Archive for November, 2008
What’s another $800 billion anyways?
November 26th, 2008 Categories: Real Estate News, San Diego County Community News, San Diego county Real Estate News
“The Bush administration is embracing an old adage when it comes to its financial rescue plan: Try, try again.”-www.dailycamera.com, 11/13/2008*
SAN DIEGO– Yesterday mortgage rates dropped a whopping .29% and are currently averaging nationally at 5.81% according to bankrate.com. What caused this drop, the largest single day drop in 7 years, is dejavu.
Remember back in October when congress approved $700 billion dollars for the Treasury to use to help the financial markets? The acronym for the program is TARP and this stands for Troubled Assets Relief Program. They came up with this name because purchasing troubled mortgage assets from certain financial institutions was the plan to save the day.
Well it took only a couple weeks for the Treasury Secretary to change the game plan, some speculate this change of heart happened before the plan was approved, and decided that the solution was to buy stocks in certain banks in order to get them more capital. This new capital would in turn inspire them to start lending money again.
But Paulson said the administration had decided that the original focus of the bailout program — the purchase of distressed mortgage-backed securities and other troubled assets on the books of banks — would not be employed. He said the administration had changed the emphasis because of a need to get money into the financial system much more quickly because of a worsening credit crunch. Setting up a purchase program for the bad assets was taking too much time, officials said.*
Unfortunately, all this seemed to do was keep interest rates high, spur talk 
at the bank level of being able to pay bonuses and allow the bank to hoard their money to make it through the coming financial storm.
So, the reason for yesterday’s deep drop of interest rates was somewhat of a surprise and shock to me. That reason, the Federal Reserve decided to spend $600 billion of its own money to buy, wait for it……… MORTGAGE ASSETS!!! DEJAVU!!!
U.S. mortgage rates plunged by the most in at least seven years yesterday as a Federal Reserve pledge to buy $600 billion of debt succeeded where seven cuts in the central bank’s benchmark rate had failed. -Bloomberg.com, November, 26,2008
This new $600 billion in bailout dollars is part of an $800 billion dollar program that will be operated by the Federal Reserve board which does not need congressional approval for this money or its use. In case you are not keeping score we the taxpayers are now on the hook for $1.5 TRILLION dollars in bailout money.
So in October congress gave the Treasury $700 billion to purchase mortgage related assets in hopes of helping our housing market. Three 
weeks later Treasury Secretary decided this isn’t the solution and not practical. So in keeping with government practice, if it didn’t make sense in October, it must work in November. Yes, we are having the FED do essentially what the Treasury decided would not work!! And guess what? It did exactly what buying stocks bank did not do and that’s lower interest rates and spur hope for a workable tool in fixing the housing market.
This is what should have been done by Treasury when it got the [$700 billion] Troubled Assets Relief Program(TARP) approved in early October,” said Vincent Reinhart, a former senior economist at the Fed who is now a scholar at the American Enterprise Institute for Public Policy Research. Instead, he said, Treasury got distracted by its program to infuse capital into banks.
“As markets deteriorated, the capital that Treasury put in the front door leaked out the backdoor,” Mr. Reinhart said.-Washington Times, 11/26/2008
Aye Carumba.
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Bill Past Due
November 24th, 2008 Categories: Real Estate News, San Diego county Real Estate News
I am having issues with my host. The images not loading are on my end and will be rectified soon. Brian
San Diego– It seems like the biggest recent impact on the our real estate market is going to be no different than what landed us here in the first place. That would be pushing the “pain” into the future, much like credit.
A big announcement came a couple weeks ago when JPMorganChase announced that they would be self imposing a moratorium on foreclosure activity for at least 90 days. While this is great, I never really felt it was being done for altruistic reasons. Moreso that it gives them a chance to regroup and come up with a plan of attack on the continuing crisis. Another opinion on why they have chosen this step is because ”the company likely has ulterior motives; by going forward with this plan, at this current time, JPMorgan can avoid further market regulation surrounding its servicing practices.”-LosAngeles.Injuryboard.com
Then late last week Fannie and Freddie announced a moratorium from November 26th to January 9,2009 for its loan servicers. This step is anticipated to potentially help 160,000 homeowners and while this is good news, one of the conditions is that you must have already missed three payments, so this is kind of a two’fer and so wrong if you are someone doing your best to hold on.
I certainly understand not wanting to foreclose on borrowers over the holidays, but the reprieve from any foreclosure activity should also translate into a voluntary suspension of loan payments for all their borrowers as this is a financial savings since those foreclosed on do not 
have to pay for housing.
Some stop paying, pocketing the money while they wait for their lenders to kick them out. A few lose their homes only to stay on as renters, paying hundreds of dollars less a month.-Wall Street Journal online, 10/22/2008
Additionally, having the condition of having already missed payments becomes the incentive for those struggling to continue to make their payments to stop. If you create programs where a condition to qualify is having not made “x” number of payments, then I obliviously need to stop making my payments.
At a press conference for one of their “Home Preservation” seminars, IndyMac presented a borrower who had their loan restructured from a 30 year loan to a 40 year loan reducing their payment from $2986 to $1600 monthly. Remember, they were able to submit for the modification because they met the more the 60 days late condition among others.
But this is another post.
The impact these moratorium strategies are having on the real estate market is a slowdown in the number of new listings. Recent figures show that short sale and bank owned properties make up close to 50% of the homes sold locally, so with the shut down of the foreclosure pipeline the homes are not making it to the market. Why in the world would I have my 
home on the market knowing that I may have 90 day reprieve?
Like using credit, decisions are being made now that push “paying” into the future. These decisions are going to produce better market numbers, but they are artificial because of this push in to the future. The question in my opinion is will the problem grow larger and more prolonged by shutting down the pipeline now? It’s a shame that this is happening, because the market needs to purge these sick homes and for the health of the overall market, the sooner the better.
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November 13th, 2008 Categories: Real Estate News, San Diego county Real Estate News
SAN DIEGO– A fried and member of the Triathlon Club of San Diego sent this email to me yesterday about a nationwide mortgage restructuring. Here is the plan and my response.
I’m interested your opinions on this.
Dan
———————————————————————— This is a letter we sent to our senators and our congress woman. If youlike the idea, please pass it on to your elected representatives and anyone you know who might do likewise. You can find your representatives at: http://www.senate.gov/http://www.house.gov/ ———————————————————————— Regarding the housing crisis, we believe we have a solution that willhelp stop most of the foreclosures, will inject money into the economy and would be simple to enact. The main player in this crisis seems to us to be loans that were made with low teaser rates that would adjust up after so many years or monthsand adjustable rate loans that were cheap, but became more expensive as rates increased. Our idea would be to have Congress pass a bill that would allow Banks to renegotiate ALL home loans for owner occupied properties, at the ownersrequest, to fixed rate 4% loans for the duration of the loan period, and provide a re-start period for those who are behind on their loans, essentially putting the missed payments on to the back end of their loans.Either the Treasury or the Fed would need to ensue that loans would be available to banks at rates that would allow the banks to maintain a profit. This would allow people who are behind on their payments an opportunityto once again start making payments at a rate at or below what they were previously able to afford, and those of us who have made our payments consistently would receive the benefit of being able to get a lower ratemortgage, putting extra dollars in our pockets on a monthly basis. Doing this NOW could give a huge boost to the holiday retail market which would jump start the economy as we enter 2009. We believe this program needs to be focused amending current loans onlyat this point because we don’t want people going further into debt on their properties by expanding their current loans and taking lump sum cash options that will create large new spending but will not providebenefits beyond the enacting of the program. By renegotiating current loans only, this will put money into the pockets of Americans on a monthly basis for the next 30 years. The program could be expanded to properties that were rented aspermanent residences, provided that the owners would agree to pass at least half of those savings on to the renters. After this program has some time to work, then maybe a second bill could be passed to allow purchases of homes with new loans to help gobble upthe large number of homes that are currently sitting empty across the nation. We hope you work to take action on this program. We thank you for the work you do for our state and our country.
You asked for an opinion, here it is.
Sounds great, but……,
It would have to be mandated with the condition that the federal government would permanently seize your(the financial institution) assets if you do not fall inline. Obliviously there are many problems with that including the fact that foreign governments and their soveirgn institutions are one of the largest investors in our mortgage debt. I heard an estimate today that our mortgage debt is in the excess of 5 trillion dollars(this is Fannie and Freddie only). It would most likely be impossible for the fed to “insure the loans would be available” as stated in the proposal. We’re 10 trillion in debt!!!
What most people do not get is that banks have long gotten rid of the paper. They received the profit from writing the morgage not holding it. Without the ability of the bank to sell the paper, they receive no new money to lend. The investor on the secondary receives the benefit from the hold. But you all probably already know this.
Knowing this, last Friday when JPCHASE, who purchased WAMU and EMC, announced they were self imposing a moratorium of foreclosure activity on loans they held, it was estimated this would effect less than 20% of the loans they wrote. The reason for this is those are the only loans they still own and have a right to modify.
Check this out about the latest fed program called Hope For Homeowners which illustrates the problem on voluntary participation and how it relates to JPCHASE.
According to HousingWire.com, “With reports now surfacing that investors aren’t willing to participate in the recently-legislated Hope for Homeowners — as well as early reports suggesting that lenders are refusing to buy the loans, as well — it’s very possible that JPMorgan is trying to keep ahead of a potential political firestorm over the issue.”
It’s not clear if JPMorgan will be able to yield these proposed ambitious results (400,000 loan modifications within 90 days?), considering investors play a role in this whole process, but maybe they’ll find more success than FDIC IndyMac, which, in comparison, has only modified about 4,500 loans or 1% of the total JPMorgan wants to help.
Now you have Paulson stating that they are abandoning the focal point of the $700 bailout and will not buy the “bad assets”. Additionally with the continuing economic collapes, you now have congress wanting to divert money from the bailout to the automakers.
Treasury Secretary Henry Paulson said Wednesday the $700 billion government rescue program will not be used to purchase troubled assets as originally planned.
House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said in a letter to Treasury Secretary Henry Paulson that the administration should consider expanding the $700 billion bailout to include car companies.
This is a huge economic crisis and I know I probably did not fully answer your question, but there is not a “fix” out there other than time and pain. The “greatest” minds the fed could muster could not stick to their own plan, the 700 billion bailout, for more than 2 weeks until the first change came. However, this is not to say that if you are in financial trouble you throw up your hands and surrender however. You must investigate all your options. If you are in that 1% that received a loan modification that you are happy with and it kept you in your home, you are stoked!!!
Lastly, if you do not follow my blog, which I think this email will now be cut and pasted in to, I love this closing from my last post quoting from the Wall Street Journal blog.
The U.S. government has a far uglier budget than any U.S. bank, with a deficit expected to more than double to $407 billion this year from last year’s $161 billion. It also is the home of $640 toilet seats and $1 trillion in missing transactions. No bank in the U.S. has been as irresponsible as that. So who is in a better position to push the banks into more responsible performance–the government or the markets and shareholders?
This is what I think about between tri club meetings :-)
Brian
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