On Monday, January 12, 2009, BiggerPockets.com’s own Richard Warren wrote a compelling piece here on the Real Estate Dispatch called A National GO Zone?, proposing a solution to the nations housing crisis.

At a time when housing is one of the most critical issues in the national debate, I’m excited to let our readers know that the top politicians are also keeping their fingers on the pulse of what is going on in real estate by reading BiggerPockets.com.

As proof of this, we wanted to share with you a letter from the Senate Majority Leader, Harry Reid, in response to the article above.

February 12, 2009

Dear Mr. Warren:

Thank you for contacting me regarding our nation’s current housing crisis. I appreciate you bringing your article The Real Estate Dispatch to my attention.

In my view, the housing market plays a vital role in the financial sector and stabilizing this industry is a key component of our economic recovery. That is why I worked hard to keep this problem from growing as it has. Recognizing that mortgage defaults and declining home values were the root cause of the current crisis, and that Nevada was ground zero for this phenomenon, I worked hard to pass the Housing and Economic Recovery Act of 2008 (P.L. 110-289) that President Bush signed into law on July 31, 2008. Additionally, while Congress worked with the Administration to pass the Emergency Economic Stabilization Act of 2008 (P.L. 110-343) that provided broad flexibility to the Treasury Department to respond to the deteriorating financial system, I pushed for language that requires the Treasury Secretary to ease the number of foreclosures.

As my colleagues and I seek ways to address the economic downturn and the housing crisis, I greatly appreciate you taking the time to share your thoughts and ideas on how best to confront these challenges. I took note of your suggestion to provide tax incentive to stimulate the housing market similar to those imposed in the Gulf Coast following Hurricane Katrina. As Nevada’s senior senator and the Senate Majority Leader, I am committed to doing all I can to strengthen our nation’s economy and provide millions of hardworking Americans with the relief they deserve.

Again, thank you for taking the time to share your thoughts with me. For more information about my work for Nevada, my role in the United States Senate Leadership, or to subscribe to regular e-mail updates on the issues that interest you, please visit my Web site at http://reid.senate.gov. I look forward to hearing from you in the near future.

My best wishes to you.

Sincerely,

HARRY REID

United States Senator
Nevada

HR:cs

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Tags: bailout, biggerpockets, biggerpockets.com, Harry Reid, housing, housing crisis, majority leader, senate

Down payment assistance programs or DAPs are the pet project of every Realtor and home builder lobbyists ever since they came into existence. However, HUD got courageous a few months ago and outlawed them only to them get resurrected by the NAR (National Association of Realtors) in a House bill and now by the home builder lobby, the National Association of Home Builders (NAHB), in the form of a provision attached to Obama’s stimulus bill.

DAP Revisited

Taking a walk down memory lane, we see DAPs as a method to get the seller to fund the down payment of buyer through a “non-profit” go-between company to make it all legit. Needless to say this encourages real estate agents and home builders to dig up every cash-strapped joker with a job and convince him to buy a house…which they did unabated for years…until HUD figured out the awful truth…

What was that awful truth?

1. Sellers simply jacked up the price of the house to cover the “down payment assistance”, immediately putting the buyer upside down or “underwater” on value.

2. Home buyers that used DAP defaulted on their mortgages at a rate 3 times the norm.

No big surprise there really. But the surprise comes in the middle of a financial crisis, DAP still has proponents that are NOT hung from the highest tree…namely NAR and NAHB. Talk about arrogant and self-serving. This persistence in pursuit of a dangerous financial structure which is as toxic as any subprime mortgage, borders on criminal.

Can you image what would happen if the President of the National Association of Mortgage Brokers sponsored legislation or tried to attach provisions demanding subprime mortgages get reinstated?

This just goes to demonstrate how much political clout Realtors and home builders enjoy that mortgage brokers don’t.

What Is Old Becomes New Again

Included in the stimulus bill just passed by the House, is a provision sponsored by NAHB requesting a tax credit of $10,000 to $20,000 for buyers of any personal residence. But their outrageous proposal allows the home buyer to get his credit now…to “monetize” the credit at closing.

This is just another dressed up DPA. The home builder lobby wants the taxpayers to fund down payments so others can buy a house with no money down.

But that’s not all…they also want Uncle Sam to pay for an interest rate reduction too.

The Housingwire.com reports it as,

The housing stimulus NAHB is advocating involves a temporary program that would be effective for any home — new, existing, or foreclosure-sale — purchased in 2009 as a primary residence. The buyer would not be required to repay the credit, which would range from $10,000 to $22,000 depending on the local mortgage limits regulated by Fannie Mae and Freddie Mac . The credit could be “monetized,” or moved up from the buyer’s tax return to the date of closing, to be used as the down payment for the home. It would act in concert with a federal mortgage rate buy-down, which would vary depending on which part of 2009 the buyer closed the purchase in.

Can you believe this?

After all we’ve been through in this financial crisis which was clearly caused by 2 million home buyers who were enticed by greedy commission chasers into becoming home buyers prematurely due to an abundance of “easy money”…could we still have NOT learned our lesson.

Is that possible?

I guess it is…

If this provision passes the only thing in the housing industry that will get stimulated is Round 2 of unqualified, unprepared home buyers being lured back into the housing market only to default a few years later.

This Round 2 housing crisis will further elongate a home price slump and our current recession.

Well, at least, the Realtors and home builders get what they wanted…

Tags: DAP, housing crisis

Well, there’s a least one person who won’t have to worry about his mortgage. Barack Obama goes to the White House, but what happens now to all his fellow Americans who are at the brink of being expelled from their homes?

If the truth be told, probably not a lot. Most experts agree that the real solution to the mortgage debacle is to allow bankruptcy judges to change the terms of a mortgage. But Congress will have to deal with this and the banking lobby is still very strong despite being fiscally weaker.

True, a president can try and bully things through Congress, but will Obama want to get into such a battle so early in his first term? My guess is, he won’t.

So, I think we will see a patchwork of different programs, most offered by the banks themselves, but none that will truly favor the home owner. Hope I am wrong, but something tells me I am not.

Stay tuned

Tags: barack obama, housing, housing crisis, obama

In the late 1990s country music star, Trisha Yearwood, had a hit song titled Walkaway Joe. The title of that song would be an apt description of many borrowers today. These people invested in real estate by leveraging themselves as much as possible. Many of them bought homes with little or no money down.

The softening of real estate prices has left many of these investors owing significantly more than the house is worth. A lot of people decide to walk away from the homes rather than fulfill the obligation that they signed for. They make a business decision based strictly on dollars and cents rather than feeling any moral obligation to repay the loan.

There will always be people that are blindsided by some catastrophe in life that sends them into foreclosure. Perhaps a job loss or medical crisis has impaired their ability to repay. I hope these individuals find a way to get back on their feet and find a way to get on with their lives. They are not the problem.

Born to Be a Leaver…

The foreclosure crisis has resulted in a blitz of advertisements from bankruptcy lawyers and others looking to capitalize on this mess. The media has portrayed those who are walking away from their homes as victims. While unscrupulous lenders, real estate agents and others may have preyed upon some of them, most of them are victims of nothing more than their own greed. They should have known better. Now they are being told that it is okay, or that the government will bail them out.

One company that has sprung up is You Walk Away, LLC, located in San Diego. Their Website states that they can help you live in the home for as long as 12 months without making payments or being hounded by creditors. What happened to personal responsibility and the stigma of defaulting on a large debt? Insanity.

Destined to Deceive…

It’s not just the small time investors who are abandoning their obligations. Just last week on the TV show, Inside Edition, former baseball star Jose Canseco made a stunning admission. He stated that he stopped making payments on his $2.5 million mortgage and is letting the house go into foreclosure. According to Canseco, “It didn’t make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else.” In essence he just decided that he didn’t want to pay anymore.

Guess who pays for all of this? The irresponsible borrower gets a break while the responsible one gets nothing. We all pay in the end. We now have a situation where lenders don’t want to provide loans to qualified borrowers. Can you really blame the lenders? If the consequences of not living up to your obligations are so minimal how can they trust anyone?

We’ve become a nation of victims. It seems so few people have any sense of personal accountability. It’s like the four-year-old kid with cookie crumbs all over his face who claims that someone else raided the cookie jar.

Everybody wants to take responsibility when you win, but when you fail,all these fingers are pointing. -Mike Krzyzewski Duke University

Tags: Foreclosures, housing crisis, Jose Canseco, mortgage crisis, personal responsibility, real estate

The last posting I had last week generated much discussion–I advanced the argument that the real estate mess we find ourselves in, and the resultant global credit crunch, is not likely to end anytime soon. And, that unless one happens to know what one is doing, this is not a very good time to learn the art and science of real estate investing.

Since just last week, the economic news had gotten considerably worse. In fact, I think that we are headed for a world-wide economic situation few of us have witnessed in our life times, unless we lived through the Great Depression.

Listen to this:

“Nothing of this scale has happened since the Great Depression. This is the toughest credit cycle I have seen in my years in the industry.”

That is a quote from Kerry K. Killinger, the chief executive of Washington Mutual, the nation’s largest savings and loan.

This week, Washington Mutual posted a $1.14 billion loss in the first quarter of 2008–the reason: the growing number of its mortgage borrowers going into default and eventual foreclosure.

Only a year earlier for the same period, the bank had a profit of $784 million. What a difference a year can make!

An enormous rise in foreclosures

The real estate data firm Realty/Trac, reports Reuters, says home foreclosure filings skyrocketed 57 percent in the year ended this March…..57 percent!!! And, bank repossessions went through the roof and beyond–rising 129 percent from just a year back.

And, it is far from over, folks.

“We’re going to see quite possibly a record amount of foreclosure activity in the third or fourth quarter,” Reuters quotes Rick Sharga, vice president of marketing at RealtyTrac, as saying.

Oil–the slippery slope

Making matters still worse, if that is possible, is that oil prices keep setting new records, week after week, if not day after day.

$114 a barrel on Tuesday–a staggering price that is contributing to the economic instability of the world’s interconnected economy.

We are way past being in trouble…but no one seems to really know just how past we are at the moment or what the near future holds?

Real estate may well end up being the eventual spark that will ignite a new fire to warm the economy up…but not now and not next week and maybe not even next year. Of this, I am certain.

Tags: foreclosure crisis, Foreclosures, housing crisis, Interest Rates, mortgage, oil, oil prices, real estate investing

The economy is sinking faster than a mafia hitman wearing cement shoes in water; and, the mortgage/housing crisis is clearly to blame.

Wall Street was apparently totally shocked today when the Labor Department reported that 63, 000 nonfarm jobs were lost last month….As Reuters points out, the problem is that Wall Street experts had expected that 25,000 positions would actually be added. So much for experts!

Stocks Down

This news helped send stocks into a tailspin, closing at their lowest level in 19 months.

Reuters points out that this bad news came at the same time that “jumbo” mortgage lender Thornburg Mortgage was unable to meet demands from creditors for upfront cash. Not good.

More and more experts are now saying the U.S. is in a recession, official or not.

And, the worst is yet to come. There will be still more foreclosures this year…many more. The credit markets are getting tighter despite Fed action. And, consumer confidence continues to go down.

It is no longer accurate to refer to this as a subprime mortgage crisis. Let’s just agree that this is a financial crisis, period! Okay.

Tags: Foreclosures, housing crisis, labor-department, recession, stocks, subprime mortgage, thornburg mortgage, Wall-Street

If anyone had any doubt that the subprime mortgage/credit crisis is taking its grim toll on other aspects of the U.S. and world economy, here’s a sobering figure:The unemployment rate skyrocketed to 5 percent (and,yes, that is considered high for the U.S. and a sign of a faltering economy) while employers added only about 18 thousand jobs last month.

Many economists are now saying this could be a critical warning sign that the nation’s economy is slipping into a recession—defined as an extended period of a shrinking economy and growing unemployment at the same time. Sound familiar?

There are predictions that the Fed, yet again, will lower key interest rates for banks in an effort to inject some energy into the economy.

The stock market, of course, took its own nose dive the day the negative numbers were revealed and there is little reason to believe that the market won’t continue its wild roller coaster ride.

Sure, there are other factors impacting our economy–oil prices hitting $100 dollars a gallon,political instability in many parts of the world (hint: Pakistan!) not to mention the steady decline of the U.S. dollar against the Euro.

But, even these can be linked back to the sub mortgage crisis in the U.S. which,afterall, really became a credit crisis long ago. Banks, governments,businesses and people do not like the notion that credit, in a credit driven world, is now hard to come by, even for relatively good customers.

True, the glut of unsold houses is bringing the price down, but people thrown out of work, or unable to find jobs, or credit or both, are not likely to be buying up all those hulking shells.

Yes, there are small parts of the country where we do see some light–but don’t count on it being at the end of the tunnel.

2008 is likely, think many economists, to be a year of still more foreclosures, ever tightening credit markets, fewer jobs and maybe even an honest to goodness recession.

See why when it comes to the real estate market here the knee bone is very much connected to the leg bone—and that bone appears to be fractured.

Tags: Foreclosures, housing crisis, mortgage, oil, subprime