Mortgage

Biting the Hand that Wants to Feed Us

flickr image by revdancatt

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.
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Supporting the NAR Stimulus Agenda

The National Association of Realtors® (NAR) is getting it right, this time. REALonomics did not agree with NAR’s previous rubber stamping of the Bush-Paulson-Bernanke $700 billion bail out. Nor did we agree with NAR’s attempt to get the industry to back the bail-out, prima facia.

This time around, however, NAR is getting it right and deserves the support of the industry…yes, I have already sent my letter to my elected officials supporting “The Four Point Plan” put forth by by NAR. REALonomics is endorsing this plan with comments inserted into NAR’s message that was emailed to members.

NAR has urged Congress to include the following provisions in any future legislation:

NAR POINT ONE: Make the $7500 tax credit available to all purchasers and eliminate the repayment requirement. The credit’s limited availability and required repayment terms have severely limited the credit’s appeal to potential homebuyers. As a result, the credit has not been widely used or proven effective at stimulating sales.

REALonomics: We concur. The tax credit should be a true credit against taxes, however, and at the descretioin of the buyer, be taken in one year or extended to up to three years of equal credit deduction. This would allow each consumer some flexibility in the application of the credit based upon income and other factors. In addition, we would like to see the deduction made available to investors who purchase in calendar year 2009.

NAR POINT TWO: Make the 2008 FHA, Fannie Mae and Freddie Mac loan limits permanent. New rules for 2009 would significantly reduce the FHA, Fannie Mae and Freddie Mac loan limit from their 2008 levels. Now is not the time to limit the availability of affordable mortgages.

REALonomics: This part of NAR’s plan needs further clarification for members. In general, we concur, but the devil could be lingering in the details on this one.

NAR POINT THREE: Get the Emergency Treasury bank relief program back on track by targeting more funds to mortgage relief efforts and increasing efforts to mitigate foreclosures. Don’t just give the banks unrestricted cash. Make the program work to improve mortgage and housing markets as it was originally intended.

REALonomics: Yes, NAR, this position is the correct one! We were all burned by the ambiguity of the emergency relief program and we, in fact, got hood-winked into believing that toxic mortgages were going to be purchased and sold to investors at discounts. In fact, the banks just banked (pun obvious) the bucks or, in some cases used the funds to purchase other banks. But the problem is also an empowered Treasury Secretary who could simply redirect the funds in just about any way he so desired. To date not a single mortgage has been purchased and resold. The mitigation of foreclosure loses is a tricky one and REALonomics takes a very conservative approach to how this should work. Consumers who are in default should not be rewarded without some additional tax incentives to those who are not in default. We cannot reward bad behavior. Leveling the playing field is going to require caution and discipline.

NAR POINT FOUR: Permanently bar banks and banking conglomerates from engaging in real estate brokerage and management. The banks have proven they have enough to do to simply properly manage their current lines of business. Do we really want them to manage the home buying process? Imagine what could have been the situation now if they already had the added ability to engage in real estate sales.

REALonomics: On this point REALonomics disagrees with NAR. Point four should not be on the table at this time. Although we are not yet convinced that we should advocate bank brokerage models, there remains a lot of room for discussion on how banks can collaborate in economic partnerships with real estate brokerage firms in order to shore-up the profitability of each to the benefit of the consumer. It’s understandable why NAR, as a preservation move, would call for this issue to be addressed and finalized. REALonomics still advocates streamlined and consumer-centric home buying/home financing models. Such models might be created out of financial partnerships that are carefully blueprinted so that banks and brokerage can maintain levels of expertise.

CLICK HERE to take action on the NAR Four Point Plan (NAR members only).

Obama & a New Real Estate Industry

On Friday, November 7, 2008, flanked by some of the most prominent names in the economic and business world, President elect Barack Obama held his first press conference. The central topics, the nation’s economy and of course, the “first mutt.” We will blog about the mutt later…for now, more serious stuff looms.

The Obama news conference was followed this morning, Saturday, November 8, 2008 by a radio address with similar content. These two initial events give us hints about the Obama economic model that will shape America and of course, the real estate industry for perhaps decades.

Attacking the Economy Means Controlling the Outcome

The Obama team is going to attack the economy in laser-like fashion. New rules are going to be written that will impact the private sector and retool the way in which those transactions dependent upon credit and lending work.

REALonomics has believed for some time (years, actually) that the real estate industry needed to redefine itself through sweeping consumer-centric changes driven mostly by standards based brokerage and maximum transparency.

What we never knew and could never predict are the bleak economic factors that now give rise to the transformation of our business models and have fueled a meltdown of home values in such universal proportions. Principle: Economic problems left unsolved by the private sector typically invite government mandated intrusions in order to harness the favor of the electorate.

Can the RE Industry Still Write its Own Rules

It is beginning to look a lot like the real estate industry will be shaped not by factors we control but by the policies and rules created by others. We, under the mantle of the National Association of Realtors (NAR), have, for the most part, missed most of our opportunity to define and shape the debate and participate in the rules that will create a “New Real Estate Industry.” NAR’s mistaken endorsement of the $700 billion bailout program has hurt us and created a dependency relationship with the federal government. In essence, we have been placed in the unenviable position of a reactive industry rather than a proactive force.

Do we still have the clout and the courage to write our own rules? Do we have the will power, discipline, leadership and the creative inspiration to recognize that we are on the cusp of a “New Real Estate Economy” wherein we can control the rules that dictate how the industry operates within a consumer-centric era? Have we become an industry, like so many before us, that will eventually become reliant upon the solutions created by a bloated federal bureaucracy that is more interested in centralizing power than in actually empowering people?

The Key Principle behind Rule-Writing

It’s not so much the rules per se, that govern business matter as it is the economic and social viewpoints of those who pen the rules. It’s always belief that precedes policy. What we believe about our industry is different that what Washington believes. There are principles behind rule-writing, always!

The key principle behind rule-writing is simply “BE THE RULE WRITER.”

Here are but some of what REALonomics believes will be the “new rules” evolving from the financial policies that will be put in place during what will be increasingly defined by the new Administration as a “crisis.” A history lesson…bureaucracies flourish best when set in motion during “crisis.”

NEW RULE 1: There will be a heavy emphasis on creating a bevy of legislation designed to control each aspect of the mortgage lending process. This sounds good until we understand the difference between our and Washington’s definition of transparency and disclosure. The new set of rules will further slow the markets while everyone waits to see and then create a whole new layer of regulations and regulators operating in the basement of every mortgage lender.

NEW RULE 2: Crack down will be the new operative language for not only Wall Street and so-called “overpaid CEO’s” but also those within the real estate industry who are not fully compliant with Rule #1. REALonomics thinks that real estate brokers will become targets for industry crack down and the eventual police force for compliance with new lending and transaction rules. In his website Barack Obama has already pledge to crack down on brokers and lenders.

NEW RULE 3: NAR will become more and more dependent upon government approval for the implementation of our industry policies and procedures that have sustained us for decades. NAR, already reeling from the DOJ debacle, will have a mandated hotline to Washington and will need to use it to check-in, seek approval and help implement the new rules that will be written. In essence, NAR could become an extension and purveyor of brokerage and home ownership policies written by the Obama administration, Pelosi’s House and Reid’s Senate.

Although the housing industry is suffering and the real estate industry is under siege, REALonomics would like to encourage the industry to step up to the plate and position itself under a new set of operating principles that can be sent to Washington as a demonstration of our commitment to operating and policing our own industry. We are still strong enough to influence the outcomes if we are proactive rather than reactive.

Let’s continue to remind ourselves that the key principle behind rule-writing is simply “BE THE RULE WRITER.”

Get the full transcript of the Barack Obama news conference and read between the lines.

Greenspan Admits “Mistake” calls the Credit Crisis a 100 Year “Tsunami”

REALonomics has roughed up Alan Greenspan over his support of the concept of subprime lending and his denial of any contribution to the collapse of the credit markets. See the post.

It looks like Mr. Greenspan has finally started to step up to the plate with acknowledgements that his thinking was less that stellar.

Today, in a hearing before the House Oversight Committee Greenspan finally acknowledge, if only by innuendo, that his judgment fell short of what was needed to predict the housing market decline.

“Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment.

With respect to Greenspan’s belief that banks would act in the best interest of shareholders, Greenspan said his thinking was wrong because there was, “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.” The current crisis was referred to by Greenspan in his opening statement: “We are in the midst of once-in-a-century credit tsunami.”

In essence Greenspan called this a “mistake” in how he viewed the integrity of banks and mortgage companies. Makes us wonder if he just fell off the turnip truck.

Of the current financial crisis, Greenspan said that it “turned out to be much broader than anything that I could have imagined.”

Unfortunately, Mr. Greenspan has not yet acknowledged his “mistake” in his endorsement of subprime lending as something good for consumers. Perhaps another day.

Home Price Declines Hit New Records: What Can the Industry Do?

The question for the real estate industry to grapple with in the midst of the credit crunch is how can we help struggling homeowners in severely depressed markets such as Las Vegas, Phoenix, Miami, Los Angeles and San Francisco?

According to a recent Standard&Poors/Case-Shiller home price index of the top twenty metropolitan area home values, we are seeing record declines. Get a copy of the report.

Here’s the breakdown synopsis (source: Standard&Poors/Case-Shiller) (arrow highlights by REALonomics):

In these and hundreds of other markets, home value declines are taking a toll on individuals and families whose financial security is predicated almost entirely on home ownership.

There are at least three things local real estate companies in partnership with mortgage and title service providers could do for struggling homeowners.

1. Set up financial support workshops led by experienced brokers/agents designed to coach homeowners with respect to their property values, the current trends, their specific mortgage situation and how to take positive steps to stay in their homes unless they absolutely must sell at this time. Such workshops should utilize skilled mortgage service counselors (not loan officers) who can give them answers;
2. Real estate agents in troubled markets should be literally returning to the old practice of knocking on doors, not to get listings but to meet homeowners as “Property Consultants” to discuss specific home values within their neighborhoods and offer advice. In addition, brokerage firms should deliver resource information to homeowners that will advise them about market conditions, refinancing and other information they need;
3. Brokerage firms should turn a portion of their print media budget and Internet costs toward creating blogs that are specifically administered by trained “Property Consultants” who can interact with property owners and deliver solid advice in real time.

During the next 24-36 months brokerage firms who want to build and retain consumer loyalty and predisposition should take a serious look at engaging in the creation of a group of “Property Consultants” who engage homeowners who are facing uncomfortable times.

Such an emphasis sends a powerful signal to consumers that we are serious, skilled, well trained, competent and knowledgeable professionals who can and will assist them with any property question they have, including financial counseling.

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