Digging a Little Deeper Yet… Fallout from the Protecting Tenants in Foreclosure Act

So, here we go again, looking at the negative aftereffects of a law instituted to protect tenants and abandoned properties.  To sum up, the federal Protecting Tenants in Foreclosure Act, PTFA, was put into place with the intention of protecting neighborhoods and on-property tenants from declining property value and safety of foreclosed or abandoned properties. The law requires abandoned properties to be maintained for aesthetic and safety reasons, including heat or repairs. Since its inception, many states have adopted similar laws in the hopes of maintaining the still-flagging property values for neighboring homeowners.

While the specific criteria of each state’s law differs to some degree, oftentimes the law applies for properties that have been abandoned completely and stand empty or those rental properties that are occupied by a tenant and abandoned by the mortgager.

Who is going to pay to maintain these properties? Tenants’ responsibility is limited by their rental contracts and with mortgagers abandoning or foreclosing their properties in the light of the protracted economic crisis, the mortgage holding banks and lenders are the effective “third signer” on this blank check for property maintenance.

The banks and lenders are only responsible until the foreclosure process is complete, which may have been the one criteria overlooked in the implementation of this law. The combination of bankruptcy and foreclosure tends to mean a long-drawn out legal process, extending the lender’s responsibility for maintenance on the property.

There are a multitude of issues that come along with lenders having the extended burden of property maintenance, least of all being extensions of funds that are seemingly tight to begin with. Again, we are seeing proof of reduced responsibility on the part of property owners; again we are seeing a bailout with limited view of the actual results.

There needs to be serious consideration for adoption of this type of law for any state. Stipulations need to be put into place to limit the financial burden on the mortgage holding banks, while still maintaining properties for safety purposes. With no way to speed up the foreclosure or bankruptcy process, new options must be researched before running down this new would-be slippery slope.

Frying Pan into the Fire

Beginning a new process to “help” the large quantity of foreclosure-status mortgage holders avoid losing their homes, Fannie Mae and Freddie Mac have decided that in lieu of these people losing their homes, they should have the option to turn their defunct-mortgage loans into rental agreements.

With the failing home market and the loans that are now due, the two mortgage moguls own more than 100,000 homes due to mortgage foreclosure. How to continue to make money without the trouble of having to resell the home in a still-weak economy? Why, allow the current mortgage-holders to become tenants, of course!

As a REALTOR® and tax payer, this new attempt to keep their heads above water with no consideration to the effects on the housing market, the economy or the country as a whole is frustrating.  If they can manage this until the housing market levels out, they still have the ability to sell the property then.

This is yet another bad example of a business practice that is bound to backlash into the weakened economy and take a little more out of taxpayers’ pockets. These potential renters will be the same mortgage holders that, for one reason or another, were unable to pay their mortgages. They are now going to be potential tenants that will not pay their rent. How does this help anyone but Fannie Mae and Freddie Mac? It doesn’t.

Changes to the Home Buyer Tax Credit

After much discussion and negotiation, the revisions to the New Home Buyer Tax Credit have been posted. According to the National Association of Realtors Issue Brief, President Obama will be signing off the additions and the following list the highlights to the plan that has been extended to April 30, 2010.

• The income levels will be increased to $125,000 from $75,000 for single home buyers and to $225,000 from $150,000 including the additional $20,000 phase out.
• The $8,000 First-Time Homebuyer Tax Credit has been extended to April 2010.

Additional criteria that will be added to the Tax Credit options once President Obama signs the bill, effective December 1, 2009 are:

• The addition of a Current Homeowner Tax Credit will now allot a $6,500 credit for existing homeowners if they “have used the home sold or being sold as a principal residence for 5 of the previous 8 years.
• Extensions to the Binding Contract rule now includes language that as long as the contract to buy is effective as of April 30,2010, then the buyer will have until July 1, 2010 to close.
• A cap has been set for the purchase prices of the homes applicable to the Tax Credit to $800,000, and dependents are not eligible for the Tax Credit.
• An Anti-Fraud rule has been attached to the language requiring the buyer to attach purchase documents to their tax return for the year the purchase took place.

These new criteria are the first-step of making the Tax Credit a real answer to the national real estate market problems. By opening the credit to existing homeowners and extending the timeline to 2010, it should give a strong boost to the 2010 housing market numbers.

Applying the very-much needed Anti-Fraud rules will help eradicate the fallout from any potentially unethical credit applications and maintain the real sales numbers for the next year.

 

 

 

 

 

 

 

A Little Positive Return for the Housing Market

According to recent reports on Fox News, the hoped-for extension to the $8,000 first-time homebuyer tax credit looks like it will be extended. Couple that news with the renewal of the GSE loan limits at $729,750 and it looks like the housing market has a chance of recovering after all.

In the light of these plan extensions, there is now solid groundwork for the housing market to recover. However, the banks that began this domino effect need to be held accountable for their overextensions of financing to unqualified buyers. Unfortunately, the four largest banks like JP Morgan Chase, Bank of America, Wells Fargo and Citigroup still hold a lion’s share of the country’s real estate deposits, putting pressure on the smaller banks ability to make loans to qualified applicants. These stipulations have put the brakes on lending to buyers with good credit and that meet historic loan qualifications, in other words, a wall of non-lending practices in the assumed hopes of reversing the excessively lenient practices of the recent past.

There needs to be action on the part of the large banks as well as the smaller ones to make loans to qualified buyers or this situation will not improve. Period.

The Still-Delicate Real Estate Market Could Come Tumbling Down

With Fannie Mae and Freddie Mac still guaranteeing the highest valued mortgage loans around the country, the financing options for high-cost home loans in the US, including California, are being renegotiated for 2010. Based in the current economic stimulus plan levels, the conforming loan limit is set around $417,000 in most areas, but the high-costs loan levels are as high as $729,750. A reduction is being considered to the high-value home loan caps to $625,500.

It is being assumed that underwriters will adjust their terms to fit the newly proposed decrease, but even if this is true, reducing the conforming loan limits will prove disastrous to the real estate market that is already squeezed for lending options with the current loan limit standards.

Small lenders have already been facing difficulties for their mortgage lending options since more than 30% of the country’s real estate deposits have been in the hands of JP Morgan Chase, Bank of America, Wells Fargo and Citigroup. Small lenders are now responsible for paying higher premiums and face stricter governance due to the failings of these same larger banks, making it nearly impossible for any bank not a part of this banking clique to make loans, based on the high premium rates they offer.

Consider the still increasing unemployment rates and couple it with a potential decrease in loan amounts, and the result is fairly obvious. Even those home buyers that can find a financing option for their potential purchase could lose the option for the buy if the home value is higher than the proposed reduced caps. You can hear the slow-moving real estate market come to a grinding, and irrevocable, halt.

These loan amounts cannot be reduced, but need to be maintained to continue to build the momentum, slow that it is, in the real estate market.

Another Boost for Confidence in the Real Estate Market, but Issues Still Need to be Addressed

The National Association of Realtors has reported continued gains for home resales as of September 2009. After a flagging August, the increased home sales in September are being attributed in part to the $8,000 first-time buyer tax credit which is currently being reinvented in the Senate. The 9.4% increase to existing home sales, including single-family homes, townhomes, co-ops and condominiums moved the sales numbers to 5.57 million units.

According to the NAR chief economist, “We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery.”

Distressed homes accounted for 29 percent of all home sales in September.

While this is more good news for the real estate market, it doesn’t address the ongoing and existing problem of the long list of potential foreclosures that still exist in the inventory pool due to government intervention. Although there have been significant sales numbers showing recently for foreclosure properties, there has to be serious consideration to the fact that the potential increases in these inventory lists could become if they increase the way they are estimated to rise based on current conditions.

The reality of foreclosure increases still has to be addressed before any real improvements can be read in the home sales numbers we have seen reported over the last year.

Hand in the Cookie Jar: “Loan Modification Attorneys Under Investigation”

According to the California Association of Realtors® and Regulations, the California State Bar has launched multiple investigations underway concerning attorneys who may have been involved in loan modifications.

The suit states that the 16 attorneys under investigation are accused of taking fees for services regarding real estate transactions with clients who were facing losing their homes. This breach of contract suit brings to light a serious failing in the real estate field, although it is not a surprising one.

During the housing boom, the unscrupulous behavior of mortgage lenders in signing non-documented loans or knowingly approving loans that were beyond their clients’ means began a downward spiral of unethical practices within the real estate field.

The same mentality is at work with the attorneys in this case – their unsuspecting clients are at their mercy as they face possible foreclosure. They turn to these people to assist them in a dire moment in their lives; they pay the requested fees assuming that their plight can be avoided, only to be taken advantage of.

There are charlatans in any field, but because the investment made in a real estate transaction can be a lifelong one, the sting from being taken advantage of can endure for a long time.

To be sure that you are working with a reputable and trustworthy member of the real estate profession, check out the old-fashioned word of mouth reputation of their business. Are they known and involved in their community? Do you know the extended companies they work with – lenders, realtors, appraisal companies? Are the licensed?

Laura Dandoy is a visible and active member of her community and her reputation for excellence and personal service stand for themselves. If you are looking for real estate in San Bernadino or San Gabriel Valley in California, trust in Laura Dandoy to find you the right real estate team to bring your transaction to a satisfactory close.

Extension and Increase to the Federal Tax Credit for Home Buyers Could Stabilize the Housing Market

First Indicator of Potential Stabilization

According to RIS Media, “contract activity for pending homes sales has risen for six straight months.” The Pending Home Sales Index is showing its highest numbers since June 2007.

Second Indicator of Potential Stabilization

The National Association of Realtors® is estimating about 350,000 in additional sales from 1.8 to 2.0 million first-time home buyers, thanks to the Federal Tax Credit of $8,000.

What Does This Really Mean?

The progress is encouraging, but there needs to be a little more tweaking to the Federal Tax Credit offered, to put the real estate market back on solid ground. The National Association of Realtors® is encouraging Congress to extend the Federal Tax Credit until 2010.

Also on the table is an adjustment to the tax credit criteria to include all home buyers, not just first-time home buyers. This would open the tax credit opportunity to anyone interested in buying a home, leveling the playing field and bringing in many more sales to get the momentum of the market moving, consistently, forward again.

An increase to the tax credit value to $15,000 would reinforce the ability for many potential homebuyers to sign on the dotted line this year.

With current projections a revival o the housing market by the second quarter of 2010, now is the time to lay the groundwork to give the solidifying housing market the rock-solid base it needs to stand on its own by then.

Banking Conglomerates Unite to Hold Reign

The bailouts have been dispersed and much of the funds are all nicely tucked away inside the vaults of four main banks. JP Morgan Chase, Bank of America, Wells Fargo and Citigroup. Forming what seems to be a united banking front, these four companies manage more than 30% of the country’s deposits.

With this amount of income at their disposal, the smaller, stand-alone banks are at a grave deficit. They are now responsible for paying higher premiums and face stricter governance due to the failings of these same larger banks, making it nearly impossible for any bank not a part of this banking clique to make loans, based on the high premium rates they offer.

From the perspective of a potential home or property buyer, these higher premiums pose a significant deterrent for obtaining a home loan within the next year. While the “Big Four” banks continue to grow, despite their part in the housing crash and the smaller banks wither under the legal and financial burdens place upon them, already hard-to-obtain loans will be that much harder to come by, no matter the credit status of the buyer.

In a real estate market that is already struggling to find level ground, this additional pressure could very well stifle any chance the housing marketing has of recovering any time soon.

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