Friday, October 12, 2012

Two Visions Come Into Focus (reprinted from Realtor Mag)

President Barack Obama and former Gov. Mitt Romney hold starkly different views on recent reforms—and on the best way to preserve the American dream.

President Barack Obama and Republican challenger Mitt Romney, the former Massachusetts governor, agree on this: Home ownership is central to the American dream. But in an exclusive REALTOR® Magazine Q&A, the 2012 presidential candidates offer differing takes on how to keep that dream alive. Obama says he has a two-part focus—to prevent a repeat of the lax mortgage practices that led to the housing crisis and ensure that financing remains available to responsible home buyers. Romney says the path to restoring home ownership is through a vibrant economy, which he wants to spur using an across-the-board cut in tax rates and by trimming burdensome rules. Obama also provides a vigorous defense of his signature legislative accomplishment, health care reform, while Romney calls for reforms that promote competition without government intervention.

Home Ownership Incentives

The federal government has historically supported home ownership as a central value of the United States. To what extent do you support preserving federal home ownership incentives, such as the mortgage interest deduction?

Romney: I believe in the American dream of home ownership. The best way to get the housing market going again is to get the economy moving in the right direction. What most struggling home owners need is good, quality jobs, not confusing regulations imposed on lenders. We need policies such as 20 percent across-the-board cuts in tax rates, sensible regulation, and open markets that create a growing economy. Policies like these will help Americans achieve their economic goals, including buying a home.

Obama: Home ownership is a critical component of economic opportunity, and I am committed to keeping responsible home owners in their homes and to ensuring Americans have a fiscally responsible path to home ownership. One of the policies I signed into law as president was an expansion of the first-time homebuyer tax credit that helped more than 2.5 million families purchase a home for the first time. Since I took office, I’ve taken action that—combined with private-sector efforts my administration helped catalyze—enabled more than 5 million home owners to get mortgage modifications, while expanding access to refinancing and targeting investments in the communities hardest-hit by the housing crisis. Now, I’ve put forward a plan to help responsible borrowers refinance their mortgages and save $3,000 per year.

Lending Standards 

Four years after the collapse of the mortgage market, banks continue to limit the availability of mortgage financing in both residential and commercial real estate markets. On the residential side, bank standards often exceed those set by the FHA, Fannie Mae, and Freddie Mac. What steps should the federal government take to change this dynamic, given the broader economy’s reliance on a healthy real estate sector?

Obama: We need to restore trust in the underlying foundation of the mortgage market so borrowers have the confidence to purchase a home and lenders have the confidence to issue a loan, and that’s why we’re mobilizing all tools available to fix our nation’s broken mortgage servicing and foreclosure processing system. To do this, we need to reduce uncertainty in the market so lenders once again provide credit consistent with the standards set forward by the FHA, Fannie Mae, and Freddie Mac. That’s why we’re working through the FHA and with the Federal Housing Finance Agency (the conservator of Fannie Mae and Freddie Mac) to provide greater clarity about lenders’ obligations in making FHA- or GSE-backed loans. We’re also working hard to reduce barriers to refinancing for responsible borrowers, and we’re committed to the same objectives for new originations.

Romney: The most important step the federal government can take to help creditworthy borrowers is to repeal and replace the Dodd-Frank Wall Street Reform Act. Banks and financial institutions are paralyzed: Regulators are simultaneously directing lenders to reduce risk (i.e., tighten underwriting) and to loosen standards. And many community banks face thousands of pages of new rules (over 8,000 pages at last count), and half of the expected rules proposed by this administration haven’t even been finalized yet. In short, banks are hiring lawyers, not making loans. The rules of the road need to be clarified so that responsible borrowers have access to mortgage credit.

Underwriting Mandates

Federal banking regulators have drafted rules that would go beyond lenders’ restrictive lending policies by setting a minimum down payment amount for home mortgage loans to be considered safe and therefore available at more affordable rates. Where do you stand on the federal government mandating minimum down payment amounts and credit requirements for lenders to apply in their underwriting standards?

Romney: A big part of the problem is that the government, and not the private sector, is the dominant force in mortgage finance today. With taxpayers still on the hook for trillions in mortgage loans, of course the government will continue to play a role in setting some basic minimum lending standards. However, we need to encourage private markets to provide mortgage loans at reasonable interest rates across all market conditions, with simple and understandable contracts for home buyers.

Obama: We’re committed to the goals of Wall Street reform, which includes ending an era of reckless lending by banks without adequate skin in the game. At the same time, we’re committed to maintaining widespread access to mortgage credit for responsible American families, which is the key to providing the middle class with access to home ownership and the key to returning to a robust, but sustainable, housing market recovery.

Health Insurance

The recent U.S. Supreme Court ruling to preserve the Affordable Care Act’s individual mandate says the penalty for individuals who fail to purchase health insurance falls under the federal government’s authority to levy taxes. If Congress repeals the law, what steps do you propose to address the REALTORS® and millions of other small-business owners and independent contractors for whom affordable health insurance isn’t available in the market?

Obama: Before the Affordable Care Act, too many people went without health care. Self-employed individuals were some of the hardest hit and often vulnerable to being denied coverage based on a pre-existing condition. Because of the law now, it will be illegal for insurance companies to deny you coverage or charge more because of a pre-existing condition. When the law is fully implemented, people who don’t get insurance through an employer, as well as small businesses trying to find coverage for their employees, will be able to shop in new exchanges, where they’ll have the same purchasing power as big businesses and be eligible for tax credits that make coverage affordable. The law isn’t perfect. We are always willing to work with people of both parties to strengthen it, but we cannot go backwards.

Romney: We can fix the challenges facing our health care system with reforms that emphasize market competition and patient choice. By putting patients at the center of our health care system and making insurers and providers compete against each other for our business, we can lower health care costs and protect Americans’ access to the care they need, including the doctor they choose.

Environmental Regulations

Earlier this year the U.S. Supreme Court ruled in favor of home owners who were told by the EPA to undertake costly mitigation and monitoring of their property before they could get a hearing to determine the presence of wetlands on their property (Sackett v. EPA, 10-1062, March 21, 2012). What steps can the federal government take so that future environmental disputes like this don’t end up in court?

Romney: Respect for private property, clear laws, fair enforcement, and the right to be heard before being deprived of money or property are bedrock principles of our free society. I will modernize our outdated and ambiguous environmental laws, regulations, and enforcement practices to advance our common commitment to natural resource stewardship in ways that restore these principles to prominence. Such actions include providing a speedy and objective process to resolve technical disputes without subjecting our citizens to the senseless delay and expense of going to court.

Obama: With the regulatory process, we’ve made strides to increase transparency, encourage public participation, and promote accountability. The net benefits of regulations issued in the first three years of my administration exceed $91 billion, including both savings and new revenue—25 times greater than in the same period of the previous administration. We are also revisiting rules on the books to see if they make sense so we can continue to produce far greater savings. Agencies have already issued hundreds of regulatory reform proposals, just a fraction of which are expected to save businesses $10 billion over the next five years.


Although the economy is struggling, and government at all levels is wrestling with budget deficits, is there a place for public investment in infrastructure, including transit projects, which historically has helped pave the way for private investment in communities?

Romney: There is a place for public investment in infrastructure. However, we must be mindful of our budgetary constraints when making these investments. To that end, there are many things apart from spending that the government can do to ensure that public investment in infrastructure is possible—eliminating burdensome regulations, for example, or speeding up project approvals and engaging in private-sector partnerships.

Obama: So much of our infrastructure is in need of repair, and we need all of it to deliver American products around the world. There are hundreds of thousands of construction workers who’ve never been more eager to get back on the job. That’s why I’ve proposed a six-year surface transportation plan to improve the nation’s highways, transit, and rail infrastructure. The proposal is fully paid for, with part of the savings from ramping down overseas military operations. And last September I put forward the American Jobs Act, a set of proposals to create jobs now. Congress passed two of the proposals—cutting payroll taxes by $1,000 for a typical family and extending unemployment insurance—but it left on the table more than half of the plan, comprising infrastructure investments that independent economists estimated could create as many as 1 million jobs. I’ll continue fighting for these and for Project Rebuild, another part of the American Jobs Act, which would help repair our housing infrastructure by putting construction workers back on the job rehabilitating and repurposing distressed properties in hard-hit communities.

Thursday, October 11, 2012

Nat’l foreclosures hit 5-year low in Sept. (reprinted in its entirety from Florida Realtors® website)

WASHINGTON – Oct. 11, 2012 – RealtyTrac issued its foreclosure report for September and the third quarter. Nationally, the news is good: Foreclosure filings – default notices, scheduled auctions and bank repossessions – decreased 7 percent from the previous month and dropped 16 percent in one year. It was the lowest U.S. total since July 2007.

Florida, however, rose to the top of the list for foreclosure starts (LIS) for the first time since 2005. According to RealtyTrac, much of the reason stems from Florida’s status as a judicial foreclosure state. The foreclosure process takes less time in states that don’t require court involvement; as a result, many non-judicial states have already cleared out much of their real estate owned (REO) housing stock.

While an increase in foreclosures appears to be a threat to Florida’s housing recovery, many Realtors say they don’t have enough foreclosures – and that an increase would be welcome.

“Right now, we’re seeing very, very few foreclosures coming onto the market,” Scott Agran, head of Lang Realty in Broward and Palm Beach counties told the Sun Sentinel. “We’re starving for inventory. We could take as much as the banks want to give us.”

National findings

• The monthly and quarterly decrease was driven mostly by big drops in non-judicial foreclosure states, such as California, Georgia, Texas, Arizona and Michigan.

• Several judicial foreclosure states – including Florida, Illinois, Ohio, New Jersey and New York – registered substantial year-over-year increases.

• U.S. foreclosure starts in the third quarter decreased both from the previous quarter and a year ago, reversing a bump in foreclosure starts in the second quarter.

Florida findings

• Florida foreclosure starts (LIS) in September increased 24 percent on a year-over-year basis, the 11th consecutive month with an annual increase. The state’s foreclosure rate ranked highest nationwide for the first time since April 2005.

• In September, Florida bank repossessions (REO) increased 23 percent year over year – the ninth straight month with an annual increase.

• In the third quarter, all levels of Florida foreclosure activity increased 14 percent, but nine states saw a greater percentage increase. In New Jersey, foreclosure activity spiked 130 percent.

• In the third quarter, one of every 117 Florida homeowners with a mortgage was in some stage of the foreclosure process.

• In the third quarter, it took an average of 858 days in Florida to go through a complete foreclosure, which is a slight drop from 861 days in the previous quarter. It took longer in only two other states, New York (1,072 days) and New Jersey (931 days).

© 2012 Florida Realtors®

Tuesday, October 9, 2012

Is Now the Time to Buy: Part III

One of the biggest questions I field from my clients on a weekly basis is whether or not the market has "bottomed-out" and is now the time to buy.

There are many factors that go into answering such a question so I thought I would address a few of them here.

1). A few weeks ago the Federal Reserve said it would keep the federal funds rate at zero to 1/4 percent at least through mid-2015.

Notwithstanding what impact this will have on inflation after 2015, this effectively means that mortgage rates will stay at record lows over the coming years.

This is a major plus point for any buyer in today's real estate market as with the cost of money at record lows, buyers can buy "more house" than ever before.

2. Inventories are shrinking nationwide (and in my backyard) bolstering prices. Its a simple supply & demand equation. As the inventory drops (supply) and demand remains constant (or even rises) prices are going up.

The big question on this front is whether the shrinking inventory and subsequent increase in price is an artificial new bubble being created by the banks who are sitting on large #s of "shadow inventory".

There is no easy answer to this question but recently I did an analysis of the foreclosure filings in my back yard juxtaposed to the rate of distressed sales and I did find the lis pendens filings remained constant (actually slightly up) from 2011 to 2012 while the # of distressed sales has markedly decreased (over 40% in my area).

So on this point a buyer has to make a decision. Do they wait for the banks to bleed out the remaining distressed inventory, which could take years at the current rate, and possibly buy a home at a lower price per square foot, or do they buy now while prices are starting to tick up again, risking a potential future loss of equity should there be another crash.

This is a personal question each buyer, and their buying circumstances, must answer.

However there is one BIG caveat. Will the banks exhaust their shadow inventory before the FED raises interest rates in 2015 (and by all accounts eventually they must).

For when the rates rise, (and all accounts I read predict a rapid inflation in the future) then whatever gain in price drop by the "over supply" of banks dumping their remaining inventory, will be offset by the increase in the price of money.

By way of example, a mortgage of 200,000 at 3% is a P&I of $843 while that same mortgage at 6% jumps to $1199 a 27% jump in the cost of money. Homes would have to drop in value 27% just to have a net zero affect on a buyer.

Granted one can't predict what interest rates will be in 2 years, assuming inflation kicks in, but I think its highly unlikely prices will drop an additional 27% (especially after the 50+% they've already dropped since 2008).

Further, if rates go even higher (to even 8% which is not unrealistic) then all bets are off since that same 200,000 mortgage now costs in P&I $1467 or a 43% increase in the cost of money.

So as I have stated in previous posts (notwithstanding my inherent bias as a Realtor wanting to sell you a house) the facts and statistics seem to suggest NOW is still the time to buy and take advantage of historically low interest rates, even with lower inventories and rising prices.

As always I welcome your feedback. What do you think?