My New Blog

Uncle Sam needs to take a vacation. The poor guy, with all of that money he is manufacturing his brain is just wore out. President Obama’s administration is shocked! shocked! that the Foreclosure Prevention act is failing. With all of the legislation that he and his crew have been passing since the first of the year, he is tired and not thinking clearly. The model was based on the subprime mortgages to help homeowners modify their loans. As part of the White House’s belt tightening, calendars must be in short supply or they would have known that a majority of the subprime loans adjusted in 2007 and 2008 and those homes have already foreclosed. The homeowners that are now trying to modify their loans have either lost their jobs or are working with less pay and do not qualify for a loan modification due to the strict ratio guidelines. The Obama administration may not be able to read the statistics on unemployment since they are so busy trying to pass the new regulations to monitor the housing industry. Why else would they mandate the HVCC ? The HVCC was directed by a bunch of morons that clearly have no idea what they are doing. The new appraisal system is expensive, stupid and prevents our buyers from having choices. (I apologize to the morons of the world but I am just talking about the mean the ones that decided we needed this law) For instance if a borrower decides that he is unhappy with his lender and wants to change he will have to purchase another appraisal. The appraisals do not transfer. If you disagree with the appraisal, say they appraised the wrong property in the wrong state, it takes Devine intervention to get it corrected. The same legislators have decided that the American homebuyer will need to sign more paperwork including a new three page truth-in-lending to insure full disclosure. If Uncle Sam thinks that mandating more forms is the answer he really needs to get to a beach and slam back a few margaritas. Let’s hope his cloudy brain is not the beginning of government senility.

FYI: CNN reported that California housing prices are on the upswing. Can Arizona be far behind?

BY DIANE GERDES

ECONOMY CUPCAKE

With fixed mortgage interest rates soaring up towards the 5.75 range, buyers are panicking. It is unthinkable that they would have to accept such an outrageous rate. After all, rates were around 6.5% this time last summer, and there are rumors that the rates in the past have actually been higher. Some ancient bankers tell stories that in 1984 the rates were 13.50% and between 1994 and 2002 the average rate was above 8%. But that was when housing prices were lower. Oops, that is not true anymore. Anyway, there is no way that the buyers should have to settle for an awful rate in the mid to upper 5’s. So what is a buyer to do? Introducing….the Adjustable Rate Mortgage. Put away your silver bullets and wooden crosses boys and girls. These A.R.M.’s are not the sub-prime or option A.R.M variety that had unreasonable margins and adjusted way up and were thought to be the catalyst of the mortgage meltdown. The Fannie Mae, Freddie Mac, and FHA adjustable rates are structured differently. And if you were lucky enough to have financed with a conforming or government A.R.M. a few years ago, it is likely that your rate is in the 4’s or less. Historically, with the exception of 2007, these programs have always performed lower than the 30 year fixed. In 2007 they were the same. Adjustable rate mortgages work like this (please don’t cross your eyes, I will explain it quick) the index, either a Treasury or LIBOR, plus the margin, equals the rate. Subprime margins were typically over 6 points and when they adjusted, holy moly. Compare that to an FHA margin of 2 points. So if your fixed for 3 year A.R.M (3/1) with FHA start rate was 4% in the fourth year it can adjust up or down one percent. Today’s treasury rate is .550. FHA’s margin is 2 points. So if today was the 4^th year the actual rate would be 2.550. Since your rate can go down one point it could adjust to 3%. The bank keeps the spread to give to the needy of the world or buy their new Villa in France.

There is a downside. If inflation takes hold, the Fed will raise the rate and then the indexes, the CMT, Treasury bills, LIBOR’s, will all start to go up. The Treasury’s and LIBOR’s are near historic lows but it will take awhile for them to adjust up. Also FHA refinances from an A.R.M to a fixed rate requires no appraisal or income documentation.

FYI: Sad news. The Department of Public Safety is reviewing their contract with speed camera operators to cancel the photo enforcement program. That means I can start answering my front door again.

BY DIANE GERDES

China, home of cute panda bears, rice bowls and feng shui has quietly entrenched themselves into our economy by buying several trillion dollars of our T-bills over the past 10 years. (Remember when a billion was a lot of money?) Since the collapse of Lehman Brothers last fall, China has purchased over 171 billion dollars in our treasury bonds (the 10 year guides our 30 year fixed rates) and in March alone they added 14.8 billion dollars worth to their portfolio. Their economy is emerging as one of the strongest in the world, with little debt and a surplus of savings. Timothy Geithner, Secretary of Treasury, visited the country that invented spaghetti, paper, gunpowder and printing and returned with an agreement from a Chinese manufacturer to purchase Hummer, saving about 3,000 U. S. jobs. They also sent him home with a little spending money to the tune of a few billion dollars. This week economists from China offered to help us out of our recession with their own structured plan. And they will throw in the egg rolls for free.

FYI: President Obama’s stimulus program allocated millions of dollars to cities so they could award first time home buyers funds for down payment and closing costs; and if needed, repairs, to purchase foreclosed homes. There is one, tiny stipulation. The bank that owns the property has to agree to sell it for 15% less than appraised value. Is this a great country or what! Just what we needed, another hit to our declining property values.

BY DIANE GERDES

Cities all over the U. S. will be feeling the heat when the new wave of foreclosures hit our housing markets in the next 60 days. Countrywide, Wells Fargo and Chase have been hording homes to wait to see if the foreclosure moratorium and loan modification programs would cool the defaults. Statistics released yesterday indicated that a whopping 70% of all loan mods eventually end up in foreclosure. The Mortgage Banking Association also reported that 9.1% of all mortgages were delinquent as of March 31st, indicating that President Obama’s policies are not stabilizing the housing market. To appease the big boys at the banks, his administration has snubbed suggestions to help homeowners that have substantial negative equity; opting to focus on lowering payments. Lopping off equity would play havoc with the creative accounting procedures implemented by the banks, evaporating the make believe profits that allow fairy dust for writing off the foreclosures. Good borrowers have started to walk away, (or should I say run) from their mortgages even if the payment is doable. To recoup hundreds of thousands of dollars in equity may take a lifetime. If a borrower keeps their credit healthy after a foreclosure, they can purchase a house again in 3 years, for FHA or VA, and 5 years for a conventional loan.

How about those sizzling rates? Lenders experienced whiplash when the 10 year bond market spiked up. Soothsayers were spouting words like recovery, rebound, the market had been artificially low, it’s about time, blah, blah, blah. I am not a Harvard grad (don’t hate me because I attended public schools and majored in making fun of my math teachers) but if the mortgage interest rates are not kept “artificially low” it will severely burn today’s housing market. No amount of sunscreen will keep us protected.

FYI: Shaun Donovan, HUD Secretary, announced today that the $8,000 first time home buyer tax credit can now be used for down payment assistance for FHA Loans. Details are a little sketchy but it looks like this time it is real. Details coming next week.

BY DIANE GERDES...

Appraisals have become the grizzly bear in the zoo of lending.   New York Attorney General, Andrew Cuomo, determined the housing crisis was caused by appraisers and their relationship with real estate agents and lenders.  Legislation was passed to keep lenders, agents and borrowers all separated from the dangerous and evil appraisers.   In addition new tweaked guidelines to determine value have eliminated the “most beautiful house on the planet” key and replaced with foreclosure and short sale trends.  The sellers that think their house is worth more because it is not a bank owned property better think again.  Appraisers are now required to note recent REO’s and short sells in their report.  If the neighborhood is foreclosure challenged, more than just one bank-owned in a neighborhood, the appraiser will be chastised if they try to bring the value up by using comps outside the subdivision.     Builders will no longer be able to direct business to their “chosen” appraisers specifically used for their communities.     The underwriter’s sworn duty to the bank making the loan is to scrutinize appraisals as well as the credit worthiness of the buyer.  They now have an automated system to help confirm value.  Most conventional loans are requiring a desk review or a field review.  A desk review is the process of the underwriter sending an appraisal over to an independent appraiser to validate the report.  A field review is a completely new appraisal.   Having a strong borrower or putting an obscene amount of money down will not weigh into the decision.  Back in 2005 if the buyer agreed to pay the sales price offered by the seller, the appraiser typically would make it work and with the trend at that time for rapidly appreciating housing values, underwriters rarely questioned the reports.   The combination of enforced underwriting guidelines and the current trend of declining housing values the lending process can get knarly.  Trying to get the value up by screaming and yelling or holding your breath until you pass out does not work, lord knows I’ve tried.   Today’s lending environment is a different animal and we are going to have to wrestle through it until the economy turns.

FYI:   Lenders were scratching their heads in amazement when FHA announced Wednesday that they would allow the 3.5% down-payment requirements for FHA first time home-buyers from the $8,000 housing credit.   The government did away with the down payment assistance programs in October due to the number of foreclosures for buyers that did not have any skin in the game.  And now they would allow Uncle Sam to gift the money?   As quickly as the mortgagee letter appeared it was yanked from the web site with a “oh, never mind.”  Stay tuned to see if  it reappears.

By Diane Gerdes

The S.S. Obama is steering our country into an untested economic frontier. This millennium has been filled with firsts from 9/11 that prompted the revenge motivated aggressions which led to the Iraqi and Afghanistan wars, and the true terrorist attacks: the beginning of the accounting fiascos with the imploding of Enron. Our economy blasted full speed ahead shaking off all of the soothsayers until the banking crisis sideswiped us sending us into an alleged death spiral, saved by the stimulus package and the restructured TARP, engineered by our very own Scotty, Timothy Geithner. TARP allowed the banks to borrow money from the FED at no interest and lend it out at the rates of their choosing. That is one of the reasons for the awesome profits showed by the ailing institutions last quarter. One of the FED conditions for taking the bail out money is that they can make management decisions for the banks that aren’t passing the governments “transparency” test for ready available reserves. The accounting cloaking devices have been on for years and it is a command to be turned off temporarily until the Fed can establish solvency. If reserves are not built up to the Fed’s standards, heads will roll. Talk about stress. In 2008 our globe was inhabited by 1125 billionaires, today there are 793, just a hair more than in 2003. A new law trying to pass legislation will outlaw off shore corporations that some enterprising CPA’s structure to avoid paying federal income taxes. Over 1100 corporations conducting business in the United States shared one address in the Caymans. The minority Republicans have temporarily lost the political battle of trying to utilize Reagonomics and the trickledown theory: giving tax breaks to the rich so they can spend money to trickle down to the rest of us folks. As soon as ex-Saturday Night Live alumna, Al Franken comes aboard as the Democratic senator from Minnesota, the Democrats will be slamming policy through at warp speed. The GOP’s should stop looking at the past and propel into the future or they will go the way of tribbles, cute and furry but no longer relevant.

FYI: Interest rates are inching back up. Investors snubbed the U. S. Treasury bond auction on Thursday. The Fed needed the auction to be a success so the interest rates would stay low. They may have to step back in and purchase more treasuries like they did in March or the interest rates will continue to climb.

BY DIANE GERDES

President Obama’s first 100 days probably were not what he imagined when he began courting the American public for the Presidency in 2007. The stock market was over 14,000, unemployment was at 4.5% and large bonuses with shiny expensive cars were a part of the American Dream. Our charismatic, Harvard educated leader’s term is being compared to that of President Franklin D. Roosevelt our 32^nd President from 1933 to 1945. When President Roosevelt’s began his campaign for the presidency, our country was in the dark throes of the Great Depression. This visionary man implemented social security, appointed the first woman to his cabinet, and developed work programs so American’s could put food on their tables. One of his first triumphs as president was to repeal the 21^st Amendment Prohibition Act, or legalize alcohol consumption. Can you imagine a world without Bud-lite and boxed wine?

President Obama is still in the honeymoon phase although the stock market plunged to below 8,000, and unemployment rose to 8.5%. He successfully guided our Navy Seals to fight pirates, (not the “aahrr matey “of lore but mercenary’s on a mission of death and none of them look like Johnny Depp) and has improved our global image while introducing his political platforms. With all of our big problems it has given our President a smaller library to focus his talk of reform. The economy has provided him with an opportunity to pass his massive stimulus bill and probably will allow the implementation of a national health care. Immigration is a spicy subject and was brought to the forefront this week with demands to close our borders to contain the swine flu. After all, if you get rid of the Mexicans you will get rid of the flu. I always thought that germs were the reason for the illness but in High School I was too concerned about my hair and my date on Friday night so I probably wasn’t paying attention in class when the teacher said it was the Mexicans.

President Obama’s exuberant confidence in the United States and his programs is contagious. With any relationship we must believe in our partner…..until proven otherwise.

FYI: All conventional appraisals are now required to be ordered through specific Fannie Mae approved Web sites. No exceptions. You can thank Attorney General Andrew Cuomo for determining that ground zero for the housing crisis was all due to the appraisers.

BY DIANE GERDES

The housing market in Arizona is attempting suicide from lack of understanding and attention. President Obama made the trip to Arizona in February to grandly announce the Foreclosure Prevention Program modifications and the new refinance guidelines. The government, with Sheila Bair’s instruction gave Arizona (and other at risk states) a pat on the head instead of a much needed, full blown, intervention.

Property values in Arizona have decreased on an average of $8,000 per month since the bank meltdown last summer. Just when it seemed that the housing market was stabilizing in the Spring of 2008, the financial world collapsed and the already steep decline in housing prices accelerated.

People are fleeing their homes, leaving neighborhoods with an ocean of foreclosure signs because their American Dream is now worth several hundred thousand dollars less than what they originally paid. You read it right. One of my clients, a fire fighter in Scottsdale, cannot get anyone to talk to him about modifying his loan because there is no hardship. He purchased his home for $250,000. It is now worth $70,000. Explain to him why he should stay in his home. In the Verrado subdivision in Buckeye, Arizona, homes that sold for $500,000 or more in 2005 can be purchased from a bank for less than $200,000. Houses in some neighborhoods can be picked up for $50,000, devastating property values for the “good” home owners that continue to make their payments. Today's Conventional Wisdom for the "good" homeowners is that the values will never appreciate to the purchased level. Why continue to make the inflated payments on a house that is now worth less than your car?

After several years of making a healthy six figure income, a colleague of mine purchased his dream home in 2006 for $680,000 He financed it though GMAC. It does not matter to him that his home is now worth $350,000: he would do anything to keep it. When his income started to decline along with the Arizona market, he tried to modify his loan only to be told that he would be required to miss at least one payment before the loss mitigation department would consider his request. After extinguishing his home equity line of credit, his savings, and all that is sacred to him, he missed a payment. GMAC then told him, “Gee, we are sorry but your house does not qualify for a modification.” GMAC gave him no options.

Is our government so hobbled by their own arrogance and misinformed financial advice that they cannot mandate the investors that are holding these loans to help the homeowners? By the way, you cannot purchase a Countrywide /Bank of America foreclosure unless the client is preapproved by a Countrywide loan officer and it takes divine intervention to allow another lender to originate the loan. Does anyone else see the logic in allowing a company that was one of the architects of the housing meltdown to profit in today’s market?

Sheila Bair’s modification program would have been a great option: in 2007. It is two years too late. If the government wants to stop the flow of foreclosures they better reconsider a major intervention to address our property values or it will take decades to resuscitate the life line of our economy: The housing market.

BY DIANE GERDES

The big, bad banks are responsible for blowing our homes out from under us. The mortgages they devised had all of the integrity of sticks and bubblegum and were shattered when housing prices began to nose dive. Lately, they have been tiptoeing around the media with their heads down acting meek as sweet little lambs. But the same banks that shepherded the meltdown are in control of the current housing market. Fully executed contracts? You don’t need any stink’n signatures. Either take the verbal acceptance or we will snatch the house away and give it to someone else. Want proof that the asset manager has the authority to sign off on a deed or addendum? Forgetaboutit! Lil’ Red Riding Hood is a perfectly acceptable name especially when it is stamped. Your client is already preapproved with their lender? Use our bank’s lending programs and pay what we determine or find another house. The big boys, Chase, Bank of America and Wells Fargo have gone as far as bullying President Obama’s administration into enacting the “Safe Harbor” legislation. This will give servicers, which include all of the major banks, protection from any lawsuits from the mortgage investors that backed the loans; as well as the ability to modify loans without their approval. A smack-down is coming from these investors that want the banks share the billions of dollars of losses from the modified first and second mortgages and stop crying wolf.

FYI: Arizona will receive up to $20 million to spruce up our National Parks. It will mean more jobs and greener pastures.

BY DIANE GERDES

Love was never mentioned with the announcement of two arranged mergers this week. Pulte and Centex, two of the top five home builders are structuring a $1.3 billion marriage of debt and assets in an attempt to survive today’s housing market. With builder’s orders dropping 70% since 2005, other builders may decide that love is the air and join together. The shotgun arrangement between Chrysler and Fiat has taken on serious tones. President Obama is threatening to take away Chryslers’ dowry of billions of dollars of TARP aid if they do not take plunge by April 30th. General Motors was unable to find suitable match and will end up a bankrupt bachelor since Uncle Sam has cut off the mega auto manufacturer’s government money. Wells Fargo merged with the 4^th largest bank, Wachovia last fall and as a result turned a $3 billion profit for the first quarter of 2009, thanks in part to a new accounting procedure that allows certain flaws to be overlooked. And the music? HARP or Home Affordable Refinance Program introduced by President Obama on March 3^rd was kicked off this week with lenders presenting their guidelines for allowing homeowners to take advantage of the lower interest rates. There are many nuances to the program, but it may allow some of the stated income borrowers the opportunity to refinance. But no options were given to property owners with negative equity over 105% of their current loan amount. Love is certainly missing from the current administration for the Arizona, California and Nevada housing markets.

Have a great holiday weekend!