Assist2Sell

According to RealtyTrac, an online marketer of foreclosed properties, there were 306,627 foreclosure filings last month, making November the fourth straight month of decline (3% drop in October, 4% in September and 1% in August).  Nearly 307,000 households received a foreclosure-related notice in November, and banks repossessed about 77,000 homes last month.  Foreclosure filings were still up 18 percent from a year ago, and a new wave is expected next year as unemployment stays high and borrowers default out of loan modification programs.  "This is providing a welcome respite for the real estate industry, but a full recovery will only come when unemployment recedes to normal, healthy levels and when availability of credit reaches a more rational balance between the extremes of the past few years," RealtyTrac CEO James Saccacio said.  RealtyTrac spokesman Rick Sharga isn't convinced the decline is a natural outgrowth of improved market conditions.  "I really don't believe we're looking at a trend that suggests the problem is going away," he said. "Much of the drop was artificially induced."  He attributes the stabilization to mandatory mediation programs that some states have introduced. For example, in Nevada, where filings have declined for three months in a row, lenders are required to go through mediation with borrowers before moving forward with foreclosure documents. In many cases, Sharga said, these programs just delay the inevitable.  The "sand states" -- Nevada, Florida, California and Arizona -- continued to amass the largest numbers of foreclosure filings with Nevada the hardest hit state of all. One of every 119 households had a filing in November, nearly four times the national average of one for every 417.

The Obama administration has outlined final guidelines on Monday that should make it easier for some financially troubled borrowers to sell their homes. The guidelines are designed to encourage the use of short sales, and it also makes it easier for borrowers to voluntarily transfer ownership of properties through a "deed in lieu of foreclosure."  

Under the plan, borrowers will receive $1,500 from the government if they sell their homes for less than the amount of their mortgages. Mortgage-servicing companies will also receive $1,000 for each completed short sale. The program is open to borrowers who may be eligible for the government's loan-modification program but don't end up qualifying, or are delinquent on their modification, or request a short sale or deed-in-lieu transaction.  The short-sale program is the latest addition to the Obama administration's $75 billion foreclosure-prevention plan, which includes incentives for mortgage companies and investors to rework troubled loans.

The government first said in May that it would include short sales in the program, but it has taken months to finalize the details.  Under the new guidelines, second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgages, meanwhile, can collect up to $1,000 from the government for allowing such payments.  Borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the guidelines.

Data release today by S&P for the Case-Shiller Home Price index shows improvement for the 3^rd quarter of 2009. This is the second straight quarterly increase and also showed improvement in its annual rate of return.

The chart below shows the 10-City Composite and the 20-City Composite Home Price Indices. The Case-Shiller U.S. Home Price Index, which covers all nine U.S. census divisions, recorded an 8.9% decline in the third quarter of 2009 versus the third quarter of 2008. This is a marked improvement over the 14.7% decline in the annual rate of return reported in the second quarter of 2009, and the 19.0% drop in the first quarter. The 10-City and 20-City Composites recorded annual declines of 8.5% and 9.4%, respectively. These two indices, which are reported at a monthly frequency, have generally seen improvements in their annual rates of return every month since the beginning of the year.

"We have seen broad improvement in home prices for most of the past six months," says David M. Blitzer, Chairman of the Index Committee at Standard & Poor's. "However, the gains in the most recent month are more modest than during the seasonally strong summer months. Fewer cities saw month to month improvements in September than in August in both seasonally adjusted and unadjusted figures. 
 
Nationally, the U.S. National Composite rose by 3.1% in both the 2nd and 3rd quarters of 2009. Both the 10-City and 20-City Composites posted their fifth consecutive monthly increase with September's report. Earlier some analysts voiced concern that the end of the first-time home buyer program would result in a drop in activity. While housing starts did slip in October, the federal government recently extended and expanded the first-time homebuyer tax credit."

Love him or hate him, the Donald has had some success in Real Estate. He made an appearance on Larry King and spoke about the foreclosure mess. Here is a link to the video Donald Trump On Real Estate - Larry King Live Clip The clip is a little over a minute and worth a watch. Thanks for the Heads up Chris McPheeters in Bend, Or.

A Different Approach to Revitalizing the Housing Market

By Lyle Martin

 While U.S. Federal Reserve rate cuts and the economic stimulus package are helpful, they aren't enough to bring the economy back from the brink of recession.  I'm encouraged by some mortgage lenders' decision to temporarily suspend the foreclosure process through "Project Lifeline," but some drastic steps need to be taken to help a housing market that is obviously in trouble. 

Few would disagree that the explosive growth in the housing market (prices and inventory) over the past several years was stimulated by lenders providing easy financing.  As is typical with most major purchases, as financing becomes more affordable, an increase in demand will follow. 

While it is easy to blame "subprime" lenders, that serves no useful purpose.  In essence, they were simply satisfying a demand.  When a homeowner gets in over their head, shouldn't they be held responsible?  Shouldn't they have taken the time to understand what they were signing? 

In reality, they are no more to blame than those of us who got caught up in the "dot com" stock speculating.  Who wasn't tempted to jump on board what appeared to be a never ending booming stock market?  Watching home prices soar and the potential for homeownership start to escape the reach of the average consumer, who can blame people for jumping onboard before they were left behind? 

Just like the stock market appeared to have no ceiling, the housing "bubble" appeared immune to bursting.  Hindsight is 20/20 but just like the experts were unable to predict the crash of the housing market-and yes it is a crash-no one is able to predict the recovery.  Of course there will be a recovery.  Will it be in six months, two years or 10 years?  I can tell you that I don't believe our fragile economy can afford to wait for the market to self correct.  The market was driven up by some creative artificial influences and it is going to take some of that same creativity to get it back on track.

1. Roll Back Home Prices
Today's artificially inflated home prices need to be adjusted back down to a value more in line with the value of the dollar, adjusted for inflation.  This means rolling back prices to where they were at before "funny money" flooded the market.  Since home appreciation is not consistent in every area of the country, roll back will not be consistent.  In some markets, very little price appreciation was experienced.  Those areas don't need to undergo a big adjustment.  Other areas are even seeing normal appreciation.  Some areas, like most of Florida, California, Arizona and Nevada, need major adjustments.  They need to look at rolling back to pre-2003 prices, maybe even earlier.

Tough but necessary medicine.  Lenders are already accepting this reality as they write off billions in loan losses and sell off foreclosed homes or negotiate short sales.  Rather than have homeowners walk away from their homes, why not invite a compromise?  Forgive a significant amount of the loan balance-essentially re-setting the loan more in alignment with the new value of the home-and let them keep the home.

2. Promote Responsible Homeownership
Give people willing to take on the responsibilities associated with homeownership some extra help.  Yes, I said the responsibilities of homeownership.  Let's not make it so easy for first time homebuyers.  Their first home may not be their dream home but whatever happened to delayed gratification?  We need to encourage first time homebuyers to start small and work their way up. 

The government can play an important role by creating a new type of tax free savings account for first time homebuyers who want to save money for a down payment and closing costs.  Money put into the account should be exempt from income tax.  For example, if $10,000 is set aside in the account over a period of time, then the $10,000 (and all accrued interest) is not subject to income tax.  Watch how fast people save up a down payment.  Financial institutions will benefit from this influx of new savings, creating another source for mortgages besides Wall Street.  Homebuyers will appreciate their investment more when some of their hard-earned dollars are put in as part of the purchase.  

3. Extend Relief to Other Related Industries 

We also need to help the housing-related industries that are indirectly feeling the impact of the current housing market.  Builders, landscapers, home improvement businesses, etc.  Offer existing homeowners tax incentives for improving their homes.  There is a lot of work that is needed on a lot of homes.  New roofs; newer, more energy efficient heating and cooling systems; energy efficient windows; insulation, etc.  This can help businesses as well as the environment.

4. Don't Forget Rentals

Investing in rental real estate helps provide housing for those not interested or perhaps unable to purchase their own home.  Increase tax benefits for improving existing properties and eliminate passive income limitations.  Reintroduce the tax saving incentive of accelerated depreciation.  Shorten the depreciable lifetime on properties.  Loosen up the 1031 exchange rules to allow more time to move between investments. 

5. Emphasize Responsible Spending

In addition to not saving, many are struggling just to make minimum payments on their credit cards.  Consumers need help getting a better handle on their debt.  First, remove the temptation.  Restrict the deductibility of home equity loans used for consumer debt. The deductibility of home equity loans was just too tempting for people.  They borrowed against their hard earned equity to finance cars and home entertainment systems.  Financing cars for 30 years has got to stop.  Restore usury rates.  The rates people are paying on consumer debt are unconscionable.  When payday loan stores outnumber McDonald's, you know a crisis is looming.

We need to teach people more about real world financial issues.  Start in high school, maybe earlier.  Kids need to understand that CDs don't just play music.  To help people get unburied, restore for a limited time period, the tax deduction on existing consumer interest (such as credit card and auto loan interest). 

6. Encourage True Savings

Motivate people to save.  Look what happened in 1974 when Congress enacted the Employee Retirement Income Security Act (ERISA).  This Act created the Individual Retirement Account (IRA).  It started out simple and was overwhelmingly successful.  For many, it resulted in their first savings account ever!  Trillions of dollars in assets have been accumulated and IRAs represent the largest component of the U.S. retirement market.  With private sector businesses unable to provide the retirement programs, along with the challenges faced by Social Security, more attention needs to be paid to improving this system.  Boost contributions to IRAs by restoring tax deductible contributions to IRAs for everyone.

These are just a few ideas, and while some people smarter than me may find flaws, I believe this is the direction we need to explore.  

The consequences of continuing on the same course can only be the same results.  I've heard one definition of insanity is doing the same thing and expecting different results.  The Fed lowering interest rates time and again is not going to fix this problem.  You could lower the Fed rate to zero and people still would not be able to afford to buy a home or make payments on the home they already own.  Sending small checks to millions of people failed before.  Why do we think it will work now?  These challenging times demand real solutions.  Not Band-Aids.

Real estate veteran Lyle Martin is one of the original founders of Assist-2-Sell Inc., a full-service discount real estate company that was started in 1987.  Today, more than 550 Assist-2-Sell franchises offer full brokerage services to homebuyers and home sellers throughout the United States and Canada.  Find an office at http://www.assist2sell.com.  Contact Lyle at (775) 688-6060 or mailto:lyle@assist2sell.com.    

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