During the Clinton years, it was, “it’s the economy, stupid!” Now, without doubt, “it’s the mortgages, stupid!” Without a major fix, the global economic meltdown, most experts say, will only grow worse.
And, if you think that is not possible, just check out the value of GM shares! They’re so weak, you can almost trade in your current GM vehicle for the entire company!

Individual banks have been lining up to announce they have come up with plans to help people who are on the verge of foreclosure. These plans don’t go far enough or help enough people.

The Government announced yesterday, a “plan to ease mortgage payments for troubled borrowers through finance giants Fannie Mae and Freddie Mac,” according to Reuters.

But even this is probably not enough.

A New York Times report paints a stark and scary picture of the housing situation in the nation at the moment. The article quotes a real estate data company’s findings that 7.6 million homes in the U.S. are “underwater” (the new term for negative equity)–and more than 2 million more are about to fall off a cliff.

And, one poor California town, Mountain House, has the dubious distinction of having about 90 percent of all its homeowners owing more on their mortgages than the actual worth of their houses!

Clearly, the government must do more…a lot more…to stop these homeowners from, understandably, walking away from their devaluing homes.

The solution will by its very nature be unfair to those who borrowed wisely and are continuing to pay their mortgages. But, when a town has 90 percent of its home owners in negative equity–with more towns to surely follow–fairness becomes less important than being practical.

Whether you voted for Barack Obama or not, you have to almost feel sorry for the guy, taking office with the expectation that he will save the U.S.—the world—from further economic ruin.

A new AP poll just out shows 7 in 10 people–an amazing 72 percent– “voice confidence the president-elect will make the changes needed to revive the stalling economy.” 44 percent of Republicans reportedly feel the same way!

But “Superman” doesn’t fly into Washington to save the nation till January 20th and many bad things can happen till then.

That is why Bushman, if he has any sense of legacy, will use the same awesome executive powers he used to subvert the Constitution to help jolt the economy.

A lame-duck Congress was a possibility…but leaders there don’t feel much like calling one if Bushman is going to stand in the way.

As the saying goes—-lead, or get out of the way! That’s a hint, George.

Photo Credit: DifferentObamas

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Tags: fannie, foreclosure, foreclosure rescue, freddie, housing rescue, mortgage, paulson

With the market’s level of volatility similar to that of a six-year-old at a candy store, it’s no real surprise that the reverse mortgage market is booming. Okay, maybe ‘booming’ is generous, but let’s say relative to the reverse mortgage market’s performance pre-market-downturn… a few more nodding heads are certainly evident.

Retirees (or should-be retirees) who’ve spent a lifetime busting their proverbial behinds to build a comfortable future are finding their retirement fund severely diminished to the tune of 30 to 40 percent. The result? Exponentially increasing difficulty to pay their mortgage, manage increasing medical bills (with decreasing coverage) afford the cost of living, or simply retire when they’d planned. Fair? Not so. Not for those who deserve better, or who need better… who need to retire for the sheer sake of health.

Reverse Mortgages Explained

And that’s where a reverse mortgage can really benefit homeowners who are 62 and older. Quick definition for those unfamiliar: Reverse mortgages are exclusively for homeowners age 62+ and allow you to eliminate your mortgage payment if you have one, or if you own your home free and clear, you can stay in you home and use your home’s equity like income… and never make another monthly mortgage payment for as long as you live in your home.

But here’s what gets me—as a product of incredibly hard-working parents. There are two major challenges among senior homeowners in need, that stop people from considering a reverse mortgage.

1. A lack of understanding about the program itself: Benefits, qualifications, risks, fees, myths, etc. This is purely understandable. Without a good understanding of the product, the idea of tapping into your home’s equity without making a payment is so foreign and seemingly surreal that homeowners—particularly older homeowners who are necessarily cautious of fraud—are very hesitant to ‘buy in.’ Makes perfect sense.
2. But the real mystery to me is The children of these homeowners. The children of these homeowners object to their parents pursuing a reverse mortgage, even when they’re in need of additional income. Why would this be? Because they’re afraid their parents will be taken advantage of? Not usually. Most of these programs are government-insured, with guidelines set by the Federal Housing Administration. Not to mention that there are scads of sources from trusted organizations ripe with explanations on the product. So what’s with the kids? What interest do they have in this transaction? Well, when you get a reverse mortgage, your home’s equity is paid out to you. Which means there’s less equity left in the house once the owner no longer occupies the home. And what’s another word for equity? Inheritance.

It’s this group of protestors that is purely beyond me. As far as I’m concerned, you can dislike the concept of reverse mortgages all day long for any reason… EXCEPT this one. Talking a parent out of a comfortable retirement… or a retirement at all… (funded by their own hard-earned dollars mind you) for the purpose of preserving inheritance is puzzling to say the least. Some “children” of seniors cite the fact that they were “promised” this inheritance, or they built their financial plan around one day getting it, or that this was the only way they were going to achieve ultimate comfort in their own lives… One inquiry on a public online forum asked, “How can I talk my dad out of a reverse mortgage?” then proceeded to cite personal interests.

If I can interject my own opinion here, all I can say is: “Not in this market” (followed closely by, “You kiss your mother with that mouth?”). First, there are still ways to preserve equity in your home with a reverse mortgage or preserve the money you receive from your reverse mortgage in an interest-bearing account. (A financial advisor or reverse mortgage counselor/banker would have a line on this.)

Second, it’d be nice if we could all agree on this: With the cost of living on the rise and retirement funds getting as much endangerment press as the polar bear (without the heartstrings), senior homeowners deserve the first right to their own money and they deserve to know how they can use it to their benefit without anyone’s interest but their own in mind.

Photo Credit: cogdogblog

Tags: housing, loan, mortgage, retirement, reverse mortgage, reverse mortgages

On Burning Your Mortgage

As you may know I co-own an insurance agency with my son. To say we have a varied clientele is to understate the characters in our portfolio. I write this first piece based on one of them.

Actually they are a couple who paid off their mortgage and were ecstatic. It turns out they paid their mortgage close to the day they had to renew their home owner policy. Pretty mundane stuff until the Missus made the announcement her and the old man were going to burn their mortgage.

They meant they were going to burn the original paperwork tehy received at the title company. You know, the papers that say it is over and done, you don’t owe us anything any more. It goes by Deed of Re conveyance and one or two other names but, no matter, it is an important document.

I know I don’t have to tell this audience not to burn those final papers but rather burn a copy of them if you just feel the urge. Regardless of the recording of the fact that you actually are out from under the mortgage monster you just may need to have that silly thing handy. Even if you never need it, keeping the original mortgage is a superb idea.

By the way, let’s say you are the proud parents of a paid in full mortgage. From an insurance perspective, don’t cancel your home owner policy either. While none of us believe our house will burn down or the tree on the south corner won’t get hit by lightning and collapse our roof, stuff happens.

So I don’t sound like I’m giving a lecture on insurance, I’ll move on to tidbit #2.

True Story That Happened In My Backyard

We have all been warned numerous times about NEVER hiring anyone who knocks on our door and tells us he will do such and such a job on or around the house for a bargain basement price. Since we live on a piece of property with numerous trees and bushes, trimming said nature’s gifts and raking leaves is part of ownership.

I guess my wife thought I hadn’t been attendant enough to these aforementioned chores because one day I came home and there was this guy whacking away at the bushes, pulling out some others and trimming the hedges. Not all at once but the remnants on the ground told me what he had done.

I walked into the house and asked who was the guy with the clippers hacking away at anything that looked like a bush. She said it was a guy who said he lived around the corner and he’d do all the “yard work” for only $XXX. She thought that was a good price and gave him the go ahead.

The answer to is he licensed, bonded and insured made my heart sink. Yes, it was no. This guy knocked on our door and was given the job. My wife said she wanted the place cleaned and spruced up and he said he would do it.

Mind you, wife mate is the one who lets her fingers do the walking through the yellow pages and checks out their licenses and references before she hires them to do the work. OK, used to check out that kind of namby pamby stuff.

To make a long story short, the result was a disaster. Lesson re-learned: NEVER hire a guy who knocks on your door and says he will do such and such a job on or around the house for a bargain basement price.

I mention this not to point fingers at my wife but to serve as a reminder because a momentary lapse like this one could result in a whole bunch of heartache, headache and backache. Imagine if he was hired to do a kitchen remodeling, driveway repair, etc.

In our area, we experience a lot of door knockers willing to do almost anything for a bargain basement price. If you are in the same boat, keep our adventure in mind. It will save you a lot of money, time and energy.

Photo Credit: doortoriver

Tags: handyman, mortgage, Mortgages, service

Zillow published a report today showing in fast relief just how out of touch the average home owner is when it comes to evaluating their own homes value.

Zillow’s survey says that half of home owners think their homes are worth the same as they were a year ago. 32 percent believe their home went up in value and 17 percent feel their home decreased in value.

Compare this to the reality that about 75% of all homes lost value since last year…we see just how delusional home owners really are.

It’s hard for me to fathom how the American public with hour after hour of news coverage on the real estate crisis, could still be so colossally blind to the truth.

Are they burned out…are they sticking their heads in the sand?

Is it too much to take to recognize the house you paid $400,000 three years ago is really worth only $200,000 today?

It just so happened a few minutes before reading the Zillow survey, I’d heard a pundit on CNBC say, “All across the US, the only real estate market is the foreclosure market”…meaining the only sales being executed were those done between banks and investors on foreclosures. He mentioned in some locales 80% of all resales were foreclosures.

If home owners’ perceptions are so glaringly wrong about the values of their homes, I can see why the “only the real estate market is the foreclosure market”. Folks who can’t face the truth don’t price their home to sell and the market shouts the truth at them…usually in vain.

It dawned on me if home owners don’t get their expectations in check, put their homes on the market at realistic prices, it won’t matter how loose or tight mortgage underwriting is or whether Bernanke can get mortgage reform passed.

It won’t matter because, there will be no one standing in line to borrow!

This is potentially more dangerous than a banking crisis. It’s like have a party and no one shows. Bernanke and Paulson are busy saving the banks and mortgage securitizers so the mortgage industry can stay operational for all the new borrowers once this hiccup is solved. But what if after all that, American’s can’t find a house to buy at a market price and sit on the sidelines?

It’s what happened to Japan when they hit the wall. Their central bank dropped rates to zero and still couldn’t get people to borrow.

What if the banks, now that they have government support, hang on to their foreclosure properties deciding to wait for a better market in which to sell? Between asleep homeowners and greedy bankers, the real estate market could be the next big “freeze”.

There is only one thing worst than dropping home values…frozen home values. At least if they are dropping, an end is coming. With frozen home values, a state of limbo exists.

This would really be the nightmare scenario everyone is trying to avoid. This is why Congress is having such trouble putting money in the hands of foreclosure victims. They don’t want to do anything that will stall the dropping of home values. They’d better watch out. If they give the banks too much support, there’s no motivation to liquidate foreclosed homes either.

As the Zillow report reminds us, you can’t legislate intelligence or awareness…and without it, our housing market could be in for the freeze no government or banking official can do anything about.

Yikes!

Tags: bailout, foreclosure, housing bailout, mortgage, REO

Great. Taxpayers now own banks, investment houses, probably an auto company or two before long, and the British have shown that, despite having lost their empire, they still know a thing or two about handling a financial crisis that the U.S. and others can take lessons from…

But does this mean that people who were on the cusp of being kicked out of their homes are all of a sudden safe –if not sound–once again?

The wolf may not be at the door, but he is still lurking just around the corner, for sure.

We keep being told that these massive government measures are aimed at helping Wall Street as well as Main Street–and, to some degree, this is certainly true.

And yet, we still do not have a firm plan in place that has as its primary purpose the preservation of home owners facing foreclosure. The housing plan passed earlier this year by Congress still hasn’t had much of an impact. And, one can only wonder whether the government buying stakes in troubled banks will actually force them to amend the mortagage terms of their most troubled clients?

If banks are really going to use their new financial lifeline provided by taxpayers to extend a helping hand to home owners, why are they still so vigorously opposed to changing the bankruptcy laws to allow judges to amend mortgage terms to help people stay in their homes? Most experts think that is the best way to ease the housing crisis, so why are they trying to block it at every turn?

One can’t help but wonder whether the big banks will take the money and help themselves while giving the cold boot to the rear ends of cash starved homeowner/clients?

90 days?
Barack Obama is proposing a 90 day hold on any pending foreclosures, but is that really going to help much? Seems a bit like a band-aid being applied to a cancerous mole. But McCain’s notions don’t really seem better. So, on this front, it may just end up being a draw.

What should have Americans really worried, if they are not already, is the lack of political leadership across the board. Neither Obama nor McCain have exactly been ahead of the curve on this one. And, the Bush administration is apparently taking its bailout cues now from the U.K.–talk about Masterpiece Theatre!

The more things change, the more they stay the same?

The other day, I received in the mail an invite of sorts from WAMU–now Chase–telling me how I could, if I qualify, get a nice, cheap mortgage at incredible rates. Odd, isn’t this how we sort of got into this mess allegedly in the first place? I know, the bank will no doubt say that what has changed is that it will now actually try and make sure that it only lends money to those likely to pay back. But, one can’t help but wonder, what with the US government pumping billions into these institutions, whether or not they won’t quickly revert to their past practices? That WAMU letter I got would suggest that is a real possibility.

If it does start getting easier to get credit, then, it would stand to reason, those cheap homes now on sale all over the country should be bought up fairly quickly.

But homes prices are still expected to drop so , even if credit become more available, buyers may still elect to stay on the sidelines waiting…which would only bring home prices down more.

Also, some economists are now predicting–even with this massive bank rescue plan–that U.S. unemployment may rise to more than 8 percent this coming year! Not great news for the housing market, either.

Don’t let the current excitment fool you. We are not out of the woods. Not by a long shot.

Photo Credit: kyz

Tags: bailout, banking, banks, Economy, government bailout, mortgage, REO

I promised you last week after outlining my belief the “frozen credit markets” was a contrivance by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson, I’d spill the beans on why the dynamic duo wanted to lay their hands on $700 Billion since it wasn’t needed to thaw out anything.

So here goes..and I warn you it’s a little radical…but given this weeks events, I’m even more convinced it’s true.

My Theory on the Fed’s Bailout

As we discussed last week, the TED spread is the measure everyone is using to show how frozen the credit markets are and to repeat, this measures the willingness of banks to lend to each other.

The current story is the banks that formerly lent to each other at .5% now won’t lend to each other at 4.5%…and the TED spread proves it. Paulson and Bernanke used this “fact” to extort $700 Billion from Congress for the expressed purpose of ‘buying the toxic loans’ (I never bought that “toxic loan” story. The banks already took the hit, so how does getting a few dollars for yesterday’s writeoff help?) which are causing banks not to trust banks. Once those bad loans are taken off the backs of the banks, the fear to lend bank-to-bank will disapper…frozen credit markets thawed…crisis averted.

There’s only one thing wrong with this story…it’s not true.

Did anyone bother to ask if there might be another reason banks don’t want to lend to other banks?

The real reason the banks still left with capital (ie. Wells Fargo, JP Morgan, Bank of American…a few other mega-banks) don’t want to lend to the those banks who need it is simply because they don’t want to.

Yep, that’s right…they don’t want to.

If you were them, one of the Big Three, why would you lend to a small regional bank when withholding the loan will most likely make the bank a takeover opportunity for you at pennies on the dollar once the FDIC closes them down due to (because they couldn’t raise the capital) failure to meet reserve requirements?

You wouldn’t. You’d let them go under.

Big banks are withholding loans so under-capitalized banks fail. Once the under-capitalized banks fail, invariably the FDIC brokers a buyout to one of the Big Three or another mega-bank. This is market consolidation at gun point, but it’s working. Two more regional banks failed today.

To support my hypothesis, over the last couple of days, Paulson has saber rattled about buying a direct stake in some banks (an idea he never mentioned as the bill was getting debated in Congress) seemingly frustrated by the lack of “thaw” so far. This means the few big banks are going to get Treasury money to continue their buying spree. Buying failed banks even at pennies on the dollar costs money and they just as well use Hank’s money (I mean your money) as their own.

What Hank doesn’t spend help big banks gobble up small ones, he’ll use to appease our foreign credit buyers. A little unintended consequence of an artificially raised TED spread is a stock market tumble and confused foreign central bankers.

Simply call a quick meeting of the G7 financial leaders to calm their worries…and that is taken care of. Watching the stock market fall has it’s up side. It lends further credence to the whole “frozen market” cover story and puts even more pressure on those banks on tilt.

The biggest consolidation of banking, investment, and mortgage power, after all this over, will rest with just a handful of companies…companies hand-picked by Ben and Hank. Call me a quack, but in a few years when you have only 4-5 companies to pick from to get a checking account…it will be too late.

I really hope I’m wrong…

Photo Credit: SmileMyDay.com

Tags: bank, banking, Credit, credit markets, housing, lending, mortgage, paulson

As the financial markets melt down will there be anyone left to invest?  Or better yet, are there any lenders available to finance investment properties?

I received this email today from a client and I feel that is important for a couple of reason, both which we will get to later.

Hi Troy,

I was wondering if you could find Jason and me a loan for a rental. We currently have 7 rental properties and have been told 4 is the new limit.  Is there any way around this?

Kim

My reply:

Kim,

I do have at least two lenders that still allow borrowers to finance more than 4 properties.  These particular banks do not have a limit to the number of properties owned individuals, just have to be able to qualify.  Here is a brief overview of the guidelines:

• 75% Loan to value
• 6.75%  30 year fixed interest rate
• 1% prepayment charged if paid off in first three years (.5 fee to have n prepay)
• Full documentation of income

If you would like I can put together some numbers, please provide me with the details.

Thanks, Troy

She followed up with:

This great news! I am cc:ing Jason to this so he can follow up with you. We hae been considering buying stuff at auction to use as rentals but had heard we would not be able to get loans.  Thanks for your quick response.

I share this with you for a couple of reasons.  There is a great deal of opportunity and optimism about the investment market place.  While there are thousands of people in peril, there are still a large number of individuals that can take advantage of low low prices, selection of inventory,low interest rates and the number of quality renters.

Why is now the time to buy?

Here is a look at appreciation from The National Association of Realtors.  

Real Estate markets across the nation are already going up.  The west is the last region trending down, but it soon will turn as the foreclosures purge themselves from the market place.  In Phoenix, Arizona you can buy some homes for less than what it cost to replace them.  This indicates that the bottom is soon to come, just like other regions.

For those that can buy real estate please do not follow media headlines during a Presidential race.  Follow the facts, numbers and statistics.  

Tags: borrowing, lending, loan, mortgage, real estate investing