Bank Logic

As I continue to hit my head against the wall, the wall now known as banks, it's good to see it's not just me! Another blogger tells a story of the frustration out there.

And, in a related development, apparently an asset manager for a major bank was on a news program this week saying that the banks are deliberately slowing things down. This gentleman said that the purpose of doing this was to spread out the losses over time so that their numbers don't look as bad.

Well, it's the first rational explanation I've heard for the banks behavior. But I'd argue that it's only rational on its surfact. As soon as you begin to think about this a little more deeply you have to question that strategy.

Pricing will not, can not, recover until the foreclosure and short sale inventory gets cleared out. The longer that takes, the more prices fall. So, the properties that the bank moves to the back of their list will simply be worth a whole lot less, thus increasing their losses. Yes, they may be more spread out, but if the bottom line impact is worse, what have they gained?

Clearly I don't think like a banker!

Getting A Mortgage After Foreclosure

With more and more families locally going through foreclosures or short sales, the question is going to become, when can they get another mortgage?

Well, we finally have some guidelines from Fannie Mae, Freddie Mac, FHA and VA. Courtesy of Beth Goodwin at First County Mortgage, here's what they look like:

You can also reach Beth on her e-mail at beth.goodwin@firstcountymortgage.com

Stopping Foreclosures

There are some interesting things happening around the country in an effort to stop foreclosures.

The New York Times details the story of an Atlanta woman and her successful battle to save her home.

The Wall Street Journal takes a wider look at judicial activism in the foreclosure arena.

And, San Diego has decided it wants to become a foreclosure sanctuary.

One thing everyone should get from these articles, if you're facing foreclosure and want to save your home, talk to an attorney! You may have more options than you think.

Maybe More Banks Should Go Belly Up?

IndyMac was seized by federal regulators last weekend. They've just announced that they're stopping foreclosure on all their mortgages. This article in the Wall Street Journal details the takeover and this freeze.

Maybe we should be rooting for more banks to fail! If foreclosures fell significantly I suspect we'd see stabilization of home prices much more quickly.

If you're in trouble on your mortgage, start rooting for your bank to fail!

Fannie and Freddie

The bigger they are the harder they fall.

That statement definitely applies to Fannie Mae and Freddie Mac.  Unless you've been under a rock the last week, you've heard about the trouble they're in.

Fannie and Freddie are a big part of why your local bank can offer mortgages. The bank loans you the money to buy your house. But it's going to be a long, long time before they get that back. And, it doesn't take too many mortgage loans before they're out of money to loans. So Fannie and Freddie buy mortgages from your bank. Your bank then has money to make another loan. This keeps a lot more money available for buying houses. It also keeps mortgage rates lower.

I don't think anyone feels good about the steps the government is taking to shore up these two behemoths. This is not how the free market is supposed to work.

But Fannie and Freddie have never really been pure capitalism at work. They are an odd blend of a corporation and the government entity.

Something had to be done now to keep the real estate and financial markets from further imploding. But I think there needs to be a short term strategy, meant to keep the markets calm and functioning and a longer term strategy that looks at the functions performed by these two entities and how those functions are best performed.

My belief is that if Freddie & Fannie weren't allowed to buy any more mortgages, eventually, another entity (and hopefully 3 or 4) would be created to fill that void. So, long term, how do you begin to ease Fannie & Freddie out of the business or at least into a smaller role.

The biggest problem here may be the shareholders of these two corporations. But, given what their stock prices are doing, it shouldn't be long before they are easy pickings for an enterprise that's truly commercial.

Now, does the political will and the creativity exist to envision something different than our current mess?

Short Sale Story

My first post now that I'm back from vacation and I thought I'd let someone else do most of the writing.

Besides, this story is just too good (and, unfortunately too typical) not so share with you!

Lenders still don't get it!

And, why do they keep proclaiming publicly what a good job they're now doing of helping consumers work these things out?!

Hogwash!

Tougher Lending Standards

I saw this article on Friday, but I hate to go into the weekend on a bad news note! So, I saved it for Monday! Just what you needed, right?!

There are still buyers out there. There will always be buyers out there!

The pool is small and you're going to have to knock yourself out to get them to your house. And, if they're not coming to your house, it's over priced!

And, this article from the New York Times will probably interest buyers and sellers. The numbers here are national. (Our local numbers are worse.) But I think the letter to sellers is a good idea. Sellers, given the inventory in Culpeper, Rappahannock, Fauquier and Warren counties, I don't think I'd try the letter to the buyer. They really do have all the cards right now!

Foreclosure Reality

The Federal Government, through the Hope Now initiative, has been painting a surprisingly rosy picture of the number of homeowners they've helped.

The real numbers show a lot less reason for optimism.

Unless someone figures out a way to keep people in their homes and stop the downward spiral of prices, we've got a ways to go in this downturn.

The preliminary numbers I've looked at for April confirm that things are not looking up. More on that next week.

WSJ Article on Short Sales

This Wall Street Journal article was too interesting to leave for another day. If you're interested in buying a short sale, or contemplating a short sale on your own property, you should definitely read this.

Mortgage Information Map

This is an interesting map tool showing various non-prime mortgage stats in a US map format. You can choose the kind of information you want, enter the zip code you're interested in and see the detailed info.

The map is courtesy of the Federal Reserve Bank of NY. Given that, I tend to think the information is pretty reliable.

The good news is that we don't appear to be in particularly bad shape. I looked at some of the hardest hit zip codes around, including Prince William and Culpeper, and didn't see anything that looked particularly ugly.

Wouldn't it be nice if it felt that way!?

Banks Sitting on Properties

Is this happening locally?

I've been watching a house in Warrenton that appears to have been taken back by the bank, owners are long gone, and yet it's never been put up for sale, or even auction. I've been wondering about what's going on and this may provide an answer.

I'm going to attempt to investigate this particular property further.

If this is happening, think about the potential revenue implications for the local jurisdictions! Prince William thinks they have a revenue shortfall now!

Meanwhile, does anyone else have any anecdotal evidence that this is happening?

FHA Mortgages

We're seeing a few more FHA mortgages this year. They had fallen out of favor during the boom years. And, for buyers it's a great thing that they're back.

The benefits to buyers are a reduced requirement for down payment (3%), lower loan costs, easier qualification and, some additional home inspection protection.

There are some down sides if you're a seller, however.

The big one is the FHA appraisal. This is not your standard appraisal where the appraiser is looking at the market value of the home. It is that; but it is also another home inspection. A transaction can sail right through the home inspection contingency with no issues. Then the FHA appraiser looks at the house and decide that there's a problem that MUST BE FIXED before settlement can occur.

Unlike with the normal home inspection, this is not a negotiation. If the seller finds himeself unwilling or unable to complete these repairs, the deal is usually dead.

The home inspector may have thought the roof was in perfectly good condition. The FHA appraiser can decide that the roof needs to be replaced.

If you're the buyer, this can be terrific. The FHA is trying to prevent you from having to buy a new roof shortly after you've bought a home.

If you're the seller, you may not be as thrilled.

The other, much smaller issue, is that there are some fees associated with a settlement that the FHA will not allow a buyer to pay. Typically these are small amounts and I've never seen this jeapordize a transaction.

You can see why, when houses sold like hot cakes, it was hard for anyone to buy a home with an FHA mortgage. If there are several offers, I'd likely advise my seller client to choose the non-FHA offer.

Still, in this market, if the only offer you've got is one with an FHA mortgage, I'd say grab it and keep your fingers crossed!

Corrections and a Sunnier Outlook

In the Fauquier Times Democrat Weekend paper, I'm quoted in two separate articles. The first one "Few Find Escape From Threat of Foreclosure" is on page one and continues throughout the paper. The second, "By The Numbers" is on page 3.

The second article is basically information taken from one of last week's blogs. No problems there.

The problem is in the front page article. First of all, thanks to Laura Ruby for putting this together. It's good to see local coverage on this, along with some helpful information. But, there are some inaccuracies in the article that I'd like to address.

Dave Bryan says that "97 percent of homeowners facing foreclosure will, in fact, lose their homes, leaving only three percent who are able to actually come to some sort of agreement with their loan servicer."

I've spent hours trying to verify that number. I can find no documentation to support it. I finally called Laura Ruby to find out if Dave had cited a source when giving her that quote. He said "he had read it somewhere."

So, just let me say that after trying NAR, Mortgage Bankers Association and realtytrac.com and being unable to verify that number, I have serious reservations about it. My experience is that the number is nowhere near that bad. And, I'm concerned because I don't want families to think it's hopeless!

I then made calls to agents, lenders and organizations designed to help people with these issues. No one had specific numbers. But no one believed that the numbers were anywhere near this grim.

Keep trying! It is not hopeless. Every situation is different!

Another paragraph says "When homeowners have a second mortgage, short sales are virtually impossible, as that requires the approval of two loan servicers."

A first and second mortgage certainly make things even harder. But I've successfully done short sales with two mortgages. Again, it's not impossible. But you've got to be willing to take on the battle!

The last piece in here that I disagree with is from Dave Bryan again. "If you get behind two or three months, it's too late. You won't be able to sell it before it goes to foreclosure."

Again, absolutely not true! In fact, you can't do a short sale until you are behind on paying your mortgage! Again, I've done this for clients and it's worked! You do have to very aggressively price your home. If the home languishes on the market for months, eventually it will move into foreclosure. Then you'll have lost that window of opportunity. And, some short sale homes are in such terrible condition that it's tough to price them low enough to find someone interested. But I'd never say it's impossible!

My big concern here is that not enough homeowners are seeking help now because they feel overwhelmed and hopeless. They need to reach out for help early. But most importantly, they need to get help, whether it's early or not! There are very few times I walk away from someone and tell them there's no hope!

Ask for help. Be aggressive! Don't take "no" for an answer! I can't guarantee anyone a win every time, but your odds are a lot better!

Condominiums and the FHA

We've got a guest blogger today: Vince Tricarico with First Savings. If you have questions you can reach Vince in his office at 703-827-4634 or on his cell at 703-283-7484.

Creativity Abounds

Sometimes the optimism hits me, even on a Monday morning.

You've heard the old saying "Necessity is the mother of invention." In the same way, crisis often seems to bring out a flood of creativity.

So, on this Monday morning with dismal economic news continuing to bombard us, it's nice to see a blog post with another interesting suggestion on how to help fix the housing market.

Three Boxes

Squatting in Your Own Home

Friday Wrap Up

There are a few items I'd like to touch on so it's a bit of pot luck!

If you didn't see this article on home equity and the changing rules in the Washington Post, you should take a look. Banks are changing the rules, even on existing home equity lines of credit. If you have a home equity line of credit and haven't heard from your bank yet, here's a heads up. (My two cents: taking money out of home equity and paying 8% interest and putting it in the bank at maybe 3% interest is a BAD, BAD move!)

The homestead property tax exemption that was being debated in the Virginia legislature has gone down to defeat. Lobbying by business interests who were convinced that businesses would have to pick up the slack in revenues for the localities killed it. For those of you looking for a little property tax relief, it's not coming via this vehicle. More on property taxes next week.

Flor is a company I've been wanting to spotlight here. I love their commitment to the environment, the fact that they have the lowest VOC output of any carpet product and the ability to recycle their products by sending them back to the company. Check out their very cool products!

Lastly, VAR (Virginia Association of REALTORS) is having a blog contest to coincide with March Madness. If you like this blog, please click this link:

Friday Tidbits

There are lots of little bits of information so thought I'd do a blog post today that just hits a few different topics.

As part of the stimulus package that both the House & Senate have now passed the loan limits for Fannie Mae and Freddie Mac have been increased. This has the potential of helping stabilize the housing market since those with an ARM on a house worth more than $417,000 may now be able to refinance more easily. That may mean fewer forclosures which may mean less downward price pressure. See this CNBC article for more information.

The Virginia Housing Development Authority (VHDA) has been a great source of mortgages for first time home buyers in Virginia. Unfortunately, they're not immune to what's been going on in the credit markets. They've suspended some of their programs and they will now only loan up to 97% of the value of the home. This will definitely hurt first time home buyers in Virginia and the sellers who hope to sell to them.

You've heard the old adage "work like you don't need the money". These days it's a tough one, but I'm proud to say I've run into a lot of my fellow real estate agents lately who are living this. (Trust me, most of them DO need the money!) These are the days I'm proud to say I'm a REALTOR.

The VA Senate finance committee approved SB768 on Wednesday. This reduces the cash proffers that builders must give to communities for roads, schools, hospitals etc. that are needed to support new development. This is an incredibly bad idea. Theoretically the idea is to reduce the cost of homeownership.  In reality it will force many communities to halt new development. This deserves its own blog post and I'll get to that down the road.

Happy Friday!

Signs of Light?

One of the blog posts I ran across today is very interesting. The bottom line is that mortgage applications have steadily risen in the last six months and that there's some reason for hope in this.

Now, first of all you should know that the vast majority of those applications were to refinance. Very few of them were to purchase a home. However, many of them were people refinancing out of ARMs. To the extent that homeowners are able to do that, we are likely to see fewer foreclosures and short sales going forward.

In my opinion, there is nothing more likely to put a bottom on this market than an end to the flood of foreclosures.

This would suggest that 2008's market might be a little more vigorous than we thought. And I'm certainly seeing more activity on lower priced listings in Fauquier county. That hasn't spread as much to some of the surrounding counties; not yet anyway.

I've got my fingers crossed that these numbers continue through the year. A little good news in the depth of winter is always a welcome thing!