HINTS OF A BOTTOM IN REAL ESTATE??

At long last the government mandarins in charge of stimulating, stabilizing, growing (or whatever current buzzwords are flying about) the housing market have come up with a PLAN that might work.

Big Leap into the Unknown

"In discussing the U.S. economy, Fed Chairman Bernanke also admitted that its performance has fallen well short of the central bank’s expectations. Moreover, “temporary factors can account for only a portion of the economic weakness that we have observed.”
The clear if obvious culprit is housing.... housing led the economy out of every recession since World War II. ....monetary policy obviously isn’t working despite record-low mortgage rates because of ... homeowners being “underwater” with houses worth less than their loan balances.
“Good, proactive housing policies could help speed” a recovery in that sector, Bernanke said, without being more specific. The New York Times Thursday reported the White House is mulling a plan to permit homeowners with government-backed mortgages to refinance at rates as low as 4%. Such a plan would help improve the transmission of monetary policy by giving homeowners the same benefit enjoyed by corporations, which Bernanke noted have been readily able to obtain low-cost credit in the bond market."   

If the administration supports a hefty reduction in rates for those underwater, this would provide the first real relief for homeowners.  Past modification programs from banks have lowered interest rates, but then have tacked onto the principal  an amount equal to the original note rate and the temporary relief interest rate.  Very discouraging - the homeowner goes from 15% underwater to 20% underwater!  Other programs lowering monthly payments extend the amortization from 30 to 40 years.  Everything was crafted to avoid reducing absolute debt amounts and consequently lowering asset values on the books of the banks.


Let us hope this one sticks.  It should staunch the slide in home values. And  the number of homeowners facing defaults.  Now, if lenders were to go further and reduce loan amounts to something near market values, that would be a giant leap forward.  The motivation for homeowners to do everything possible to keep their homes would be huge.

 

Consumers Shop for Everything Except Their Mortgage

Believe It Or Not!

According to a new LendingTree survey of 1,317 homeowners conducted online by Harris Interactive in September, 96 percent of American consumers compare prices when shopping for anything, but nearly 40 percent obtain just one home loan quote. By comparison, when shopping for a home computer, consumers research an average of 3.1 models before making a purchase. This explains why fewer than 3 in 10 (28 percent) borrowers are very confident they received the best possible deal on their current mortgage.

Based on a nationally representative sample of current homeowners who were involved in shopping for their home loan, the study revealed 85 percent of consumers use the web to comparison shop, yet just more than 1 in 5 (21 percent) shopped online first for mortgage rates. Additionally, although nearly 40 percent obtain just one home loan quote, more than 9 in 10 borrowers (91 percent) understand interest rates vary between lenders.

Frustration also appears to be at the root of this shopping dilemma. According to the survey, 70 percent of borrowers find shopping for a mortgage frustrating, citing the complexity of the terms (21 percent) and time-intensiveness nature of the process (20 percent).

The survey also reveals:
• Though it is a decision that will affect them for the next 15-30 years, nearly three-quarters (72 percent) of homeowners spent the equivalent of a full working day or less shopping for their home loan. Even more shocking? One in 10 spent the amount of time it takes to brush their teeth.
• Twenty-three percent of homeowners recognize they could save more than $100 a month by reducing their mortgage rate by one percent.
• Women are more than twice as likely as men to say they were not at all involved with shopping for their mortgage or when refinancing (16 percent versus seven percent, respectively).

Tax Credits, Energy Saving Rebates, Energy Mortgages ....Going, Going, Gone

Are you confused about all the federal and state programs?  Rebates? Tax credits? Appliances that qualify for Energy Star rebates?  Many credits and rebates for energy-efficient purchases are expiring at the end of this year. The Washington State Rebate funds for purchases of Energy Star appliances have been paid out already. A wait list is being compiled in case additional funds become available. 

The City Light Appliance rebate program for energy efficient lighting, clothes washers, ductless heat pumps and various forms of insulation can be seen here.  A host of valuable links and programs are also provided.  In addition Puget Sound Energy has its own menu of rebates on its site.  A variety of programs are offered in various counties in Washington State.  

Federal tax credits for solar-energy, small residential wind turbines and geothermal pump systems cover 30% of all costs with no upper limit. These are good on both primary homes and vacation homes, new construction or otherwise. And they don't expire until 2016. An overview of these credits together with a tax credit fact sheet can be found at this site. 

And if that is not enough, here comes the cherry on the cake. FHA's Energy Efficient Mortgage program (EEM) helps home buyers or owners save money on utility bills by enabling them to finance the cost of adding energy efficiency features to new or existing housing as part of their FHA insured home purchase or refinancing mortgage.  Although there have been problems in some sates with conflicting regulations, it is certainly worth a try if you are considering any substantial upgrades. It is on the HUD website. 

Hope these links will be helpful to some of you. Pass them on anyone you know who may be able to use them.

Proof the Fed Does Not Protect Consumer Rights

      I was dumb founded as I read this editorial in The New York Times of November 29th and so I am quoting the basic points below.

     You may remember when the movement to create a separate Consumer Protection Agency gathered force last spring.  Mr Bernanke was one of its fiercest opponents. I remember one droning disposition before the Congressional Banking Committee when he explained actions the Fed took in protecting the credit card consumer.  He talked about the size of the font and the length of the sentences and the clarity of the prose in bank disclosures.  Not a word about limits on fees, timely notice of raises in interest rates, collusion with other creditors in setting interest rates. Mr Bernanke was mostly worried about educating the consumer! Nothing about reforming banking practices.

      Congress did mandate more comprehensive changes to credit card regulations, in great part due to the efforts of Elizabeth Warren, and the Banking Reform Act did create a separate Consumer Protection Agency within Treasury, outside the purview of the Fed. This new proposal should remove any lingering doubts anyone ever had about the wisdom of taking consumer protections away from the FED.  Read and weep.

      "There are two sides to every delinquent loan - a lender who made a bad lending decision and a borrower who cannot repay. Yet, banks have never acted as if they bear responsibility for the mortgage mess.

They have . . .. resisted reducing principal balances for troubled borrowers, for instance, because that could force them to take losses they would rather delay.

Now, despite mounting evidence of borrower mistreatment, the Federal Reserve has proposed a rule that would disable the most effective legal tool that borrowers have to fight foreclosures.

First, some background: The Truth in Lending Act from 1968 gives borrowers the "right of rescission," the ability to undo a home refinancing or home equity loan within three years of the closing if the lender did not make proper disclosures - generally of the loan amount, interest rate and repayment terms. The law makes allowances for mere mistakes by the lender, but otherwise requires strict compliance, as well it should: disclosure is the main - often the only - consumer protection in the mortgage market. ... .  when a loan is rescinded, the lender must give up its security interest in the home - and without a security interest, the lender cannot foreclose. The borrower must still repay the loan principal, minus payments already made. Essentially, a lender that has not complied with required disclosures can get its money back, but not interest and other fees.

      In practice, one of the ways that rescissions have worked is that lenders faced with rescission have instead modified the loans, by reducing principal and setting new repayment terms. The Fed. . .  would require a borrower to pay off the remaining principal before the lender gives up its security interest. That would be clearly impossible for troubled borrowers. So the Fed's proposal would benefit the creditor who violated the law rather than the borrower, paving the way for foreclosures that otherwise could be avoided."

      Banks have already influenced our bankruptcy laws such that the one type of debt that cannot be extinguished or altered by a bankruptcy judge - you guessed it - is a mortgage! Now they want relief from responsibility for false representations!  Go talk to your senator about this. I have.

QE2 MADE SIMPLE

As unbelievable as it seems, there are some brilliant cartoonists who have managed to craft a charming explanation of the QE2.

If you prefer a more detailed explanation from an economist of the dismal science, you can find a very satisfactory explanation here.
He doesn't get to his explanation until 12 minutes into the talk, but it is well worth the wait. Make some tea or coffee while you're waiting.  Just be forewarned that the birthing of a new dollar is no immaculate conception; it is a messy affair.