President Obama flew into Arizona to announce his blueprint for a $75,000,000,000 mortgage bailout known as the “Homeowner Affordability and Stability Plan.”

REALonomics has digested the preliminary outline of this program which claims to “…offer assistance to as many as to 9 million homeowners…” through a combination of loan modifications and propping up of Fannie Mae and Freddie Mac, support for state housing authorities and financial incentives for lenders to re-tool existing loans for a predefined set of homeowners whose mortgages fall into specific qualifying categories.

How does it Work and who are the Beneficiaries?

Will the President’s plan make a difference and if so, to whom and when? And, is the plan a sound economic model that will actually help homeowners facing foreclosure, as claimed by the administration? Is this another step in the direction of creating a dependency upon the federal government for and on the part of some Americans and lending institutions?

Let’s take a look at the plan and ask some hard questions.

The plan, set to kick into gear on March 4, 2009, uses carefully calculated qualifying formulas based upon principal mortgage balance ceilings, rigid LTV ratios and market value reductions. The result is yes, some homeowners will be assisted. If you own property in California where 60% of the mortgages exceed $417,000, you will not qualify.

At this point, it looks as if those with higher end home values and jumbo or super jumbo loans are not going to be granted any relief. Only first position mortgages qualify. If you have a second, its only value is to help justify a reduction of the first based upon its contribution to your debt to income ratio.

DOWNLOAD THE EXAMPLE DOCUMENT HERE.

What’s the Financial Carrot for the Lenders?

The plan states that “Treasury will partner with the financial institutions to reduce homeowners’ monthly mortgage payments.” In effect, the taxpayer will be matching the reductions lenders approve on a “dollar-for-dollar” basis to a write down to a 31% debt-to-income ratio for borrowers and lenders will be required to keep the modifications in place for five years.

We will all be funding cash payments to the lenders to pull off the Obama plan. Lenders will receive up-front fees in the amount of $1,000 for each eligible modification. Lenders will also receive bonus payments monthly as long as the borrower stays current on the loan. Are you in favor of such support to lenders?

There’s more! Lenders will be given $1,500 for taking action with those homeowners who are NOT in default or behind in payments and an additional $500 for servicers for modification made while a borrower at risk of imminent default is still current. Is this something you like?

Still more! The government (taxpayers) will also pay up to $1,000 each year against principle balances on loans where the borrower is current on their mortgage payments. This takes place each year the borrower is current for up to 5 years. How does this sound to you?

Are we actually creating a new hybrid sub-prime mortgage product that is simply financed by taxpayers with newly printed money backed by loans from foreign banks?

DOWNLOAD THE PROGRAM FACT SHEET.

Are the Capital Market Supporting Obama’s Plan?

In short, the financial markets have already started to reject the plan with CitiGroup stock dropping to less than $2 and Bank of America plummeting on fears of nationalization of their enterprises and indeed the government control of the financial backbone of the American economy.

Since the federal government started tinkering with banks, throwing our TARP money, setting forth plans to retool mortgages and delivering so-called bailout plans, the stock market has plunged to pre 2002 levels with historic losses, indicating a continued lack of confidence on the part of investors in federal bailout programs.

Another interesting question those of us in the real estate industry should be asking is whether or not this plan will actually stop the reduction of home values, open the credit markets for new sales and stop foreclosures?

What would happen if we just left the market alone? We are already seeing banks stepping up to the plate to solve the problem without taxpayer support.

Do we want our industry’s future to be predicated on total control of the lending and qualifying process, government determination of property values and a segmentation of homeowners into various classes and categories based on home values? Or, do we have more confidence in the free market to work its way through this problem.

REALonomics believes we have only seen the beginning of the creation of a “Nanny State” that may result in more damage to the economy. To top it all off, the CEO of Bank of America has been subpoena in an attempt to force disclosure of bonuses paid to bank executives prior to BofA receiving TARP funds.

Are we thinking long term? Should we back off and let the markets self-correct? Are we willing to take on massive personal obligations for government backed mortgage solutions? How will the “Homeowner Affordability and Stability Plan” impact our children and grandchildren?

DOWNLOAD THE 14 QUESTION FAQ DOCUMENT.

Related posts:

1. The Federalization of our Financial System at your Expense
2. Home Price Declines Hit New Records: What Can the Industry Do?
3. Gekko was Wrong…Greed is Bad

The first camp’s position seems to be “I don’t do politics as a real estate professional, it’s personal and I don’t mix it with business…that’s what I pay NAR to do for me.”

The second camp takes a different approach which might be characterized as, “If not now, when…we need to start speaking up and letting our individual and collective voices be heard in order to impact decision-making.”

As we approach the election on Tuesday, November 4, 2008, REALonomics would like to encourage all real estate professional, regardless of which camp they reside in or what their political persuasions might be to vote.

Voting influences outcomes. A proactive real estate industry that votes is but the expression of choice on a single day. Beyond the ballot box we should be using our individual voices to influence opionion and stake our individual and collective places in the political process. Our individual voices form a type of collective concensus in the arena of public opinion and the national soapbox of ideas.

We can engage the voting public by exploring political social media opportunities that are outside industry, such as iVoteAmerica and other political blogs that reach the general public.

Let your voice be heard by voting and by blogging about the great issues of our day that are influencing the country today and into the future.

Related posts:

1. REALonomics Launches National Political Blog Network

EDITORIAL

REALonomics urged the real estate industry to reject the $700,000,000,000 government bailout program.

The National Association of Realtors (NAR) took the opposite position and even launched a national public relations campaign designed to convince us, the members, to support something that historically we have never supported, government interference in the private sector free market.

Well, here we are, a few days hence, witnessing the most massive loss of personal and real estate wealth in the history of the world.

Now let’s talk about the real estate industry specifically. The central wealth producing asset of most Americans is their investment(s) in real estate. Our industry has been dedicated to the creation of wealth through home ownership supported by one’s ability to qualify for mortgage financing and to service the debt based upon qualifying ratios.

It appears we have adopted a position that runs counter to our industry’s historical roots. But worse than that, through industry support of the bailout we have actually made a fundamental mistake in economic judgment and we may have harmed the ability of brokerage firms and agents to be effective ambassadors and cousellors to consumers.

Are we ready to exchange a long-held traditional and fundamental economic model for a new system where the notion of “bail-out” through subsidized real estate welfare is a valid competing model?

Should NAR have supported the $700 billion bail out? We don’t think so and we said so in our post entitled “Warning: RE Industry will be Harmed if Bailout is Backed by Us” on September 30th, 2008.

REALonomics calls on NAR to reverse its position and return to our historical position where we only believe in the American dream of home ownership where individuals and families, under the guidance of sound advice from Brokers and agents, purchase homes they can afford.

NAR’s support of the bail out was wrong and we should make that admission to the American people so that we can regain the trust of consumers.

Related posts:

1. The Great American Real Estate Alchemy
2. Obama, McCain and Real Estate
3. Warning: RE Industry will be Harmed if Bailout is Backed by Us

REALonomics continues to take a position that the natural market cycles should dictate the recovery and that government sponsored bail out attempts will create additional long term issues and actually stall a real recovery.

Although many in the industry favor federal intervention we are hard pressed to find anyone setting forth specific rationale for doing so. We hear a lot of emotion but not much sound economic reasoning based upon our industry’s historical commitment to traditional capitalism as the driving force behind real estate home ownership.

Wachovia was snatched up by CitiGroup just days ago. According to the FDIC’s website, there have been 40 bank failures since 2000 and NONE of them…yes, that’s right…none of them was bailed out by taxpayers. At iVoteAmerica.com there are predictions of more bank mergers over the next several business days.

Failing banks will continue to be absorbed just as ALL of them have been absorbed to date. After all, the best investment good banks can make today is to purchase assets of failing banks for pennies on the dollar and delivering huge internal rates of return to themselves. Therefore, patience is called for and we ought not to allow ourselves to be influenced by knee-jerk politicians from either party. Forget the election for a moment! Forget your favorite party preference for a moment!

Yesterday, September 29, 2008, the stock market lost more than $1 trillion in value. REALonomics predicts that investors will surface, shifting their investment strategies to more conservative, traditional positions.

NAR is Wrong on Rescue Package

Furthermore, REALonomics believes that the endorsement of the bailout by the National Association of Realtors (NAR) is a dead wrong endorsement and a clear indicator of NAR’s desperation with the housing market and its departure from the traditional approach to real property investment where true equity was a necessity to home ownership.

Our core value has always been home ownership as the primary investment for individuals and families. Behind this core value we have heretofore (prior to subprime lending) advised our clients to utilize conservative strategies when purchasing a home, including establishing and NEVER compromising their equity position. Have we decided as an industry that this is bad advice and adopted a dangerous borrow-to-the-hilt value system?

Some of you will remember the days when we encouraged homeowners to build “true” lasting equity that they could rely on when it came time to retire. The home was a person’s primary savings and investment account. I have a question for the RE industry; “Have we decided to depart from this core value position?”

Danger, Danger and More Danger to Owners

What about real estate company owners, our favorite topic? If the bailout occurs with a massive amount of taxpayer dollars used to rescue the so called “toxic mortgages” most real estate company owners will be effectively out of business within a short time as home values will likely plummet to pre 2001 levels. The toxic loans will be discounted to unprecedented levels, impacting literally every property value in metro markets.

If a rescue occurs, all property values in the United States will immediately decline. In fact, the financial institutions are already cutting HELOCs and credit card amounts in a desperate attempt to ratchet the market downward.

If the rescue occurs as currently outline by the Senate and voted down by the House, the ability for the average American buyer to access available real estate investment capital will diminish the market by perhaps another 50%. Although REALonomics is not attempting to inject hysteria into an already highly charged situation, we believe it is important that Realtors® have a clear understanding of the potential long term risks of a bailout by taxpayers.

Just Plain Old Bad Business and Bad Policy

The rescue of bad loans is simply bad real estate business and bad real estate business is bad for the real estate industry and bad for real estate company owners.

Let the market fix itself. The market will repair itself and the results will be less painful than allowing the bailout to prevail. The fact is…actually, the truth is, we are going to be harmed. The only question is how much pain are we going to allow to be inflicted upon the industry?

If we do not allow the market to heal itself and we adopt a taxpayer bailout mentality we will be adopting a fundamental shift in the historical values espoused by the real estate industry and to a large degree we will have socialized real estate, diminishing the value of all Realtors® and the industry itself. Such a shift in policy will create a huge potential for government oversight of the real estate industry and create transaction liabilities for broker/owners, franchisors and let’s not forget appraisers and mortgage lenders.

We encourage you to think deeply upon these things.

Related posts:

1. Government Interference has Harmed American Real Estate Wealth
2. An all Carrot and no Stick Industry
3. Home Price Declines Hit New Records: What Can the Industry Do?

Cast your confidential vote for President at iVoteAmerica.com.

—– syndicated post from iVoteAmerica begins here —–

Join the game that has taken America by surprise!

Previous big winners include Wall Street, the Mortgage industry and foreign investors including China and many others. Register today, login and play!

Everyone is automatically a contestant and the stakes have never been higher. Go ahead, put yourself on the line.

—– syndicated post from iVoteAmerica ends here —–

Related posts:

1. The Federalization of our Financial System at your Expense
2. Gekko was Wrong…Greed is Bad
3. REALonomics Launches National Political Blog Network

REALonomics Editorial

We now own what we cannot control. We are witnessing the Federalizaiton of the Financial Systems of America. Backed by a fickle Congress and flanked by Federal Reserve Chairman Ben Bernanke, President Bush and Treasury Secretary Henry Paulson, contrary to their former political beliefs that government should stay out of the private sectors of the economy, took measures today to endorse the Federalization of our money systems.

Q1 - What does this mean to the real estate industry?

Clearly we are entering spooky waters wherein we dared never enter before. REALonomics believes the move by the government will paralyze the industry making home buying and selling incredibly difficult, if not impossible, in some already paralyzed markets. Home and commercial property values will assuredly decline even more, reducing the networth of the industry and its investor and home owner base.

Q2 - What does this mean to the mortgage industry?

Expect huge consolidations greater than the Bank of America’s absorbtion of Countrywide and Merrill Lynch. With this consolidation of the financial titans, mega titans will be created and essentially be required to submit to a new set of tightly regulated lending rules. It will be harder and harder to borrow and lend. This will create a over-regulation of the market and further drag on mortgage recovery.

Q3 - What does this mean to Americans?

Each of the more than 300 million people in America, including those born yesterday, will end up with at least a $100,000 debt hanging over their heads. This is the representative figure that is the accumulation of the current escalation of the national deficit and the new estimated $2 trillion dollar bailout of the financial markets.

The government bailout of the private sector of the market means that each of us was just handed a tax bill or, we might call it a “cash call” because we are collectively the new owners of the private problems of borrows and lenders.

Ron Paul (R, TX) was correct when he told Ben Bernanke, in essence, “you are going to bankrupt the American people with your money policies.”

The average American family is essentially, on paper, wiped out by this move and the impact on the real estate and mortgage industries was just extended to perhap a decade or even more.

Q4 - What does this mean in terms of the election?

This is the easy question and the answer is more finger pointing, more investigations, excessive government snooping (there needs to be some), lots of drama on the political stump and a great deal of harm to John McCain, who is already having difficulty coming out from the shadow of Bush’s foreign and domestic policies.

But it also means trouble for Barack Obama. He can forget about his national health care program for all Americans, he can forget about taxing anyone, much less those earning incomes above $250k and he can kiss his “no-new-energy-if-it-means-drilling-coal fired plants-and-nuclear-power” policy good by.

In essence the damage done to both candidacies is substantial and the next 45 days are going to be like the wild-wild-west as we run up to election time. To vote in the Presidential poll, visit www.iVoteAmerica.com.

The most remarkable thing about today’s move to “take-over” is that it represents a profoundly fundamental shift in our capital market value system and establishes a whole new mechanism for creating a way to further tax the American people. Make no mistake about it, you just got taxed and to pay the tax bill you were forced to financed the payments over time. There was paperwork, no disclosure and no recource for any of us. All of this is taking place right before our eyes without much of a whimper or a voice of protest.

Related posts:

1. Paulson Pushes Bush Plan to Revamp the U.S. Financial Regulatory System
2. Deal or No Deal – Play America’s Game of Chance
3. Restoring a Disrupted Eco System

EDITORIAL

A re-post from iVoteAmerica, dated Monday, September 15, 2008.

In the movie Wall Street, Gordon Gekko proclaimed to shareholders, “Greed is good!” Gordon was wrong. Wall Street was wrong. The real estate and mortgage industries were wrong.

Oh, by the way…Alan Greenspan was wrong too when he proclaimed that subprime lending was “innovative” and “beneficial to consumers.”

Sound economics and the art of lending are predicated upon the borrower’s capacity to service the debt, pay it down over time and deliver return to the lender.

The concept of borrowing without capacity is foreign to all western economies and you won’t find it on any campus in America in Economics 101. Neither you nor many of your friends was ever taught the principle “you can have something for nothing.”

No One Whined about the Flow of Money

From about 2000 through 2005 greed was good to Wall Street and to the real estate and to the mortgage industries. No one whined about the money back then.

Even REALonomics, one the real estate industry’s few cutting-edge, truth-telling blogs has acknowledged in a recent post the roll the real estate and mortgage industries have played in the crash of the housing market. Refreshing honesty amidst a sea of excessive finger-pointing and blame gaming.

With today’s huge 500 point decline in the NYSE, the collapse of Lehman Brothers and the timely absorption of Merrill Lynch by Bank of America we have the first bright light in the housing market collapse.

The First True Glimpse of Light

Today’s calamity was a glimmer of light and good news. Today’s plummet was the true market telling us greed is bad.

Yes, this is a bright light! Finally, the healing can begin along with celebration of the release of the last hot air from a pumped-up pseudo market, held together by slick accounting practices.

If not next year then certainly the year after your home value will begin to increase again.

Politically, this means there is less chance the Federal Government will continue its bailout of collapsing institutions that have made greed their mantra.

Tomorrow may see an uptick in the market as the true, blue-blooded economists and investors who understand the balance between eithical lending and moral borrowing begin to buy into a new market that is finally vomiting the economic bacteria from the depths of its belly.

Let the healing begin!

Related posts:

1. Ohhh…mega, 15teen, PMA & Alpha
2. The Inman Comment
3. The Federalization of our Financial System at your Expense

Such was the case for me in September, 2005.

That was the month and year that I first noticed the beginning of the waning of the real estate market. Not that I was too concerned, having sold my company in April of the same year. The market reports and online articles that typically flood my computer screen seemed different than those to which I had become accustomed. I noted the change and went on. “Oh well,” I remember thinking, “just a statistical blip…a temporary abnormality.”

Little did I know that this would be the anniversary of my ignorance.

In the Summer of ’05

In ’05, the market was ablaze, sales were happening, loans were funding and people were still entering our industry in unprecedented numbers. The gold rush was on!

Within and throughout the real estate industry there was attitude. We were strutting our stuff like peacocks in a 4th of July parade. Companies had shattered their all time sales records. Being a million dollar agent was akin to being in preschooler. We were producing $10 million, $20 million and even $50 million dollar agents, like water from an open spigot. Agents had become accustomed to $100k, $250k and $500k incomes after a couple of years in the business. Most of them spent every cent of it on guess what? Real estate.

But now, looking back, I’m asking myself, was there too much pride, too much self-confidence? Were we shackled by our lack of clear thinking and proper vision?

Were we engaging in ignorance? Were we flirting with a dangerous kind of collective ignorance?

I wonder if I am to blame for some contribution to the market bust. I wonder if “we” are to blame. I wonder if our industry is to blame for not being pragmatic and disciplined in the advice given our clients regarding their purchase of homes with inordinately inflated prices and mortgage rates too good to be true? Yes, I know hindsight is 20-20 and second-guessing can be dangerous. But the real estate industry and our power over people can be a dangerous thing if we are in any way self-diluted.

I’m beginning to think about how “we” qualify our clients. Forget the mortgage industry for a moment and focus closer to home. I’m thinking about the thousands of John and Mary Does to whom we owed our utmost fiduciary in all matters pertaining to the acquisition of real property. I’m wondering just how well trained our agents really are and how accountable we were in the Summer of ’05.

In the Summer of ’08

We now find ourselves exiting the summer of ’08. We will most likely face a frosty Fall in which we will not be close to anything we can call a recovery. Every day a news story breaks that delivers another hammer-blow to the already weak market. While politicians pontificate, the market continues its retreat.

Those markets that heretofore were boasting “we’re okay over here,” are now feeling the crunch as their inbound buyers are unable to sell property in order to commit to relocation. Underwriting rules are being revamped almost daily. Banks are tightening up and even denying loans to their A+ customers. Some banks are closing their doors. Freddie Mac and Fannie Mae are in a state of reorganization.

In the summer of ’08 I’m soul-searching. Are you? I’m wondering if our industry needs to soul-search and create a list of “things gone wrong.” A list of things we will vow to never repeat. As I muse, I’m wondering what our collective ignorance avoidance checklist would look like.

There hasn’t been much, if any, talk about our role and responsibility in the market crash…we can finally call it a crash without being chided and derided for negativity. Yes, we love to point our finger at the favorite scapegoat and counterpart in the millions of transactions from which we benefited, the mortgage industry. But what about me, you, us? What about the professional real estate industry called Realtors®?

After all, weren’t we pretty happy? No, let me correct myself, “delirious” is the word I should use to describe us in the summer of ’05. Weren’t we delirious when we collected those commission checks, one on top of the other in the summer of ’05? Weren’t we beating our collective industry chests just a little, figuratively speaking?

The Anniversary of Our Collective Ignorance

September, 2005 will always be the anniversary of my ignorance. Sometimes I’m forced as an industry analyst, consultant and supporter to ask questions and to say things in ways that are designed to get attention and to challenge the real estate industry with questions like this one:

“Was September, 2005 the anniversary of our collective ignorance?”

Related posts:

1. Gekko was Wrong…Greed is Bad

Editorial by Stefan Swanepoel

I would like to share with you the fantastic afternoon I had this last Saturday. My wife and I had the privilege of being invited to the two hour Saddleback Civil Forum with Senator Barack Obama and Senator John McCain. This was the first time these two presidential hopefuls, and expected nominees for the Democratic and Republican Parties, shared a public stage.

Rick Warren, author of “A Purpose Driven Life,” and pastor of our Church, Saddleback in Lake Forest, had organized for Obama and McCain to come and present their views on important issues.

The Atypical Conversation. This was not your usual political debate with read-the-teleprompter canned speeches on pre-approved political questions. No sir. This was about the real stuff – the big subjects – topics we usually do not hear about in a presidential face-off.

On Sundays, Rick is usually dressed up in a Hawaiian shirt, but this Saturday was different – he was in a dress shirt, no tie and suit. Rick himself is an excellent and inspiring speaker but the afternoon wasn’t about him.

During the forum Rick first posted questions to Obama before asking McCain the same set of questions. Topics covered aspects such as personal values, religion, abortion, marriage, education, evil, stem cell research, energy and their respective vision for the United States.

Obama was enthusiastic, but gave answers that left one often confused with his commentary falling on “both-sides-of-the-fence.” His weakest answer was probably when he replied that’s “above my pay grade.”

McCain’s appeared more comfortable and his replies were short and concise. His weakest answer was when he jokingly replied that $5 million annual income would qualify as “rich.” 

As Rick noted, it was clear that both care deeply about America.

The Forum Got Me Thinking.  It was the best and most honest political debate I have heard in decades.  Overall it was a very interesting and eye-opening experience – this got me thinking. What if we could have a Real Estate Forum like this one but where someone like Dale Stinton of NAR would ask the candidates’ questions directly related to real estate, housing and the mortgage crisis? Items that are of direct importance to our industry.

Wouldn’t that be great! How about it Dale, think NAR could pull an event like this off?

Watch the Saddleback Civil Forum.

Related posts:

1. Obama & a New Real Estate Industry
2. Government Interference has Harmed American Real Estate Wealth
3. Real Estate Recovery Quo Vadis?

Can the 2008 Housing Act Stabilize and Turn the Real Estate Cycle Around?

Who would have only 5 years ago expected that we would be staring down such complex and turbulent times in real estate?

Last week, President George Bush signed The American Housing Rescue and Foreclosure Prevention Act of 2008 (the Housing Act) into law. It is the most sweeping housing legislation since the Great Depression. The new Act authorizes the Department of the Treasury to stem the tide of home foreclosures and provide a lifeline to mortgage lenders. With inventory in many large cities sitting at almost a one year level, and foreclosures expected to surpass 6 million by 2012, they have a huge task ahead.

Related posts:

1. Obama & a New Real Estate Industry
2. Is the Future of Real Estate in Google’s Algorithm?
3. Real Estate Recovery Quo Vadis?