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New HUD1 Coming

Date: Dec. 1, 2009
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Starting January 1st the HUD1 settlement statement is changing. The new HUD1 should be easier to read and also help consumers determine whether the Good Faith Estimate that they got from their lender was reasonably accurate.

Between now and January 1st, I'll cover several different aspects of the new form.

For now, here's a link to HUD's web site where you can see the form for yourself.

Take note of all the places on page 2 where you see notations such as "(from GFE #1). These will show you exactly where on the Good Faith Estimate (GFE) to look to make sure the numbers are what you anticipated.

That alone is a good reason to like this new form!

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Tax Credit Extended and Expanded

In case you haven't heard, President Obama signed the law extending and expanding the home buyers tax credit into law today. Here's what it means for you:

Tax Credit for Homebuyers
First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000.
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.
Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.
What are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.
Tax Credit Versus Tax Deduction
It’s important to remember that the tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a first-time homebuyer were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.
Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!
Higher Income Caps
The amount of income someone can earn and qualify for the full amount of the credit has been increased.
Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible
Joint filers who earn up to  $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.
Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sale price of $800,000.
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No Money for Us

Governor Kaine announced the Virginia recipients of the Neighborhood Stabilization fund grants yesterday. Unfortunately, neither Fauquier or Culpeper made the cut. Incredibly, Prince William county doesn't appear to have gotten a dime!

This would have had a small impact, but every little bit helps.

There was a little money given to Shenandoah, Frederick and Warren counties, $2.5 million for all three combined.

I'm not sure you could argue they are harder hit than places like Culpeper. In fact, I'd make a pretty good argument against that.

CLARIFICATION/CORRECTION:

It appears Prince William got funds as part of an earlier $7 million award, along with Fairfax county.

The original announcement said there was $20 million available for the Open Submission portion of the program and another $10 million available for the Competitive Program. Between the $17.5 announced yesterday and the earlier $7 million awards, there should be another roughly $5 million available. So there may yet be funds available for Fauquier and Culpeper.

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The Housing Rescue Plan

I'll admit I'm disappointed. I am underwhelmed by this package.

Will it help some additional homeowners? Yes, absolutely. Will this have a serious impact on the overall housing market? I seriously doubt it.

First, the plan is that if you owe more than your home is worth, you'll potentially be able to refinance at a lower interest rate. There are financial incentives to both banks and mortgage servicers to do these loan modifications.

Here's where I see the problems.

First of all, the new first mortgage must not exceed 105% of the current value of the home. The problem is, most of the people in trouble are much further in the hole than this. If you bought your home three years ago, put almost no cash down and have seen the value of your home decline by 40-50% this plan is of no help to you. And, that's a pretty common scenario in this area.

This plan is still entirely voluntary on the part of the lenders. Like every other plan announced thus far, it depends far too much on banks being willing to participate. There is a little carrot here, but it's a very small carrot that seems unlikely to be very effective.

The plan still does not require any reduction in principal. Until the banks are required to reduce the principal, to take their lumps, I don't believe this problem gets fixed.

And, maybe just as importantly, as long as the banks books continue to not reflect the real value of homes, I don't believe they can ever recover, nor will their stock prices.

It's a wishy washy plan and I'm disappointed.

The $8000 tax credit in the stimulus plan will do more good than this.

2/20 7:30 p.m. update:

I've been reminded that the details aren't going to be available until March 4th.

I've also been reminded that there will be a mandatory component for those banks that took TARP money.

I hope I'm wrong and this is wildly successful!

 

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Time to Help Homeowners

The Huffington Post's lead story today is a suggestion that it's past time for the government to pay less attention to helping banks and more to helping homeowners.

The story is dead on in its cataloging of the ill effects of foreclosures on the rest of the economy.

And, if there were no foreclosures the banks would not be in trouble in the first place!!

I'm stilling trying to figure out why this hasn't sunk in to anyone but Sheila Bair at the FDIC.

I'd also like to know when Virginia will adopt the Philadelphia Residential Mortgage Foreclosure Diversion Program.

If tomorrow's announcement by the President isn't "good and solid and big and bold" I hope homeowners everywhere scream bloody murder!

 

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Update on Stimulus Package

There are now two versions of the Stimulus Bill, a House version and a Senate version. You can compare the two versions on CNBC's website.

The $15,000 tax credit made it into the bill. The reduced mortgage interest rates did not. However, there's some talk about stripping the tax credit in the conference. Now might be a good time to talk to your legislator!

There is still some hope for the reduced (4%-4.5%) mortgage interest rate. The bill allocates $50 billion for the Treasury to use to reduce the incidence of foreclosures. Lowering interest rates would certainly help in that effort.

Stay tuned!

 

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The Real Estate Stimulus

The Senate, yesterday, passed an ammendment to the stimulus bill that would create a $15,000 tax credit for home buyers for the next year. It would apply to anyone buying a primary residence, new construction or an existing home. It passed by unanimous voice vote and appears to have no serious opposition.

That doesn't ensure it will still be in the final bill, but the odds appear pretty good.

Today the Senate is likely to vote on a provision that would lower mortgage rates for purchases or refinancing to 4.5% or lower. Again, it seems like there's a good chance of passage.

All this is very good news and could bring out a lot of new buyers in the next few months. And, one senator suggested that this would not be the end of the help for the real estate market.

Are we about to turn the corner? Stay tuned, but I'm feeling pretty optimistic today!

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So Now What?

Today is the big day, finally. Washington, DC is filled with hordes of people. And a new president takes the oath of office today. I think he's got his hands full!

But once all the pomp and circumstance is over today; once all the tourists go home, what can we expect from this new administration with regards to the real estate market?

First of all, the President-elect's team has given every indication that they intend to intervene in the real estate market and will do so aggressively. So I expect quick, decisive action on this front. What kinds of things will we see?

  • A plan to get the bad assets off the banks books. This now looks likely to happen in the form of a government-created, government-owned "bad" bank.
  • A strong push and some serious arm twisting to get banks to begin lending again once those assets are off their books.
  • A commitment to spend at least $50 billion in TARP funds on the real estate recovery.
  • Additional tax credits for first time home buyers in an effort to stimulate demand.
  • Additional efforts to stem the tide of foreclosures. This may take the form of:

Buying up second mortgages.

Strengthening the existing government programs to modify mortgages.

Allowing all bankruptcy judges to modify existing mortgages.

Temporary foreclosure moratorium.

And, the list is probably longer and growing.

What encourages me is the firm commitment to getting this done, to getting the real estate market stabilized, one way or another. If a real commitment is half the battle in any endeavor, you have to feel good about the future.

So, yes, I'm encouraged. I think we'll see some things happening in the next few weeks that could make a difference. I'm rooting for the new administration and I know I'm not alone.

I know they're going to keep trying until they get it done. I believe that attitude will make a difference.

Call me hopeful!

 

 

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Another Bailout?

Another week and another groveling industry seeking their turn at the trough filled with taxpayer dollars.

But this week it's the homebuilders, which hits a little closer to home.

First of all, let me say, that this is one bailout that actually could put some money in my own pocket. (Never let it be said I didn't property disclose!)

And, having said that, let's look at the merits (and downsides) of this plan.

First of all, an outline of the plan as found in today's Wall Street Journal:

The plan calls for a $250 billion stimulus package titled "Fix Housing FIrst".

The first part would be a tax credit for home buyers of 10% of the home's value, up to $22,000. Unlike the earlier $7500 credit, this one would not have to be paid back.

The second part of the plan would have the government subsidizing interest rates. A 30-year fixed rate mortgage would be 3% if you bought in the first 6 months of 2009. The rate would go up to 4.5% if you bought in the second half of 2009.

The good news here is that at least someone is addressing the root of the current problem, housing. We've heard of lame plan after lame plan to help homeowners in trouble. This one won't help homeowners much either, but plenty of others will feast at the gravy train.

Here are the problems I see. First of all, why should the taxpayers be helping out the homebuilders and related industries, such as real estate? While I'm not opposed to attempts to increase my income, I see no reason my neighbors' tax money should support my real estate habit. If it was a bad use of taxpayer money to bail out AIG, it's equally bad to use it here.

The homebuilders are in trouble. There's a good reason for that. There are too many homebuilders for what the market will support in the next 20 years. Yes, it will be painful for many individuals and families to see some companies go under. But the end result will be a healthier industry.

This has the potential to produce another unsustainable bubble.  What happens to home prices in 2010? At some point there has to be a balancing of supply and demand. You can artificially influence that, but only for the short term.

And, again, it does nothing for homeowners losing their homes to foreclosure.

The Wall Street Journal article does mention other suggestions that would allow current homeowners to refinance to lower interest rates with the government subsidizing the difference. That actually does have the potential to help, depending on the details.

Meanwhile, I'd say let's stop spending taxpayer money like a drunken sailor, with no oversight or accountability. How can that be in anyone's long term best interests?

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Virginia Homeowners Alliance

The Virginia Association of REALTORS has founded an organization dedicated to protecting the interests of Virginia homeowners. It's called the Virginia Homeowner's Alliance. Their web site provides a place to get information on how to improve the value of your home, lets you monitor what's going on in various government entities that may impact you as a homeowner, and will also provide you with an easy way to contact government about your concerns.

With the flood of paid lobbyists at all levels of government this seems like a terrific idea. Citizens come together to make their voices heard. It's one of the things the internet does best.

Once you go to the site and sign up you will not be flooded with a ton of spam! But you will have access to information that I think will be useful to you. In addition to giving you a voice in governement, it also provides useful information on neighborhoods and schools and practical information on things like lawn care. By the way, the site is relatively new. It will continue to grow and expand and your suggestions on how to do that are welcomed!

Now I have a favor to ask. If you do go to the site and register, it asks for the name of the REALTOR who referred you. I'd like to ask that you please enter my name. In the interests of full disclosure this enters me in a drawing for things like an iPOD or a Wii.

But I hope you do this for yourself! And I'll be interested to hear what you think of the site!

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Complex Systems

Henry Paulson was back in front of the TV cameras today. The financial markets didn't seem all that impressed.

But perhaps we shoudn't be blaming the Treasury Secretary. The tools he has available for dealing with our current financial crisis seem ill suited to the task.

I've been thinking a lot lately about how complex a world we live in. The financial systems are the most recent example. Surely these systems are more complex and more interrelated than anyone in government would have dreamed even a few short years ago. In fact, both Ben Bernanke and Hank Paulson were telling us less than 18 months ago that the real estate downturn would be confined to the real estate market and would not affect the larger economy.  I'd argue that this is proof that the top officials in the financial sector of our government didn't truly realize the extent of the complexities and interconnectedness of these systems.

So on the one hand you've got increasingly complex and interconnected financial systems. To add to the complexity, the interconnectedness of all financial systems and markets is increasingly global.

On the other hand, you have government supposedly minding the store, regulating these systems and stepping in to "fix" things when there's a crisis. Government is poorly equipped to do this, I'd argue. If complex systems require detailed analysis to determine the unintended consequences of any solution, government is definitely not my first choice for this job. Government is largely incapable of finesse and subtlety. When a scalpel is required, government is more likely to wield a club. While 200 years ago our government may have been perfectly able to manage the financial affairs of the nation, I'd argue that events have overtaken them. Complexities have outstripped their ability to keep up. The government's repeated, inept attempts to stem the tide of foreclosures is one example. (By the way, this week's attempt will fare no better.)

But if not government, who's going to mind the store? Clearly the players in these systems can not be trusted to regulate or police themselves. Else we wouldn't find ourselves in our current mess. "Fox in the hen house" comes to mind when contemplating that solution.

I don't know that I have the answers for this, but I'm dismayed that I'm not seeing more discussion of these questions. There was some initial discussion of a new Bretton Woods when the $700 billion bailout package was passed. But that seems to have subsided.

What we would seem to need is some kind of an early warning system. Think of the sensors that are in place to monitor the ocean floor and give us early warning of potential tsunamis. Surely the technology exists to create similar warnings that could alert governments and the financial sector to major problems ahead.

With the cold war a lot less frigid maybe instead of that hotline to the Kremlin we need a new hotline that rings when the financial early warning system detects a problem.

This may not seem to be directly related to real estate. But, then again, some people thought that the real estate market stood apart from the rest of our economy not that long ago. Think again.

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Presidential Choice and Real Estate

With two days to go before the election, it's time to take a final look at both candidates plans for the real estate portion of our economy. Here, straight from their web sites without editing, is what each candidate has to say:

Barack Obama:

Protect Homeownership and Crack Down on Mortgage Fraud

Obama and Biden will crack down on fraudulent brokers and lenders. They will also make sure homebuyers have honest and complete information about their mortgage options, and they will give a tax credit to all middle-class homeowners.

  • Create a Universal Mortgage Credit: Obama and Biden will create a 10 percent universal mortgage credit to provide homeowners who do not itemize tax relief. This credit will provide an average of $500 to 10 million homeowners, the majority of whom earn less than $50,000 per year.
  • Ensure More Accountability in the Subprime Mortgage Industry: Obama has been closely monitoring the subprime mortgage situation for years, and introduced comprehensive legislation over a year ago to fight mortgage fraud and protect consumers against abusive lending practices. Obama's STOP FRAUD Act provides the first federal definition of mortgage fraud, increases funding for federal and state law enforcement programs, creates new criminal penalties for mortgage professionals found guilty of fraud, and requires industry insiders to report suspicious activity.
  • Mandate Accurate Loan Disclosure: Obama and Biden will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.
  • Close Bankruptcy Loophole for Mortgage Companies: Obama and Biden will work to eliminate the provision that prevents bankruptcy courts from modifying an individual's mortgage payments. They believe that the subprime mortgage industry, which has engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law.

 

John McCain:

Home Plan

John McCain believes there is nothing more important than keeping alive the American dream of owning a home. Priority number one is to keep well-meaning, deserving home owners who are facing foreclosure in their homes.

John McCain's approach to helping sub-prime or other financially strapped mortgage borrowers is built on sound principles:

  • No taxpayer money should bail out real estate speculators or financial market participants who failed to perform due diligence in assessing credit risks. Any assistance for borrowers should be focused solely on homeowners and any government assistance to the banking system should be based solely on preventing systemic risk.

     
  • Any policy of financial assistance should be accompanied by reforms that promote greater transparency and accountability to ensure we never face this problem again.

John McCain has proposed a new "HOME Plan" to provide robust, timely and targeted help to those hurt by the housing crisis. Under his HOME Plan, every deserving American family or homeowner will be afforded the opportunity to trade a burdensome mortgage for a manageable loan that reflects their home's market value.

  • Eligibility: Holders of a sub-prime mortgage taken after 2005 who live in their home (primary residence only); can prove creditworthiness at the time of the original loan; are either delinquent, in arrears on payments, facing a reset or otherwise demonstrate that they will be unable to continue to meet their mortgage obligations; and can meet the terms of a new 30 year fixed-rate mortgage on the existing home.

    • John McCain's HOME Plan Will Keep 200,000 To 400,000 Families From Losing Their Homes. "But at the same time, McCain is calling for aggressive federal action to help keep 200,000 to 400,000 families from losing their homes. That plan has many of the elements of a proposal by Rep. Barney Frank, D-Mass., and Sen. Chris Dodd, D-Conn., requiring participating lenders to forgive part of the loan principal and then write a new loan that would be backed by the federal government through the Federal Housing Administration." (Tom Raum, "Everyone's Invited: McCain Economic Plan Draws From Both Parties," Tucson Citizen, 4/17/08)
       

     
  • How It Works: Individuals pick up a form at any Post Office or download the form over the Internet and apply for a HOME loan. The FHA HOME Office certifies that the individual is qualified, and contacts the individual's mortgage servicer. The mortgage servicer writes down and retires the existing loan, which is replaced by an FHA guaranteed HOME loan from a lender.

     
  • John McCain will bolster groups like Neighborworks America that provide mortgage assistance to homeowners in their communities.

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Worth Your Time

Here are a couple of items you ought to take a look at.

My friend, Jim Duncan says it so well, I can't improve on it. Sellers should read this.

If you're a first time home buyer and are excited about the new tax credit just passed by Congress, there's a web site designed to give you all the answers on this program and how to take advantage of it. This site is provided by the National Association of Home Builders. The tax credit is different than what was originally proposed so it's worth taking a look at the details.

In fact, I got it wrong on my earlier blog on this bill. I hadn't seen the final details. The tax credit now applies to any home you buy, as long as it's your primary residence! Exciting news!

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Housing Bill

Next week the President is likely to sign into law the most far-reaching housing bill any of us have seen in at least a generation. Now that the details seem to have been worked out, it's time to talk about what this means.

First, you should know that almost no one really likes this bill. But even those who don't will generally admit they think it's a necessary evil.

Strangely enough the piece of the bill likely to have the biggest long term impact is the last minute addition thrown in to address what's happened at Fannie Mae and Freddie Mac. In the short term, this is a good thing. If you think the local real estate market is tough now, a Fannie Mae/Freddie Mac collapse would have put us into a tailspin with very dire broad economic consequences. In the long term, this is probably not a good thing. It's a band-aid and doesn't ensure there's any reason for either of these institutions to behave more responsibly in the future. And, there's certainly no sign anyone will be held accountable!

The pieces of this bill that are designed to immediately impact the housing market seem unlikely, in my mind to have much real impact.

The first piece I'll focus on is the provision that is supposed to encourage lenders to renegotiate mortgages for troubled homeowners. So, let's say you bought one of those new homes in Culpeper a couple of years ago. You paid $400,000 (with 100% financing) and now the thing is worth $200,000. This bill suggests that the bank provide you a new mortgage at 90% of the current value of the home. In this case, it would be $180,000. The rest of the debt would be forgiven. The bank has just eaten a $220,000 loss. In addition, they will pay an additional 3% fee to FHA which will then guarantee the mortgage.

The supposed payoff for the lender is twofold. First of all, they don't end up with a foreclosed home on their hands. Foreclosed homes are a money drain for any institution. They're expensive to maintain and the cost of selling them is something banks hate. The other payoff for the lender is that the mortgage is now guaranteed and they know they won't lose their shirt on what's left.

Since this program is entirely voluntary, is that enough incentive given the size of some of these losses? Obviously, I don't know. But I wonder if we'll see the most impact on those communities that weren't that badly hit, where the losses that the banks eat will be smaller. If your a bank, maybe this program makes sense where the original home price was $400K and the current value is $370K. So, help may go to those places that need it least!

The other piece I'll talk about today is the $8000 7500 credit for the first time home buyers who buy foreclosed homes any primary residence. Overall, this is a good thing. It's certainly a nice bonus if you're a first time home buyer! And, we certainly need to move those foreclosed homes out of inventory faster.

But if you're Joe Seller, trying to sell your home and the home next door is a foreclosure, buyers have an awfully big incentive to buy that home rather than yours.

If you've got opinions on these parts of this bill, or on other provisions, chime in. Is this, on balance, good or bad? Will it do any good for our local markets?

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HOA Law Changes

Effective on July 1st there are a number of changes to the rules governing homeowner's associations in the Commonwealth of Virginia. The previous laws were so vague that it had become the wild west in terms of fees to sellers requesting HOA packets and inspections. So a number of changes were made.

First of all, they created the Virginia Common Interest Community Board to investigate complaints about community association managers. They also require that associations now publish their fees for certificates or packets either in paper or electronic format.

It also has mandated the maximum fees for the following services:

Inspection: $100

Disclosure Packet Copies:

    Hard Copies: $150 for 2

    Electronic Copies: $125 for 2

Additional Hard Copy: $25

Expedite Fee: $50

Update Fee: $50 (For packets produced in last 12 mos.)

These should, first of all, let sellers know what to expect when they're calculating how much it will cost them to get the documentation needed to sell their home. And, while these fees are higher than were allowed under the previous law, many associations were completely ignoring those fees anyway. So the practical effect may be lower fees overall.

The Virginia Association of REALTORS took a leading role in getting this pushed through and I think they've done a great job. This will benefit consumers, and, in particular, real estate sellers in Virginia.

 

 

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Local Representatives Vote No

Last week, in the House of Representatives, they finally voted on the "Foreclosure Prevention Act of 2008". This bill is designed to help stem the tide of foreclosures. It would not only help people who are in danger of losing their homes, but also their neighbors who are tired of seeing the value of their own homes plummet.

It is very interesting to note that the counties hardest hit by the foreclosure crisis, not one of the representatives from Virginia voted to support this bill.

Representatives Cantor, Davis, Wolf and Wittman all voted no on this bill.

Let's be clear about what they voted against.

This bill would have allowed homeowners to stay in their homes, restructured their mortgage to reduce the amount owed to more accurately reflect actual values and guaranteed those loans through the FHA. It would have rewarded buyers of foreclosed properties with tax credits, thus helping all homeowners.

It's tough to see what could possibly have induced them to vote no. That's especially true when their Republican counterparts in other hard hit areas of the country crossed party lines to support the bill.

I know the argument about not wanting the people who were responsible to suffer to help those who were not. But NEWS FLASH: if you were very financially responsible and because of all the foreclosures in the area your home prices are plummeting you're still paying the price.

The question isn't whether those of us who were responsible pay for those who weren't. The question is do all of us want to preserve the value of our homes?

So, does party loyalty count more than constituent pain?

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There is no "Fair"

Date: Apr. 10, 2008
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I had lunch with a number of business friends the other day and, of course, the conversation turned to the current real estate market and then to the actions currently being contemplated by Congress to fix it.

Every fix seemed to have a down side for someone. And, then one of my friends stated what was staring us all in the fact. "I guess no one said it was going to be fair."

 What I'd like to see is everyone staying focused on the larger picture, rather than whether someone else is going to get a "better deal" out of any particular piece of legislation.

If your neighbor got himself in trouble with his mortgage and the government helps him out, one way to look at that is that he got bailed out for his recklessness or stupidity and that you got no reward for being a responsible adult.

But the other way to see this is that if his house goes into foreclosure, your property value declines. And, if several houses in your neighborhood go into foreclosure, your property value declines steeply, crime rises in the neighborhood and a whole host of bad things follow!

While it may be more morally satisfying to watch people get what they deserve, it is also, in this instance, cutting off your nose to spite your face!

Sometimes, looking out for your neighbor turns out to be a good thing for you too!

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Foreclosure Prevention Act of 2008

The Senate is busy debating the Foreclosure Prevention Act of 2008. It's an important bill and one that has the potential to have a very large impact on the real estate market. It's worth taking a closer look at some of these provisions.

The bill covers these items:

  • Increased FHA Loan Limits
  • Assisting Communities Devastated by Foreclosures
  • Providing Pre-Foreclosure Counseling for Families
  • Enhancing Mortgage Disclosure
  • Assisting Veterans In Danger of Foreclosure
  • Property Tax Deduction
  • Mortgage Revenue Bonds
  • Help for Homebuilders
  • Tax Credit for Purchase of Homes in Foreclosure

I'm going to talk about two provisions today that I believe could significantly help our market. One is the Tax Credit for Purchase of Homes in Foreclosure. This would provide a tax credit of $7,000 for buyers of homes in foreclosure or pre-foreclosure. The credit would be taken over two years. This could only be used on owner occupied homes, not on investment properties.

This could provide a significant incentive to buyers to get back in this market. It would also help to start providing a floor to price declines as the number of foreclosures on the market would likely decrease faster.

The down side to this is if you're a homeowner who is selling your home and you're not in foreclosure. You would definitely seem to be at a significant disadvantage!

The other provision that has the potential to make a huge difference is the Assisting Communities Devestated by Foreclosures provision. This would be available to communities hit hard by foreclosures and would provide Community Development Block Grant Funds to allow purchase of foreclosed homes. Those homes culd then be rehabilitated or redeveloped by the community. They could be used as workforce rental housing, or eventually resold. Perhaps partnerships could be established with organizations such as Habitat for Humanity.

What we don't know is which local communities would be eligible for this assistance. But, again, this could help enormously with bringing down inventory and stabilizing prices. I'm hoping that, at a minimum, Culpeper and Prince William Counties would be eligible.

The prospects for passage look good at the moment, at least in the Senate. And, I suspect in an election year the House will be even more interested in getting this one passed!

If you've got questions on some of the other provisions, let me know and I'll get you more information.

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NAHB and Political Money

Date: Feb. 15, 2008
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I heard a story on Marketplace last week about the National Association of Home Builders.

Apparently, they've decided to withholding donating any money to political candidates this year because they believe that Washington has not done enough to take care of the housing crisis.

I applaud their actions while completely disagreeing with their rationale.

Here's hoping every PAC feels the same way and stops donating!

Don't let anyone kid you, PACs donate money in the hopes of influencing policy. Anyone who tells you otherwise is also likely to try and sell you the Brooklyn Bridge. And, if you look at the history of how politicians vote, it's pretty rare to see one vote against the interests of those who have donated large amounts to their campaign.

As far as NAHB's belief that the government has not done enough to help them, I'd be interested in seeing their proposals for what the government should be doing on their behalf.

I believe the government has a role to play in this crisis. I believe they need to make sure that the credit markets stay liquid. I believe it's in everyone's best interests for them to try and help families stay in their homes, so long as they can truly afford them. But I don't see bailing out individual businesses as either desirable or necessary in the current climate.

If the government does what it can on the above two items, if it works to put a floor under the real estate market, the builders, like everyone else in the industry will recover over time.

So, NAHB, please do keep your money, and not only this year! Now if only we can convince some of the other PACs to do the same!

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Homestead Exemption

The Virginia legislature is taking up the matter of a homestead exemption this year. This was originally proposed by Governor Kaine in his election campaign. With higher property taxes across much of the state there is great interest in any relief that might be available to homeowners.

A homestead exemption was originally the exemption provided to protect a primary dwelling from creditors, and especially provide protection for a surviving spouse and children. By the way, Virginia's existing protection is a joke. Currently $5,000 of the home's value is protected.

But the homestead exemption has been expanded in some states as a way to provide property tax relief. Basically, some portion of the value of the home is exempted from property taxes.

The proposal for Virginia is that the maximum amount exempt from taxes is 20% of the value of the home or farm. This would be applicable only to primary residences. Localities would be allowed to set the terms and conditions. This would allow them to potentially target specific populations, say the elderly, and also to take into account local budget needs when they decide how to use this.

The bill would seem to stand a decent chance of passing. Since the local jurisdictions can determine how it is implemented it's impossible to predict what the impact would be on local homeowners or on local government budgets. But this is one to watch.

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