreclosure column (which are easier to settle). 

If legislation like is being proposed in some states gets passed to dis-allow foreclosures from being used in appraisals the switch from short sales to foreclosures would actually be LESS damaging to homes values as they would only act as additional supply and not actually act to pull down values. 

Call me an optimist if you must, but I don’t think that the media’s doom and gloom assessment of our real estate industry is at all accurate, at least when it comes to my local market in Maryland which they attacked today.  Let me know what you think in the comments, share this better-news Counterpoint with others you think may like some optimism, and Keep Dreaming!

Mortgage Industry Catches a Break! LO Compensation Rule Delayed by Appellate Judge

No, this is not some cruel April Fools joke on the mortgage world, but fact.  I appears that the judge of the appellate court agreed with the first judge that the Frank-Dodd bill would do major damage to the housing industry, but unlike the first judge decided that he needed to at least hear the case in its entirety before he would hake the decision that the law could not be overturned.  The case will be heard in the appellate court on 4/5/11 and the law has been put on a temporary hold until the case is heard.  This means, at least for the time being, that the industry still has hope that this terribly mis-conceived law can still be stopped. 

Read the article at the link below if you still think I am making an April Fools joke, otherwise, enjoy the great news today and Keep Dreaming!

http://nationalmortgageprofessional.com/news24436/no-april-fools-joke-namb-gets-appellate-court-grant-stay-feds-lo-compensation-rule

Should Foreclosures Be Usable in Appraisal Values?

Currently 3 states, Illinois, Nevada, and Missouri, are proposing legislation that would completely ban all foreclosures from being usable by appraisers when they attempt to determine the values of homes in a neighborhood. 

Why would this legislation be good?  Well, first off the prices at which foreclosures are selling has been acting as a dead weight anchor on housing prices for the last 3-4 years.  Foreclosures regularly sell for 10-20% less than the average sales price of non foreclosure homes in similar condition in the same neighborhood.  Banks need to get these properties off their books to free back up their capital and lower their carrying charges (cost accumulated on a home that you are holding for no purpose) so they try to price them low in order to get offers faster.  Typically, foreclosures are not in good shape as either the previous owner stopped caring for the home when their money ran out, so they can sell for even lower than that 20% below market value when they need a lot of work. Once a foreclosure is sold at one of these much lower price levels, it becomes a “comp” which is Real-Estate-ese for a comparable home that is used to help determine other homes values. 

If an appraiser uses a foreclosure as part of their selection of “Comps” it is going to reflect negatively on the value of those other regular sale homes that are in better condition, often pulling those home’s values down in the eyes of the appraiser.  If the appraiser decides that the foreclosure lowers the value too much, they can “under appraise” the home, or give it a value lower than the sales price.  This usually results in the sale of that home falling apart.  If the sale does go through at the lower price, that reduced value on the regular sale is now a “comp” too, meaning that all other regular sales are reduced to that level for future sales as well.

Under the current rules of appraising it isn’t considered a bad thing for an appraiser to under appraise a home (only if they over appraise a home do they usually get criticised for their appraisals by the banks/review boards that hire them), so if given the option, most appraisers will continue to use foreclosures in their comps which will continue to hurt values of homes for the foreseeable future.

If it is made illegal to use foreclosures in appraisals there would at least be one less factor exerting negative pressure in our property values, meaning that values of homes would function more as a result of supply and demand like they are supposed to again.  It will still be hard to get an appraiser to agree with a purchase price that would show an increase in value (even if it is justified), but at least it won’t give them as much of an excuse to push the values down more. 

The negatives on doing this…I really can’t think of any…in fact I would go a step further if I was proposing the bill and put Short Sales (pre-foreclosure sales) on the list of types of sales to ban from being used as comps as well! They usually are selling for about the same price range as foreclosures these days and cause the same problems, so why only eliminate half the issue? 

Will it happen in any of these states?  Who knows, but its a good idea if you actually believe in protecting the values of homes in a way that makes total sense and harms no-one. 

Maryland, my home state, had proposed similar legislation, but decided instead to debate making trans-sexuals a protected class in Maryland this past week, so they removed this bill from the dockets (I wish that this was a joke, but yes, debating cross dresser and cross gender issues was more important to MD’s legislature this past week than dealing with the economy and real estate…not that those people don’t deserve rights, but was it really the right order to be dealing with these issues in? Moving gets tempting on days like this…)

For the source article related to this subject, go to http://www.dsnews.com/articles/three-states-move-to-ban-foreclosure-sales-from-appraisal-values-2011-03-30

Keep Dreaming!

Federal Judge Upholds the New LO Compensation Rules

The past several weeks the National Association of Mortgage Brokers (NAMB) and the National Association of Independent Housing Professionals (NAIHP) have been attempting to file suit to both delay the implementation of and overturn the Frank-Dodd bill which effected loan officer compensation and consumers loan options.  For more on the Frank-Dodd Bill, read my older posts on the subject HERE and HERE.

Unfortunately, for those of us who believe this bill is bad for the industry and the recovery of our real estate market, Federal Judge Beryl Howell decided today to reject the two associations requests to even delay the implementation of these laws (a request that was supported by Ben Bernanke of the Federal Reserve, whose agency is to enforce this bill, as he does not believe that enough has been done to inform lenders and the public of this law’s effect and consequences prior to its enactment.)

Since the suit has been thrown out without being heard further, Frank-Dodd will in fact take effect tomorrow.  NAMB and NAIHP are filing for appeal on this case as “Judge Howell’s decision was rendered even though she found the rule could cause was irreparable harm. That was shocking to us in hearing this decision.” This statement, made by Mike Anderson of NAMB, very succinctly puts what most people working in this industry feel, that this deal will do nothing but harm. 

I agree that its surprising a federal judge would look at a law that was passed, realize it will cause irrepairable damage to our nation and economy, and not do anything about it…but the reality is that federal judges are SUPPOSED to be ruling on only the constitutionality or legality of an issue, not whether it is right or wrong (but rarely stick to it regardless).  From a constitutional perspective, this damaging law was passed by a majority in both the house and senate, and signed by the president.  No provisions of this bill directly violate any freedoms guaranteed to the citizens of our nation under the constitution. There is nothing that violates any part of any other federal law already in place either.  From a federal judge’s perspective, and what their role is supposed to be, I’m not sure I would have overturned this law in that position either.

Just because I understand the decision doesn’t mean I don’t wish it was different!  Oh well, as an individual Realtor I don’t get to make the laws, I just have to follow whatever they put in place for me to deal with…

Maybe the judge who hears the appeal will be one of the judges who views their role as a judge differently and likes to create precident, interperetations, and law from the bench rather than just rule on the law as it is written.  If not, we’ll be stuck with Frank-Dodd unless congress decides they screwed up and repeals the law they created…fat chance of them admitting they were wrong on anything!

Read the Article about the denial of the case by NAMB and NAIHP at http://nationalmortgageprofessional.com/news24410/judge-denies-namb%E2%80%99s-temporary-restraining-order-against-fed%E2%80%99s-lo-compensation-rule#

Keep Dreaming!

Frank-Dodd Bill and Regulators Create a Downpayment Nightmare for Consumers

Regulators today defined “safe” loans for homes as ones that have at least 20% downpayment.  What is a safe loan you ask?  Why should you care about safe loans? 

According to the Frank-Dodd bill passed last year, these “Safe Loans” are now the only loans which banks will be able to sell as a mortgage backed security to investors without having to hold 5% of the loan in their “portfolio” (taking away from what they can lend in the future).  Smaller banks and lenders, who don’t have the capital to repeatedly hold this 5% on each loan, will eventually have to stop offering products like FHA and VA financing, as it will become too expensive for them to make loans that are less than 20% downpayment required.   This bill, which masquerades itself as protecting consumers and investors from the “evil” banks that caused the problem, is really just directing MORE of the loans to the nation’s big banks, like BofA, Wells Fargo, Chase, and Citi (yeah…the ones we had to bail out when they caused the problems) as they will be the only banks with enough cash reserves to continually afford to make affordable loans to consumers.  If you believe that these 4 banks would continue to make these loans that they now have to keep part of on their books without charging the consumer additional fees once their competition is gone…well then you just haven’t been paying attention to the actions of these banks over the last 5 years like I have.  They’ve added fees on accounts, credit cards,  ATM’s and everything else without having added costs put on their books.  With a real cost added to their business, they are likely to charge the consumer even more. 

Will this help the Real Estate Market in its recovery or hurt it?  Since your average American right now is earning a salary of around $30,000 (putting a family income around $60,000) and the average home price in America is in the ball park range of $250,000, an average American family would need to save almost all of one year’s salary (before taxes and without spending any of it) to be able to afford a “safe loan’s” downpayment.  This means most people will either have to spend 5-10 years to reasonably save up to buy a home (with rent prices currently increasing rapidly already-probably taking them longer) or they will have to go to one of the “big 4” and spend more money on fees than they would right now.  

How does Frank-Dodd help the consumer get a better loan or help with the recovery of the housing market?  Well, to me it doesn’t at all (especially since it is the same bill that causes the change in Loan Officer Compensation that will limit consumer’s loan options starting in two days).  It will just make it take longer for most buyers to be able to afford to buy (lowering demand for housing), increase the costs of buying, and force the consumer to lenders with worse service and pricing.  All of this will inevitably hurt housing prices as fewer people are able to or want to buy under the new rules. 

The good news…well the small banks haven’t stopped giving “un-safe” loans yet, as this is just announced and starting to take effect, so we should be able to at least continue at the current level of market activity for a while yet before the brunt of the damage this law could do really hits our market.  Lets just hope it doesn’t turn out as bad as I foresee it being for the consumer.

Keep Dreaming!

Will the New Loan Officer Compensation Laws Truly Help the Consumer?

On April 1, 2011 the Dodd/Frank bill adjusting loan officer compensation goes into effect.  This bill states, in a very shortened version, that loan officers and mortgage originators can only offer loans to the consumer in which they get paid exactly the same amount of money as a market priced fixed rate loan.  In theory, this bill is designed to prevent loan officers from steering consumers to loans which pay them more but maybe aren’t in the best interest of the consumer.  In short, this is supposed to make the loan officer always offer the best loan available to the consumer from the start.

Great theory, right?  Laudible goal, sure!  In practice does it do what it is supposed to do…I guess but not really. What really happens from the way this bill is written…

Right to Rent Legislation Proposed to Slow Foreclosure Rate

Yesterday I talked of a great bi-partisan bill recently proposed to help our distressed housing market shrink in size with the short sale bill, HR 6133.  Today I would like to bring to your attention another bill which would also help reduce the inventory of distressed properties, HR 5028.  This “Right to Rent” bill, proposed by two democrats, would allow for home owners to receive a temporary hiatus from their mortgage payment, instead paying what would be considered reasonable rent for a home like theirs in their area. 

In this scenario, the bank would still be receiving payments, essentially in liu of interest, taxes and insurance, but the owner would gain no principal from their payments while doing so.  Instead, the owner would just get a reduced payment for the time period of their “rental agreement.”  They get to stay in their house at a reduced payment long enough to get on their feet, the bank still makes money on the home owner during that time (even if it is a reduced amount), and the market doesn’t have to deal with another foreclosure or short sale property hitting the market.  It would barely cost anyone anything to put this into effect, unlike loan modifications which have cost millions to very little effect, and would do a lot to help our supply and demand issue in our real estate market by lowering the supply which is coming on at under market price (foreclosures).

It makes sense, its good for the market, and it won’t cost us more of our tax dollars to do it.  Please support this bill by contacting your representatives as well!  If you don’t know how to reach  your representative, or know who it is for your district, please let me know in the comments and I’ll be glad to help you!  Get active in the political process and make a difference!