The man behind the curtain, Ben Bernanke, is quickly finding out that his Ivy league education, fraidy-cat advisors and bag of tricks are not enough to keep the economy propped up long enough to avoid the oncoming storm. Time magazine's 2009 Man of the Year was lauded for flooding the American monetary system with vast amounts of dollars and congratulated for preventing a worldwide financial depression. But that was so 2009. This year the tornado of all tornados, combining the global economy and an imploding housing market blew his stimulus plan into another world.
The housing market is crushing our economy. The clueless munchkins in charge keep trotting out the same, tired, solutions hoping they will work in today's never seen financial landscape. The FT times reported the reason our government keeps bailing out Fannie Mae and Freddie Mac is because the Russians and the Chinese own a majority of Freddie's bonds. To allow them go under could cause a global political catastrophe. Would the Russians cut off our Vodka, and bye-bye Cosmopolitans? But wait, have we finally found the reason why underwriting guidelines are so excruciatingly stupid? They really are in Chinese?
Interest rates are at historic lows. Instead of hiding in the Emerald City, Washington needs to wake up. If they only they had a brain to mandate a program for all home owners to refinance at today's interest rates. Think of the extra dollars that would be available to spend at the malls or restaurants or give to our favorite charities. But it takes heart and courage to pass directives that will override the banks and allow families to stay in their homes.
Yet, the yellow brick road to economic stabilization may be closer than we think. Consumer confidence has improved. If we think things are getting better, it is a proven fact that we go out and shop, reflected by July's retail sales report. Also, July's consumer prices increased a tad, eliminating the worry of deflation. (For now)
And the big bad witch, Inflation, who had everyone screaming she would destroy us all, has stayed away. All indicators state she will be sequestered for some time.
Ruby slippers will not take us back to 2005. But we need to remember, we have so much to be grateful for today. Can you imagine a world without boxed wine? FYI: Amazon.com announced yesterday they are opening a third location, their largest, in west Phoenix. Several hundred jobs will need to be filled.
It's a dark and stormy night with all kinds of critters lurking in the economic landscape. There are the frightful ones we have learned to live with with, named housing and unemployment. Others that attacked us unexpectedly, like Greece. But there are scary creatures in our very own basement that may pop up at any time and attack our economic growth.
The markets rattled when our great financial leader Ben Bernanke stated the economic outlook is "unusually uncertain." But he doesn't see us going back into a recession. Back? Most of us in Arizona have never left! Our housing market keeps us hanging with the big "R" with no signs of relief.
The Dodd-Frank Financial Reform bill signed on Wednesday was touted as the most sweeping financial bill since the Glass Steagal Act of 1933. (You remember that law, don't you? It's the one that the banks had repealed in 1999 and was ground zero for the global financial catastrophe). The hefty 2300 page bill signed into law by President Obama is structured to prevent future economic meltdowns. It allegedly gives tools to regulators so they can reel in the banks if they don't behave, but not enough to hurt their profits. The bill did manage to call for nearly 70 study groups, according to CNN Money, to analyze subjects such as fiduciary standards for brokers and analyzing reverse mortgages. It may be years before we feel the full effect of the law. Two of the most terrifying man-made Frankenstein's living in Uncle Sam's house are Fannie Mae and Freddie Mac, with trillions of dollars in outstanding mortgages that they either own or have backed. The Dodd-Frank Bill did nothing to address their situation: they have cost the taxpayers more than the bail-out banks and auto companies combined.
Both Fannie and Freddie were quasi government entities given quotas for selling mortgages. It was a concoction that bred fraud. For instance, Countrywide Financial Corporation gave loan discounts to employees of Fannie Mae. Fannie and Freddie were both accused of fraudulent accounting practices resulting in huge bonuses for executives of both companies. They funneled campaign contributions to choice government representatives.
Question: The appraiser on my buyer's house listed several items, that in his opinion, are in need of repair. The listing agent says they are unreasonable. She informed me she was formerly in lending and she knows the underwriter will not require the cosmetic items to be fixed. What can I do?
Answer: Well, prepare an amendment for an extension, because you're going to need it. You did not mention if this was FHA or Conventional financing.
FHA is indeed taking a hard stance for properties in need of attention whether it's cosmetic or not. Before you drag out the mortgagee letter 2005-ML-48 from December, 2005, that states otherwise, keep in mind a lot as happened in the mortgage industry in the past 5 years. (Mortgage Meltdown, anyone?) ANYTHING the appraiser notes, takes pictures of, or mentions in passing, an FHA underwriter will require to be fixed. The buyers utilizing FHA financing typically have barely enough funds scraped together for a down payment. Therefore HUD does not want their clients burdened with paying for repairs that should not be their responsibility. The other reason for conditioning for repairs is that any mention of defects, even minor ones, that are not addressed, HUD/or the investor could refuse to purchase the loan. The underwriter's are not willing to take that chance in today's lending environment.
Also, appraisers are subject to random audits. If an FHA auditor inspects the home and determines there were items that should have been noted and were overlooked by the appraiser, he could be sanctioned, or worse.
PLEASE NOTE:
FHA UNDERWRITERS HAVE THE RIGHT TO ASK FOR THE HOME INSPECTION, IF THEY FEEL THE PROPERTY IS MARGINAL. And with that the fun can really begin. Additional repairs may be required.
(This has nothing to do with the 90 day flip rule)
And if it is a conventional loan? See above. If the appraiser mentions it, the items will need to be addressed. Or the investor/Fannie Mae/Freddie Mac may not purchase the loan.
The seller can take his chances and let the underwriter decide. Is it worth delaying the close a couple of weeks or fix the items now and have a chance for a timely close? Does he feel lucky? And I'm betting, with the guidelines tightening every day, it is a losing bet.
Five Ways for Fannie Mae and the Banks to help the housing market*
*without stimulus money. Fannie Mae's directive to freeze out home owners for seven years, who bail on their current mortgage, brought tears to the eyes of Arizona home owners with their tender concern for current customers.
If Fannie thinks that this mandate will help the housing market and deter current borrowers from bailing, she should get her head out of the clouds or "wherever "she has placed it.Instead of doling out ultimatums, possibly she should consider the following:
1. Allow current home owners to refinance their homes at today's appraised value utilizing the HVCC, Home Valuation Code of Conduct. (Or are they just plain chicken to utilize their own weapon of mass property value destruction)
2. Let us refinance at today's market rate. What good does it do to have awesome rates when we can't lower our payments because of negative equity position? Think about the money it would bring into the economy if we had a few extra bucks to spend on something other than our house payment. I could buy wine in a bottle instead of a box.
3. Bring back the stated income program for high credit score, 20% down, asset-heavy borrowers. Don't punish these potential golden home buyers for Fannie's 100 percent stated income, low credit score programs of past years. (Burger King cashiers making $6,000 a month, Really?)
4. The banks should keep a sizable share of mortgage loans on their own "shelf" instead of leaning on Fannie Mae or FHA to replenish their coffers. The Big Boys have billions of dollars in profits. Invest in communities instead of derivatives.
5. The Big Boy banks should admit they contributed to the market meltdown instead of placing blame elsewhere. Get booked on Conan, write a memoir and start making amends by giving away a few billion dollars to home owners by giving incentives to those that make their payments on time. For instance, give cash back at the end of the year or bonus miles. (Yes, I know mortgages are not credit cards, but if Southwest can do it why can't they?)
The depressed housing market's layers are deep and far reaching. It effects all corners of our economy. But until there is an intervention other than from the government, an entry position at Burger King may start looking pretty darn good. (I have dibs on the fryer).
by Diane Gerdes the "Economy Cupcake"
Coming back from Rocky Point over the weekend, the border patrol cheerfully dealt with irate Americans that had to wait in line to get across. When we asked our border guard how he was doing he replied, “I’m standing, in the sun and getting a paycheck. What more could you want?” And he did not request Diego’s papers. Any male Chihuahua with a pink bandana must be a citizen of the U. S.
The disappointing unemployment numbers released yesterday caught the markets off guard when the expected gain of jobs was a no show. With glimmers of economic improvement from manufacturing to consumer spending, the job market is the albatross keeping the U.S. from a full blown recovery.
Arizona’s unemployment rate is holding steady with 9.5%. That means 9.5% of the people that want to work cannot find jobs. It is a shade less than the national average.
Past employment statistics are difficult to pinpoint. In 1933 almost 25% of the workforce was unemployed. But until 1946, fourteen year olds were included in the numbers.
The United States has been through at least 47 bouts of recessions since 1790. And they were not caused by cowboys and Indians or the English taxing our tea. A majority of the recessions were caused by, wait for it: bank speculation, land busts, collapse in real estate prices, stock market dives and pirates. Pirates were to blame for the recession of 1802 when they interrupted trade between countries. Now they are called bankers.
On a side note, how do the pirates in banker’s suits continue making their big boy profits? Why, by robbing the Fed at zero percent interest rates and giving it to us poor people with the outrageous interest rates on our credit cards. But how else will I pay for my boxed wine? Sorry, I’ve regressed.
Our country has been down this economic road many times before. Always, we have come out of it, some sooner than later. But it would help if our leaders were reminded that it is about the individuals that make up our great country not their egos.
FYI: The Phoenix Business Journal reports that The Campaign for Free Enterprise, a project of the U.S. Chamber of Commerce and the National Chamber Foundation, cited Arizona as having put in place polices that bode well for the future of business development. These policies support science, technology, engineering and math; bolstering our state's entrepreneurship and business development. By Diane Gerdes the "Economy Cupcake"
Question: My Client sold his home with a short sale and now wants to purchase another home. What are the options?
Answer: Fannie Mae or conventional loans up to $417,000 has finally addressed the issue of buying after a short sale. The following guidelines are effective after July 1, 2010:
If there are extenuating circumstances defined as nonrecurring events that are beyond the borrower's control such as a death, or act of God, or serious illness (divorce or a change in employment does not count), the following is the guideline also effective July 1, 2010:
The extenuating circumstance will need to be documented. A few years ago, back when you could do low credit score borrowers, one of our clients was late on her house payment due to a tornado destroying it. (No, it wasn't a mobile home) She provided before and after pictures. As a result of her careful documentation she was approved for her loan.
Desktop underwriting requires tweaking to mirror the updated short sale requirements. What does that mean to you? As of today, the automated underwriting systems may spit out a positive decision if the credit scores are high enough. An unknowing loan officer may think the loan is approved. Your client could get all the way to underwriting, only to find out the borrower does not meet the current guidelines.
Also, credit will need to be re-established. Fannie is still working on the exact requirements. But a good guess would be the following:
Summer is almost here and the world's leading economists were telling us it was safe to dip our toes back into the murky waters of the financial ocean. Then on Thursday you heard the theme from Jaws play and the screams of pained investors. The stock market dived as the soothsayers tried to hold on to any safe haven to prevent their previous record profits from being swallowed up.
Why all of the drama? It started with Greece running out of money. One dire consequence was the mutilation of its infrastructure including transportation, utilities, police and fire protection. This catastrophe has spilled over to the rest of Europe threatening to eat away at their unified currency, the Euro.
If the Euro devalues, the single largest buyer of U.S. goods, the Europeans will disappear. Our dollar could continue to strengthen against the Euro, and our goods may become too expensive for them to buy.
The ravenous money burning PIIGS: Portugal, Ireland, Italy, Greece and Spain, need a life-raft of currency. But help may not reach them in time. Their rich adopted brothers, Germany and France, are hesitant to write checks to their spend- thrift relatives.
The PIIGS are heavily indebted governments. They can no longer rely on the once cash-rich financial markets to provide cheap loans. There is fear that the fragile global economic recovery will be pulled back under water.
And if that wasn't scary enough some of our big boy banks have invested in the countries of Europe.
Will things get better if we swim back to shore?
Maybe, more jobs were added last month. But then again, more people were out of work. High unemployment and low inflation -- a combination unprecedented since after World War II-- have hindered our ability to expect higher wages. And with us not shopping as much there is less demand for goods, therefore companies can't raise prices. This is called deflation.
Our great state of Arizona is officially broke. The money we made from selling our capital building for $735 million is long gone. Who will bail us out if we can't make our payroll?
It is enough to strike terror into the hearts of children. By the time we desperately need a bigger boat, they may be sold out.
By Diane Gerdes the "Economy Cupcake"
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