Realtor Coaching & Training: Senate
Housing Bubble Part 2?
Talk about a double edge sword….sure, Realtors want the FHA to have more lenient lending standards so more people can qualify to buy a home. Makes sense. After all, we are in the business to help folks buy and sell homes.
Of course the other side is that Realtors are suffering from the housing crash in a very real and personal way. Not only has the real estate industry contracted (and incomes along with it) but, agents own homes have also lost value. Talk about a double whammy!
Now, the FHA may be following the a perilless path that could cause the national housing mess to languish.
Read this article from the Wall Street Journal, share your comments….
Everyone knows how loose mortgage underwriting led to the go-go days of multitrillion-dollar subprime lending. What isn’t well known is that a parallel subprime market has emerged over the past year — all made possible by the Federal Housing Administration. This also won’t end happily for taxpayers or the housing market.
Last year banks issued $180 billion of new mortgages insured by the FHA, which means they carry a 100% taxpayer guarantee. Many of these have the same characteristics as subprime loans: low downpayment requirements, high-risk borrowers, and in many cases shady mortgage originators. FHA now insures nearly one of every three new mortgages, up from 2% in 2006.
The financial results so far are not as dire as those created by the subprime frenzy of 2004-2007, but taxpayer losses are mounting on its $562 billion portfolio. According to Mortgage Bankers Association data, more than one in eight FHA loans is now delinquent — nearly triple the rate on conventional, nonsubprime loan portfolios. Another 7.5% of recent FHA loans are in “serious delinquency,” which means at least three months overdue.
The FHA is almost certainly going to need a taxpayer bailout in the months ahead. The only debate is how much it will cost. By law FHA must carry a 2% reserve (or a 50 to 1 leverage rate), and it is now 3% and falling. Some experts see bailout costs from $50 billion to $100 billion or more, depending on how long the recession lasts.
How did this happen? The FHA was created during the Depression to help moderate-income and first time homebuyers obtain a mortgage. However, as subprime lending took off, banks fled from the FHA and its business fell by almost 80%. Under the Bush Administration, the FHA then began a bizarre initiative to “regain its market share.” And beginning in 2007, the Bush FHA, Congress, the homebuilders and Realtors teamed up to expand the agency’s role.
The bill that passed last summer more than doubled the maximum loan amount that FHA can insure — to $719,000 from $362,500 in high-priced markets. Congress evidently believes that a moderate-income buyer can afford a $700,000 house. This increase in the loan amount was supposed to boost the housing market as subprime crashed and demand for homes plummeted. But FHA’s expansion has hardly arrested the housing market decline. The higher FHA loan ceiling was also supposed to be temporary, but this year Congress made it permanent.
Even more foolish has been the campaign to lower FHA downpayment requirements. When FHA opened in the 1930s, the downpayment minimum was 20%; it fell to 10% in the 1960s, and then 3% in 1978. Last year the Senate wisely insisted on raising the downpayment to 3.5%, but that is still far too low to reduce delinquencies in a falling market.
Because FHA also allows borrowers to finance closing costs and other fees as part of the mortgage, the purchaser’s equity can be very close to zero. With even a small drop in prices, many homeowners soon have mortgages larger than their home’s value — which is one reason FHA’s defaults are rising. Every study shows that by far the best way to reduce defaults and foreclosures is to increase downpayments. Banks know this and have returned to a 10% minimum downpayment on their non-FHA loans.
In a rational world, Congress and the White House would tighten FHA underwriting standards, in particular by eliminating the 100% guarantee. That guarantee means banks and mortgage lenders have no skin in the game; lenders collect the 2% to 3% origination fees on as many FHA loans as they can push out the door regardless of whether the borrower has a likelihood of repaying the mortgage. The Washington Post reported in March a near-tripling in the past year in the number of loans in which a borrower failed to make more than a single payment. One Florida bank, Great Country Mortgage of Coral Gables, had a 64% default rate on its FHA properties.
The Veterans Affairs housing program has a default rate about half that of FHA loans, mainly because the VA provides only a 50% maximum guarantee. If banks won’t take half the risk of nonpayment, this is a market test that the loan shouldn’t be made.
These reforms have long been blocked by the powerful housing lobby — Realtors, homebuilders and mortgage bankers, backed by their friends in Congress. They claim FHA makes money for taxpayers through the premiums it collects from homebuyers. But keep in mind these are the same folks who said taxpayers weren’t at risk with Fannie Mae and Freddie Mac.
A major lesson of Fan and Fred and the subprime fiasco is that no one benefits when we push families into homes they can’t afford. Yet that’s what Congress is doing once again as it relentlessly expands FHA lending with minimal oversight or taxpayer safeguards.
Popularity: 1% [?]
HREU Students and Future Students…read this and understand the implications of what is happening now with FHA loans…
As private mortgage lending all but dried up over the past year, the federal government swooped in and repositioned the Federal Housing Administration’s (FHA) insured-mortgage program to pick up a lot of slack. For those who aren’t familiar, the FHA program allows folks with middling credit scores and little down payment to qualify for a loan. However, borrowers must pay an upfront mortgage insurance fee of about 1.5% of the loan amount as well as an ongoing fee of 0.5%.
Over the past year more than one-third of new mortgages are FHA-insured loans, compared to less than 3% at the peak of the real estate bubble. Moreover, in recent Senate testimony the inspector general for Housing and Urban Development said FHA-insured mortgages accounted for about 70% of loan biz in the first quarter. One of the big drivers of the increased FHA presence is the move that raised FHA-insured loan limits to as high as $729,750 in certain high cost markets. That made the program a viable option for plenty more borrowers.
But rather than a glowing example of how the federal government can step in and boost an ailing financial market, there’s growing concern that the massive role taken by FHA to buoy the ailing mortgage market, could in fact lead to yet another taxpayer bailout.
It turns out that a whole lot of borrowers getting FHA-insured loans can’t make the payments. At the end of February about 7.5% of FHA loans were “seriously delinquent;” up from 6.2% a year ago. (Seriously delinquent = 90 or more days overdue.) Not surprisingly, the reserve fund FHA keeps handy to cover bad loans has been seriously eaten into over the past year: it is down to about $13 billion today, compared to $21 billion a year ago.
This past Thursday, HUD inspector general Kenneth Donohue conceded that the trend is not encouraging. Asked about the prospect of a taxpayer bailout, Donohue sidestepped making a prediction but did say: “Based on the numbers we’re seeing, I think it’s going in the wrong direction,” he said.
And it’s not too hard to see why. In theory-and in practice for many years-the FHA program helps folks who wouldn’t otherwise be able to afford a home, make the purchase. But the very structure of FHA-insured loans makes them a potential landmine in a economy where job security and home values are sinking. You can have a crappy credit score of just 600 or so and qualify for an FHA-insured loan at the same low interest rate that private lenders typically reserve for borrowers packing 740+ scores. And you need only a 3.5% down payment for an FHA-insured loan.
While that’s slightly more than the zero-down loans pushed by sub-prime lenders during the bubble, it’s nowhere near the 10%-20% private lenders are now requiring as insurance that borrowers have enough skin in the game to stay in the game amid declining home values. Add in the fact that the new higher loan limits make FHA-backed loans a suddenly viable option in many pricier regions and you’ve got yourself a potentially toxic brew. And as we all know, when it comes to toxic assets, it’s the taxpayer who ends up paying.
Source: CNNMoney.com
Popularity: 1% [?]
Harris Real Estate University.
HREU Students and future students….don’t say we didn’t tell ya so!
Breaking News: A new report was just released that disclosed the results of the much applauded Hope For Homeowners program. Harris Real Estate University students have been hearing from their coaches for months that the only true hope for homeowners is…..fellow Realtors.
No government program is ever going to replace the relationship between the homeowner and the Realtor. Realtors must do everything in their power to learn now what this market demands……so they can be the real….Hope For Homeowners.
Here is the article from CNN Money.
If HOPE for Homeowners, the foreclosure-prevention plan passed last summer, was a soft drink, it would be New Coke. If it was an automobile, it would be an Edsel. A movie? Howard the Duck.
In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.
“As it stands now, we’ve only gotten 752 applications,” said Federal Housing Authority spokesman Brian Sullivan. “And only insured one loan. Needless to say, the program isn’t working terribly well.”
Rep. Michael Castle (R – Del.), who sits on the House Financial Services Committee, agreed, calling HOPE “one of the most failed programs we’ve had in a long time.”
Nonetheless, the House of Representatives recently approved an updated version of HOPE as part of the bankruptcy-reform bill that is a keystone to President Obama’s Homeowner Affordability and Stabilization Plan. But it was no overhaul to the program; the changes are very subtle.
Will more government programs make a difference? Have they so far, NO. Realtors are the only true hope for homeowners. Learn how-to help homeowners avoid foreclosure. Watch this free Agent Short Sale Secrets video now. Learn how to easily list and sell short sales.
Castle is concerned that the new program will also be a waste of time and money. But Sen. Chris Dodd (D – Conn.), one of the chief architects of the earlier version of HOPE, supports keeping it in the bankruptcy bill, according to a source close to the negotiations. He hopes the changes will help convince more servicers to use the program.
The Senate is expected to vote on the bill in the next few weeks.
The original program called for lenders to voluntarily refinance delinquent mortgages by reducing the principal balance on loans to 90% of a home’s current market value. The new 30-year, fixed-rate loans would then be backed by the FHA. Under the new plan, lenders would only have to write it down to 93%.
Borrowers who owed $220,000 on a house valued at $200,000, for example, would need their mortgage balances reduced to $180,000 to qualify for an original HOPE for Homeowners refi. That’s a $40,000 write-off. Under the new plan, lenders would have to forgive $34,000.
Lenders simply won’t do that very often. They prefer to use term extensions or interest rate reductions to help make mortgage payments affordable for at-risk homeowners. As a result, most of the big lenders refused to participate in the program, which was strictly voluntary though heavily encouraged by the Bush and Obama administrations.
“Writing down principal is the last thing you want to do because you have to realize the loss immediately,” said Paul Leonard, a spokesman for the Housing Policy Council, a coalition of mortgage lenders.
The program has also failed, Leonard added, because of the conditions and limits the program imposed. Borrowers, for example, had to agree to pay the government 50% of any future profits they made from selling the property. Under the new version of HOPE, borrowers would no longer have to split any earnings with Uncle Sam.
Other changes include incentive payments to servicers of $1,000 to induce them to participate.
The Congressional Budget Office now projects that HOPE for Homeowners could help just 25,000 mortgage borrowers over the next 10 years at a cost of $675 million.
Despite those modest numbers, Leonard said that the members of Housing Policy Council want to keep HOPE for Homeowners on the table even though the administration’s Homeowner Affordability and Stabilization Plan does much more than HOPE.
Besides reducing mortgage payments through interest rate reductions or term extensions, HASP provides for lowering mortgage principals – the only thing that HOPE offers.
Still, the tool would be in the box even if “the administration’s plan would be the first thing [lenders] look at,” Leonard said. 
Popularity: 1% [?]
We like to avoid anything political on this blog….as one of our mentors Jack Ruscilli once told us..be a Republi-Crat. In other words, see things from all perspectives.
There has been considerable talk about the 2 Presidential Candidate tax proposals. Remember, these are merely their proposals. Any tax law change would have to pass Congress and the Senate. With that said assume that one of these proposals become the into law. Its important that you know the facts about these proposals vs the media spun clutter.
I learned a few things from this graph and I bet you will as well……..
A few highlights:
1) Obama’s plan give the biggest cuts to those who make the least, while McCain would give the largest cuts to the very wealthy.
2) For the 147,000 ( thats the top 0.1%)…those earning more than $2.87 million the differences between the two tax plans is massive. Under McCains plan those in the top 0.1% would pay $269,364 LESS. Under Obama’s plan that elite goup would pay $700,000 MORE.
3) The average Realtor earns less than $50,000. With McCains plan that agent would pay $318 LESS..under Obamas plan that same agent would pay $1,042 LESS.
Popularity: 2% [?]
Top 11 Ways to Stay Motivated In The 4th Quarter.
In the Chinese language, the symbols for the word “crisis” are translated as “Opportunity Riding on the Dangerous Wind.” In other words, crisis and opportunity are synonymous. Learning to persist and respond effectively through a crisis is the essence of personal growth. To avoid becoming distracted, depressed or frustrated during 4th quarter, follow these 11 steps and take control of your future:
1. Stop brewing and start doing. Action is one of the best methods of overcoming stagnation. Walking, running, speaking with people, learning something new…ACTION is the best cure for inaction.
2. Remember that persistence can turn adversity into greatness. As the Reverend James Keller once noted, “Abe Lincoln lost is job in 1832. He was defeated for the legislature, also in 1832. He failed in business in 1833. He was elected to the legislature in 1834. His sweetheart died in 1835. He suffered a nervous breakdown in 1836. He was defeated for Speaker in 1838. He was defeated for nomination for Congress in 1843. He was elected to Congress in 1846. He lost his re-nomination for Congress in 1848. He was rejected for land officer in 1849. He was defeated for the Senate in 1854. He was defeated for the nomination for vice president of the United States in 1856. He was again defeated for the Senate in 1858. Abraham Lincoln was elected President of the United States in 1860.”
3. Inventory your BAG regularly: Review your Blessings, Accomplishments, and Goals. You’ll be surprised how many reasons you have for being grateful, rather than depressed, anxious or worried.
4. Focus on what you are here to GIVE. Be in a mindset of service. How can you help as many people as possible 4th quarter?
5. Stay connected. Cultivate lilies and avoid leaches. If someone or something is bringing you down, replace it with someone or something that brings you up. You have this choice every day.
6. Stick to your Media Free Morning. No news, talk radio or print…Instead, choose to read inspirational nonfiction, listen to uplifting music or books on tape, and congregate with lilies, not leaches.
7. Take the blame and credit. Acknowledge your position in life honestly and openly. How did you get here and what are you doing to change?
8. Make a self-evaluation list of two columns. In the “I am” (or “Assets”) column, write down 10 things you are good at. In the other column, write down 10 things you need to improve on. Take the first three liabilities and schedule an activity to help you improve each of these three areas. Forget about the rest of your liabilities. Relish and dwell on all 10 of your best assets. They will take you anywhere you want to go in life.
9. Invest in your education. Since the only real security in life is the kind that is inside each of us, practice what Ben Franklin wrote: “If an individual empties his purse into his head, no one can take it from him.” If you aren’t taking action in your real estate practice because you don’t know how to, ask for help.
10. Concentrate all your energy and intensity on the successful completion of your current goal. FOCUS = Follow One Course Until Successful. Forget about the consequence of failure. Failure is only a temporary change in direction to set you straight for your next success.
11. Own your future. After this call, take 15 minutes and a fresh sheet of paper. Describe exactly what you’d like your 4th quarter to be like. Write 3 things that will make 4th quarter the best quarter of your life, and 3 action steps to make sure it happens. Post that piece of paper on your wall on the way out of your office…make several copies and keep them everywhere.
Popularity: 1% [?]
