Posted: 18 Mar 2009 04:58 PM PDT
Good News! Good News! Good News! The St. Louis Cardinals are still in first place. Well so are the Cubs for that matter. But, opening day is just around the corner and our beloved redbirds are sure to have a banner year.Wow, a little good weather does great wonders for our spirits.
We just cannot help but believe that winter is over. The grass is greening up, the trees are budding, the flowers are beginning to bloom. The signs are all there. To be sure, there are still a few cold days ahead, but there is just no disputing that spring is pushing winter aside.
We also are seeing early signs that the housing slump is losing steam as well. Just this week the Wall Street Journal reported that “Home prices are closer to stabilizing today than at any time in the past nine years.” The data points to a housing affordability index that is at the exact ratio that we last saw in the hay days of the 1980’s. Of course the hot news on the national press in the last few days celebrated the 22% uptick in national housing starts from January 2009 to February 2009. This ended 18 consecutive months of decline. Encouraging news on the national scene!
Locally we can expect our market to rebound even sooner than most. Zanola Research Group suggests that we need to build 666 homes this year in Greene county alone just to keep pace with demand. The report went on to point out that southwest Missouri is continuing on a long pattern of job growth. We see all the reports of job losses but research shows that new jobs outpace job losses in our area. Add growing wages and a steady climb in population and we are three for three in those areas that matter most for a housing rebound.
Three for Three, that reminds me of baseball. Yes, opening day is almost here. Looks like busy days ahead. God bless!
Keeping the Faith
Rusty MacLachlan
HBA President
Rusty MacLachlan is the President of The Greater Springfield HBA. Follow his blog at: http://www.greaterozarkshba.com/
Thursday, March 19, 2009
Friday, March 6, 2009
Ambitious Foreclosure Plan Revealed - How Will It Help?
RISMEDIA, March 6, 2009-(MCT/RISMedia)-The Obama administration on Wednesday detailed its ambitious $275 billion plan to halt soaring foreclosures nationwide, outlining the financial incentives it’s offering investors, lenders and their bill collectors to lure them into modifying distressed mortgages to keep Americans in their homes. The slump in home prices is the root cause of the global financial meltdown, so the success or failure of the administration’s housing plan is vital to ending the deepening economic recession.
Shortly before financial markets opened, the Treasury Department provided its long-awaited update to the Making Home Affordable program, which the administration thinks can help up to 9 million homeowners.
“It’s a major break with the past because it really takes up a multifaceted approach. It used several different carrots and a stick to come at a comprehensive plan to reduce the number of foreclosures,” said Kathleen Day, a spokeswoman for the advocacy group Center for Responsible Lending in Durham, N.C. “That’s the only way you’re going to stabilize the financial system.”
The plan’s details came out a day before the House of Representatives is expected to pass compromise legislation giving bankruptcy judges power that they now lack to modify the terms of certain mortgages. Bankruptcy changes are the stick to go along with the carrots-new financial incentives for lenders to modify mortgages instead of moving to foreclosure.
The Obama housing plan attacks two problems that are creating a vicious cycle in the nation’s housing market.
First, it offers $200 billion to provide refinancing for some homeowners who owe more than their homes are now worth-shorthanded as being “underwater” on their mortgages. To qualify, these homeowners-5 million of them by administration estimates-must have their mortgages in the hands of Fannie Mae or Freddie Mac, the mortgage finance giants that the government seized last September.
“We have been advocating for one unified approach to help modify or refinance delinquent and underwater loans and thus we think this program will undoubtedly help servicers keep more at-risk borrowers in their homes, which is a crucial step to helping stabilize the mortgage and housing markets,” stated John A. Courson, president and CEO of the Mortgage Bankers Association (MBA).
Many of these homeowners would like to take advantage of today’s historically low interest rates and refinance but can’t, since the law prohibits refinancing if the current mortgages reflects less than 80% of the homes’ values. These homeowners now can seek to refinance if their mortgages are up to 5% higher than the present-day values of their homes. That helps some, but it won’t reach lots of homeowners in California, Florida and elsewhere whose homes are now worth substantially less than their mortgages.
Because most mortgages are bundled into securities and sold into a secondary market, it’s often difficult for homeowners to find out whether Fannie or Freddie owns their loans or whether they’ve been pooled with other loans and sold by an investment bank to other investors.
The other pillar of Obama’s plan attacks the problem of affordability. The administration provides another $75 billion in incentives to help prevent foreclosures in cases in which the homeowners, up to 4 million of them, are about to lose their homes. The money comes from the $700 billion bailout fund approved last October.
Under this complex portion of the plan, the president offers a stream of financial incentives to mortgage servicers, who are essentially bill collectors for private investors who own pools of U.S. mortgages. Some incentives stay with the servicers while others flow through to investors.
In exchange for the incentives, a servicer would modify a mortgage so that no more than 38% of a homeowner’s monthly after-tax income was taken by the monthly mortgage payment. The government then would step in and share the cost of reworking that mortgage so that no more than 31% of the borrower’s monthly income was tied up in the payment.
This could result in some mortgages carrying interest rates as low as 2% for five years. Critics think that this mortgage subsidy interferes with the natural process of letting the marketplace find the floor on home prices.
“Not only do these gimmicks prevent home prices from falling to the market-clearing levels that would give private lenders the confidence to loan, but the continued specter of subsequent government-mandated modification will keep lenders out of the game,” said Peter Schiff, the president of investment strategist Euro Pacific Capital.
Treasury Secretary Timothy Geithner told lawmakers Wednesday that the administration plan offers “a powerful set of incentives” and “persuasive force and some economic inducements to provide substantial improvements in affordability. With those changes you will be put in an economically viable position and stay in your home.”
Although lenders have worked over the past year to freeze mortgage rates that were about to adjust to higher monthly payments, few have been willing to take losses and significantly rework the loan terms. This has led to a high percentage of re-defaults on modified mortgages and avoided tackling the problem of affordability.
Federal Deposit Insurance Corp. Chairman Sheila Bair pushed unsuccessfully during the Bush administration to rework loans with an eye toward affordability, and the Obama administration is implementing her ideas.
Any lender that takes new taxpayer bailout money under the administration’s Financial Stability Plan will be required to participate. The Obama team also is betting that requiring a standard guideline for mortgage modification will provide more protection to mortgage servicers, who are bound by contract to investors, not homeowners, and can be sued if they modify mortgages.
The Obama plan got a strong endorsement Wednesday from the Financial Services Roundtable, which represents many of the largest mortgage lenders.
“Our member companies intend to implement the program for all at-risk borrowers consistent with program guidelines and contractual requirements,” the group said in a statement. “For the benefit of at-risk borrowers who are facing the loss of their homes, for communities and for our nation in this time of extraordinary economic challenges, it is imperative that investors and servicers that choose to participate in the program adopt a national standard model.”
In an administration background briefing that was conducted under the administration’s insistence on anonymity in order to speak freely, it was clear that the plan is far from a panacea.
Senior government and industry officials confirmed that homeowners who seek to refinance to the new low interest rates will have to foot the bill for a range of new fees that Fannie and Freddie require. It’s not clear whether these will have to be paid upfront or can be folded into the loans.
The officials also confirmed that there’s no standard procedure for lenders under the Fannie and Freddie portion of the plan. It will be up to each lender to determine whether the refinances go through them or whether mortgage brokers and other intermediaries can help homeowners seek refinanced loans under the program.
Officials were also careful to note that mortgage servicers won’t be able to modify mortgages if the terms of their contracts with the investors who own the pools of mortgages don’t allow it. That leaves matters at square one for many homeowners, since many investors, like lenders, have been reluctant to take losses in hopes of an eventual government bailout.
Officials confirmed that they have no reliable data on how many of these investors are on the other ends of contracts that prohibit mortgage modifications. That question is important, since many of the weakest loans underwritten during the height of the housing boom, from 2004 to 2006, were sold by now-defunct investment banks to investors abroad, many in Europe.
These pools of mortgages, called mortgage-backed securities, are the so-called toxic assets that are at the heart of the global banking meltdown. This unresolved question about their contract terms is relevant to recovery in housing and the financial sector.
So, who qualifies for help of what kind? Here are some answers for consumers:
Q: How do I know if I qualify?
A: Your mortgage must predate the start of 2009, you must live in the home and you’ll have to provide proof of income. Then ask two questions. First, are you already behind on payments or even in the foreclosure process? If the answer is no, then ask yourself whether your current mortgage rate is high enough to make it worth your while to refinance to take advantage of today’s low rates for 15-year and 30-year fixed-rate mortgages.
Q: That’s it?
A: No. If you think it’s advantageous to refinance, you must find out who owns your loan. Most mortgages are bundled together and sold into a secondary market, where investors technically own them. If Fannie Mae or Freddie Mac placed your loan into the secondary market, you can contact the company that sends your monthly mortgage statement to discuss the new program. If your mortgage is in the portion of the secondary market where the private sector issued the mortgage-backed securities, you don’t qualify.
Q: How do I know who owns my loan?
A: You’ll have to ask the company that sends your monthly statement. These companies are sure to be swamped with calls this week, so be patient. And be warned: Borrowers have found in the past that mortgage-bill collectors-called servicers-often are less than forthcoming with answers as to who owns the loans.
Q: What if my loan is owned by Fannie or Freddie but I have negative equity?
A: You’re not alone. Researcher First American CoreLogic reported Wednesday that one in five homeowners nationwide now owes more than his or her home is worth. To qualify under the refinance portion of the Obama plan, you can owe up to 5% more than your home is now worth. Thus, many homeowners in California, Florida, Arizona and Nevada, where home prices have plunged, won’t qualify.
Homeowners in 250 high-cost U.S. counties can seek help under either track, however, provided that they qualify, even if the mortgage is worth up to $729,750. This could help high-income homeowners in Middle America and the Northeast, where home prices haven’t fallen as much.
Q: What about those of us who are about to lose our homes?
A: A lot will depend on whether the mortgage bill collectors, the servicers, think that they have leeway from investors to modify the loans. They’re being offered an upfront fee of $1,000 and will get “pay for success” fees for three years if a borrower’s modified loan remains in good standing. They’re being offered even more fees if they get homeowners into this program before they fall behind on payments.
Q: What happens if the servicer agrees to modify my mortgage?
A: First, the servicer has to get your monthly payment down to 38% of your monthly after-tax income. It can do this by taking a loss on the loan or stretching a 30-year loan into a 40-year, for example. It’s allowed to reduce interest rates as low as 2%.
Once the 38% threshold is met, the government matches lenders dollar for dollar to get the payment even lower, to 31% of monthly after-tax income.
This percentage is calculated on the value of a first-lien mortgage. If a home carries a second lien-often called a second, or junior, lien-the servicer will get another $250 if it extinguishes the second mortgage.
Q: Is the modification a permanent fix?
A: The new interest rate would be valid for five years. Afterward, it can rise 1% a year until the lending rate hits the conforming loan survey rate at the time of the modification. Given that mortgage rates today are low by historical standards, the loan survey rate is likely to be well below the punishing adjustable rates that are at the heart of many distressed mortgages.
Q: Do lenders have to participate in Making Home Affordable?
A: If they’re getting Wall Street bailout money and hope to get any more, then they have to play ball. Many mortgage servicers are outside this realm, however, and their trade group, the American Securitization Forum, gave only lukewarm, qualified support to the Obama administration’s plan.
Q: Is there any way to force servicers to help homeowners?
A: The House of Representatives is expected to pass legislation this week that would allow bankruptcy judges to modify mortgages. This measure, which seems to have support in the Senate, too, would let judges shave off of mortgages the difference between what homeowners owe and what their homes are now worth. This would give homeowners some leverage in negotiations.
Q: But don’t these homeowners deserve what they get for overextending themselves?
A: Some think so. There are two parties to a bad deal, however-people who bought too much home and lenders who let their underwriting standards fail in lending to them. Somebody has to lose. The Obama administration is betting that keeping owners in their homes helps set a floor under prices. Critics think that only the marketplace can find a floor for home prices.
Shortly before financial markets opened, the Treasury Department provided its long-awaited update to the Making Home Affordable program, which the administration thinks can help up to 9 million homeowners.
“It’s a major break with the past because it really takes up a multifaceted approach. It used several different carrots and a stick to come at a comprehensive plan to reduce the number of foreclosures,” said Kathleen Day, a spokeswoman for the advocacy group Center for Responsible Lending in Durham, N.C. “That’s the only way you’re going to stabilize the financial system.”
The plan’s details came out a day before the House of Representatives is expected to pass compromise legislation giving bankruptcy judges power that they now lack to modify the terms of certain mortgages. Bankruptcy changes are the stick to go along with the carrots-new financial incentives for lenders to modify mortgages instead of moving to foreclosure.
The Obama housing plan attacks two problems that are creating a vicious cycle in the nation’s housing market.
First, it offers $200 billion to provide refinancing for some homeowners who owe more than their homes are now worth-shorthanded as being “underwater” on their mortgages. To qualify, these homeowners-5 million of them by administration estimates-must have their mortgages in the hands of Fannie Mae or Freddie Mac, the mortgage finance giants that the government seized last September.
“We have been advocating for one unified approach to help modify or refinance delinquent and underwater loans and thus we think this program will undoubtedly help servicers keep more at-risk borrowers in their homes, which is a crucial step to helping stabilize the mortgage and housing markets,” stated John A. Courson, president and CEO of the Mortgage Bankers Association (MBA).
Many of these homeowners would like to take advantage of today’s historically low interest rates and refinance but can’t, since the law prohibits refinancing if the current mortgages reflects less than 80% of the homes’ values. These homeowners now can seek to refinance if their mortgages are up to 5% higher than the present-day values of their homes. That helps some, but it won’t reach lots of homeowners in California, Florida and elsewhere whose homes are now worth substantially less than their mortgages.
Because most mortgages are bundled into securities and sold into a secondary market, it’s often difficult for homeowners to find out whether Fannie or Freddie owns their loans or whether they’ve been pooled with other loans and sold by an investment bank to other investors.
The other pillar of Obama’s plan attacks the problem of affordability. The administration provides another $75 billion in incentives to help prevent foreclosures in cases in which the homeowners, up to 4 million of them, are about to lose their homes. The money comes from the $700 billion bailout fund approved last October.
Under this complex portion of the plan, the president offers a stream of financial incentives to mortgage servicers, who are essentially bill collectors for private investors who own pools of U.S. mortgages. Some incentives stay with the servicers while others flow through to investors.
In exchange for the incentives, a servicer would modify a mortgage so that no more than 38% of a homeowner’s monthly after-tax income was taken by the monthly mortgage payment. The government then would step in and share the cost of reworking that mortgage so that no more than 31% of the borrower’s monthly income was tied up in the payment.
This could result in some mortgages carrying interest rates as low as 2% for five years. Critics think that this mortgage subsidy interferes with the natural process of letting the marketplace find the floor on home prices.
“Not only do these gimmicks prevent home prices from falling to the market-clearing levels that would give private lenders the confidence to loan, but the continued specter of subsequent government-mandated modification will keep lenders out of the game,” said Peter Schiff, the president of investment strategist Euro Pacific Capital.
Treasury Secretary Timothy Geithner told lawmakers Wednesday that the administration plan offers “a powerful set of incentives” and “persuasive force and some economic inducements to provide substantial improvements in affordability. With those changes you will be put in an economically viable position and stay in your home.”
Although lenders have worked over the past year to freeze mortgage rates that were about to adjust to higher monthly payments, few have been willing to take losses and significantly rework the loan terms. This has led to a high percentage of re-defaults on modified mortgages and avoided tackling the problem of affordability.
Federal Deposit Insurance Corp. Chairman Sheila Bair pushed unsuccessfully during the Bush administration to rework loans with an eye toward affordability, and the Obama administration is implementing her ideas.
Any lender that takes new taxpayer bailout money under the administration’s Financial Stability Plan will be required to participate. The Obama team also is betting that requiring a standard guideline for mortgage modification will provide more protection to mortgage servicers, who are bound by contract to investors, not homeowners, and can be sued if they modify mortgages.
The Obama plan got a strong endorsement Wednesday from the Financial Services Roundtable, which represents many of the largest mortgage lenders.
“Our member companies intend to implement the program for all at-risk borrowers consistent with program guidelines and contractual requirements,” the group said in a statement. “For the benefit of at-risk borrowers who are facing the loss of their homes, for communities and for our nation in this time of extraordinary economic challenges, it is imperative that investors and servicers that choose to participate in the program adopt a national standard model.”
In an administration background briefing that was conducted under the administration’s insistence on anonymity in order to speak freely, it was clear that the plan is far from a panacea.
Senior government and industry officials confirmed that homeowners who seek to refinance to the new low interest rates will have to foot the bill for a range of new fees that Fannie and Freddie require. It’s not clear whether these will have to be paid upfront or can be folded into the loans.
The officials also confirmed that there’s no standard procedure for lenders under the Fannie and Freddie portion of the plan. It will be up to each lender to determine whether the refinances go through them or whether mortgage brokers and other intermediaries can help homeowners seek refinanced loans under the program.
Officials were also careful to note that mortgage servicers won’t be able to modify mortgages if the terms of their contracts with the investors who own the pools of mortgages don’t allow it. That leaves matters at square one for many homeowners, since many investors, like lenders, have been reluctant to take losses in hopes of an eventual government bailout.
Officials confirmed that they have no reliable data on how many of these investors are on the other ends of contracts that prohibit mortgage modifications. That question is important, since many of the weakest loans underwritten during the height of the housing boom, from 2004 to 2006, were sold by now-defunct investment banks to investors abroad, many in Europe.
These pools of mortgages, called mortgage-backed securities, are the so-called toxic assets that are at the heart of the global banking meltdown. This unresolved question about their contract terms is relevant to recovery in housing and the financial sector.
So, who qualifies for help of what kind? Here are some answers for consumers:
Q: How do I know if I qualify?
A: Your mortgage must predate the start of 2009, you must live in the home and you’ll have to provide proof of income. Then ask two questions. First, are you already behind on payments or even in the foreclosure process? If the answer is no, then ask yourself whether your current mortgage rate is high enough to make it worth your while to refinance to take advantage of today’s low rates for 15-year and 30-year fixed-rate mortgages.
Q: That’s it?
A: No. If you think it’s advantageous to refinance, you must find out who owns your loan. Most mortgages are bundled together and sold into a secondary market, where investors technically own them. If Fannie Mae or Freddie Mac placed your loan into the secondary market, you can contact the company that sends your monthly mortgage statement to discuss the new program. If your mortgage is in the portion of the secondary market where the private sector issued the mortgage-backed securities, you don’t qualify.
Q: How do I know who owns my loan?
A: You’ll have to ask the company that sends your monthly statement. These companies are sure to be swamped with calls this week, so be patient. And be warned: Borrowers have found in the past that mortgage-bill collectors-called servicers-often are less than forthcoming with answers as to who owns the loans.
Q: What if my loan is owned by Fannie or Freddie but I have negative equity?
A: You’re not alone. Researcher First American CoreLogic reported Wednesday that one in five homeowners nationwide now owes more than his or her home is worth. To qualify under the refinance portion of the Obama plan, you can owe up to 5% more than your home is now worth. Thus, many homeowners in California, Florida, Arizona and Nevada, where home prices have plunged, won’t qualify.
Homeowners in 250 high-cost U.S. counties can seek help under either track, however, provided that they qualify, even if the mortgage is worth up to $729,750. This could help high-income homeowners in Middle America and the Northeast, where home prices haven’t fallen as much.
Q: What about those of us who are about to lose our homes?
A: A lot will depend on whether the mortgage bill collectors, the servicers, think that they have leeway from investors to modify the loans. They’re being offered an upfront fee of $1,000 and will get “pay for success” fees for three years if a borrower’s modified loan remains in good standing. They’re being offered even more fees if they get homeowners into this program before they fall behind on payments.
Q: What happens if the servicer agrees to modify my mortgage?
A: First, the servicer has to get your monthly payment down to 38% of your monthly after-tax income. It can do this by taking a loss on the loan or stretching a 30-year loan into a 40-year, for example. It’s allowed to reduce interest rates as low as 2%.
Once the 38% threshold is met, the government matches lenders dollar for dollar to get the payment even lower, to 31% of monthly after-tax income.
This percentage is calculated on the value of a first-lien mortgage. If a home carries a second lien-often called a second, or junior, lien-the servicer will get another $250 if it extinguishes the second mortgage.
Q: Is the modification a permanent fix?
A: The new interest rate would be valid for five years. Afterward, it can rise 1% a year until the lending rate hits the conforming loan survey rate at the time of the modification. Given that mortgage rates today are low by historical standards, the loan survey rate is likely to be well below the punishing adjustable rates that are at the heart of many distressed mortgages.
Q: Do lenders have to participate in Making Home Affordable?
A: If they’re getting Wall Street bailout money and hope to get any more, then they have to play ball. Many mortgage servicers are outside this realm, however, and their trade group, the American Securitization Forum, gave only lukewarm, qualified support to the Obama administration’s plan.
Q: Is there any way to force servicers to help homeowners?
A: The House of Representatives is expected to pass legislation this week that would allow bankruptcy judges to modify mortgages. This measure, which seems to have support in the Senate, too, would let judges shave off of mortgages the difference between what homeowners owe and what their homes are now worth. This would give homeowners some leverage in negotiations.
Q: But don’t these homeowners deserve what they get for overextending themselves?
A: Some think so. There are two parties to a bad deal, however-people who bought too much home and lenders who let their underwriting standards fail in lending to them. Somebody has to lose. The Obama administration is betting that keeping owners in their homes helps set a floor under prices. Critics think that only the marketplace can find a floor for home prices.
Friday, February 27, 2009
NAR Response to the Obama Administration Budget Plan
You may have seen news reports about President Obama’s budget proposal that was released today at 11:30 AM Eastern Time. A small section of the sweeping budget plan has the potential to become a major impediment to a recovery in real estate markets across the nation. NAR is 100% opposed to the provision that modifies the Mortgage Interest Deduction and is prepared to use its formidable array of resources against its enactment.
As currently drafted, the plan changes the Mortgage Interest Deduction by reducing the amount of mortgage deductibility on families earning over $250,000. This proposed change in the Mortgage Interest Deduction will result in further erosion of home prices and home values. If this proposal is enacted it will lead to a new round of price depreciation, will cause greater distress on the balance sheets of banks as the collateral value of mortgage backed securities declines. A second credit crisis could emerge before the first one is resolved.
As you read this NAR is launching a multiphase plan of action to eliminate this provision from the budget plan. In the next 24 hours, NAR will be expressing our concerns directly to President Obama, to all members of the United States House of Representatives and the Senate, placing advertisements in the publications read by Washington, DC decision makers. Additionally, NAR will be forming a coalition with other groups affected by this proposal.
This communication is the first part of our response, we will continue to update you as the situation and events warrant.
As currently drafted, the plan changes the Mortgage Interest Deduction by reducing the amount of mortgage deductibility on families earning over $250,000. This proposed change in the Mortgage Interest Deduction will result in further erosion of home prices and home values. If this proposal is enacted it will lead to a new round of price depreciation, will cause greater distress on the balance sheets of banks as the collateral value of mortgage backed securities declines. A second credit crisis could emerge before the first one is resolved.
As you read this NAR is launching a multiphase plan of action to eliminate this provision from the budget plan. In the next 24 hours, NAR will be expressing our concerns directly to President Obama, to all members of the United States House of Representatives and the Senate, placing advertisements in the publications read by Washington, DC decision makers. Additionally, NAR will be forming a coalition with other groups affected by this proposal.
This communication is the first part of our response, we will continue to update you as the situation and events warrant.
Friday, February 13, 2009
How Long Does A Loan Modification Take?
RISMEDIA, February 13, 2009-Understandably, homeowners who apply for a loan modification tend to get a little antsy and perhaps even annoyed when they apply for a loan modification and then fail to hear anything for several weeks, especially if they continue to receive late payment notices and nasty phone calls from collection agencies.
Many homeowners wonder, “How long will it be before I hear anything?” and “What should I do while I’m waiting.” This article should help answer those very pressing questions.
How long will it take?
The loan modification process typically takes 30 to 90 days, depending mostly on your lender and your ability to efficiently work through the process with your attorney or other loan modification representative.
Note: The loan modification timeline is not set in stone. The more complex your situation or the greater the degree of concessions needed from the investor, the longer the process takes. Borrowers with a lot of collateral issues can see their loans take longer than what has become the typical 30- to 90-day timeframe.
A professional can often reduce the amount of time required by processing your paperwork efficiently, presenting your application exactly the way the lender wants it, and knowing from past experience what the lender is able and typically willing to agree to. Although each borrower’s situation is unique, knowing the measures the lender is willing to take for similarly situated borrowers can be a real time saver.
Whether you are dealing directly with your lender or through a loan modification specialist, ask several questions up front:
How long is the process likely to take? Find out the best- and worst-case scenarios and then count out the days and mark them on your calendar.
When can I expect to hear something about my case? Mark this date on your calendar.
If I don’t hear anything by the specified date, whom should I contact? Get the person’s name, employee identification number (if available), phone number, and any extension you need to dial to reach the person directly.
What should I do while I’m waiting?
Playing the waiting game can be agonizing, particularly when you have no idea of whether your application will be accepted or rejected or what the lender will offer in terms of a workout. It feels like your future hangs in the balance, and you remain in the dark. Knowing the standard timeline for processing a loan modification can certainly help relieve some anxiety. In addition, you can continue to make progress on your own by doing the following:
If you hired a loan modification specialist to represent you, do not speak with your lender or lender’s representative. Refer all matters to the professional who is representing you. Anything you say to the lender could confuse things or compromise your representative’s ability to negotiate the best deal on your behalf.
Log all phone calls and correspondence between you and your lender or representative. Write down the number you called, the person you talked with, what the person said, and what you said - not word for word, just jot down the key points.
Keep track of important dates. If you do not hear something back on the date promised, call the next day to find out what’s going on. Lenders almost never call you back with updates. If you hired a third party representative, they will (or should) keep you posted, but the lender simply doesn’t have the time to make follow up phone calls. If you’re dealing with your lender directly, you’ll have to be the one making the calls. Mark your calendar and schedule periodic update phone calls. Consistent follow up is paramount to a successful modification.
Explore other options. If the lender denies your request for a loan modification or presents an offer that you cannot accept, you will need a plan B (and maybe a plan C and a plan D). In addition, other options may be better for you than a loan modification. Consult a real estate agent about listing your home for sale. Talk to a mortgage broker or loan officer about refinancing. Speak with a bankruptcy attorney to find out whether filing bankruptcy would be a better choice.
Don’t be surprised if you continue to receive delinquency notices or late payment phone calls. Lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should ask your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. If the lender is able to foreclose in 30 days and a workout takes 60 days, there’s a slight timeline problem. Push to have all default and foreclosure actions put on hold while your workout attempts are underway.
When your fate is in someone else’s hands, 30 to 90 days can seem like an eternity. By doing your part to keep the process on track, remain informed, and explore other options, you not only improve your chances of achieving a positive outcome, but you can also reduce the stress that commonly accompanies the waiting process.
Ralph R. Roberts is a consumer advocate, spokesperson for Federal Loan Modification Law Center, a host of KeepMyHouse.com, and author of numerous books, including Foreclosure Self-Defense For Dummies and Loan Modification For Dummies (Summer, 2009). Ralph is based in Sterling Heights, Michigan and can be reached at Roberts@RalphRoberts.com.
Many homeowners wonder, “How long will it be before I hear anything?” and “What should I do while I’m waiting.” This article should help answer those very pressing questions.
How long will it take?
The loan modification process typically takes 30 to 90 days, depending mostly on your lender and your ability to efficiently work through the process with your attorney or other loan modification representative.
Note: The loan modification timeline is not set in stone. The more complex your situation or the greater the degree of concessions needed from the investor, the longer the process takes. Borrowers with a lot of collateral issues can see their loans take longer than what has become the typical 30- to 90-day timeframe.
A professional can often reduce the amount of time required by processing your paperwork efficiently, presenting your application exactly the way the lender wants it, and knowing from past experience what the lender is able and typically willing to agree to. Although each borrower’s situation is unique, knowing the measures the lender is willing to take for similarly situated borrowers can be a real time saver.
Whether you are dealing directly with your lender or through a loan modification specialist, ask several questions up front:
How long is the process likely to take? Find out the best- and worst-case scenarios and then count out the days and mark them on your calendar.
When can I expect to hear something about my case? Mark this date on your calendar.
If I don’t hear anything by the specified date, whom should I contact? Get the person’s name, employee identification number (if available), phone number, and any extension you need to dial to reach the person directly.
What should I do while I’m waiting?
Playing the waiting game can be agonizing, particularly when you have no idea of whether your application will be accepted or rejected or what the lender will offer in terms of a workout. It feels like your future hangs in the balance, and you remain in the dark. Knowing the standard timeline for processing a loan modification can certainly help relieve some anxiety. In addition, you can continue to make progress on your own by doing the following:
If you hired a loan modification specialist to represent you, do not speak with your lender or lender’s representative. Refer all matters to the professional who is representing you. Anything you say to the lender could confuse things or compromise your representative’s ability to negotiate the best deal on your behalf.
Log all phone calls and correspondence between you and your lender or representative. Write down the number you called, the person you talked with, what the person said, and what you said - not word for word, just jot down the key points.
Keep track of important dates. If you do not hear something back on the date promised, call the next day to find out what’s going on. Lenders almost never call you back with updates. If you hired a third party representative, they will (or should) keep you posted, but the lender simply doesn’t have the time to make follow up phone calls. If you’re dealing with your lender directly, you’ll have to be the one making the calls. Mark your calendar and schedule periodic update phone calls. Consistent follow up is paramount to a successful modification.
Explore other options. If the lender denies your request for a loan modification or presents an offer that you cannot accept, you will need a plan B (and maybe a plan C and a plan D). In addition, other options may be better for you than a loan modification. Consult a real estate agent about listing your home for sale. Talk to a mortgage broker or loan officer about refinancing. Speak with a bankruptcy attorney to find out whether filing bankruptcy would be a better choice.
Don’t be surprised if you continue to receive delinquency notices or late payment phone calls. Lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should ask your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. If the lender is able to foreclose in 30 days and a workout takes 60 days, there’s a slight timeline problem. Push to have all default and foreclosure actions put on hold while your workout attempts are underway.
When your fate is in someone else’s hands, 30 to 90 days can seem like an eternity. By doing your part to keep the process on track, remain informed, and explore other options, you not only improve your chances of achieving a positive outcome, but you can also reduce the stress that commonly accompanies the waiting process.
Ralph R. Roberts is a consumer advocate, spokesperson for Federal Loan Modification Law Center, a host of KeepMyHouse.com, and author of numerous books, including Foreclosure Self-Defense For Dummies and Loan Modification For Dummies (Summer, 2009). Ralph is based in Sterling Heights, Michigan and can be reached at Roberts@RalphRoberts.com.
Wednesday, February 11, 2009
Senate Passes Stimulas Bill, Real Estate Industry Reacts
NAHB estimates that the $15,000 tax credit would boost home sales by almost 500,000
RISMEDIA, February 11, 2009-(MCT/RISMedia)-The Senate, with only scant Republican support, passed an $838 billion economic-stimulus plan Tuesday that would provide significant tax breaks for new car and home buyers but sharply trim billions in aid that states have been seeking. The vote was 61-37.
The House of Representatives passed similar legislation last month, and a negotiating committee of top congressional tax and budget experts plans to begin reconciling differences immediately.
Their goal is to produce legislation that costs no more than $838 billion -the House version was $819 billion - by the end of the week, so that President Barack Obama can sign it Monday, on Presidents Day.
The Senate vote came on a historic day, as the Federal Reserve and Treasury Department unveiled details of their effort to bolster the banking industry and credit markets and Obama took his stimulus campaign to Fort Myers, Fla., which has been rocked by the mortgage foreclosure crisis.
At the Capitol, the drama now shifts to the negotiators, and the final Senate debate Tuesday illustrated the difficulties that they face.
Part of the problem is political, as the vote reinforced the notion that despite Obama’s efforts at bipartisanship, the legislation is very much a Democratic bill.
Democrats hailed the bill as historic and necessary. “Every generation must face up to its own challenge. This economic emergency is ours,” said Senate Finance Committee Chairman Max Baucus, D-Mont. “Let us pass this bill and rise to the economic challenge of our generation.”
Most Republicans, however, dismissed the measure as loaded with spending that would do little to stimulate the economy. Sen. Kay Bailey Hutchison, R-Texas, noted that the bill costs “$1 billion per page.”
Republicans railed against such inclusions as $200 million to consolidate the Department of Homeland Security in Washington, $100 million for grants to small shipyards and about $1 billion to improve parks.
“In every version of the stimulus we’ve seen, wasteful spending has attracted the most attention,” said Senate Republican leader Mitch McConnell of Kentucky. “But even more worrisome to many is the permanent expansion of government programs.”
Republicans, though, control only 178 of the House’s 435 seats and 41 of the 100 Senate seats, giving them little say in the final product.
More crucial will be the three Republican senators who became the only Republicans in either house of Congress to vote for a stimulus bill, Maine’s Olympia Snowe and Susan Collins and Pennsylvania’s Arlen Specter.
They agreed to join the Democrats after winning agreement to cut about $110 billion from the original Democratic-authored Senate package last week.
They’ve signaled that they’re reluctant to see those cuts restored, however, which could prove a problem for House Democrats.
Collins, for instance, has made it clear to the White House that, as she put it, if the bill ends up with “a lot of the unnecessary expenditures crammed back in it” and less tax relief, “the Democrats will lose my vote.”
House Speaker Nancy Pelosi, D-Calif., has called some of the Senate cuts “very damaging,” suggesting that negotiations will be rough.
NAHB: $15,000 Home Buyer Tax Credit Will Get U.S. Economy Back on Track
In a statement released by the National Association of Home Builders (NAHB), the organization applauded Senate passage of economic stimulus legislation.
“The enhanced $15,000 tax credit offers a powerful incentive for home buyers to get off the sidelines and represents the best opportunity for economic recovery,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. “Congress must make sure that the full $15,000 tax credit remains in the final stimulus plan.”
The bipartisan amendment to the stimulus package, offered by Sens. Johnny Isakson (R-Ga.) and Joe Lieberman (D-Conn.) and approved by unanimous voice vote, would create a $15,000 home buyer tax credit available to all purchasers of a principle residence for one year after its date of enactment. The tax credit would not have to be repaid and buyers could claim it against their 2008 and/or 2009 tax returns.
The $15,000 home buyer tax credit would replace and sunset a much narrower tax credit that was enacted last year. Available only to first-time home buyers, the current $7,500 tax credit works like an interest-free loan that must be repaid over a 15-year period. It is set to expire on July 1.
Extending and expanding the home buyer tax credit will spark the activity the economy needs to stop shedding jobs and begin creating them, said Robson.
“Increasing demand for housing will create jobs and help reduce excess inventory, stabilize home values, mitigate foreclosures, bolster consumer confidence and set the stage for a broader economic recovery,” said Robson.
NAHB estimates that the $15,000 tax credit would boost home sales by almost 500,000, create more than 255,000 jobs, generate $12.3 billion in wages and salaries and increase federal, state and local tax revenue by $8.7 billion.
The Senate bill also includes several other provisions that will help small businesses and bolster the housing market.
The legislation would:
- Increase bonus depreciation and Section 179 small business expensing;
- Allow a five-year carry back for net operating losses;
- Provide $2 billion in gap financing for the Low Income Housing Tax Credit (LIHTC) program and accelerate credit claims for LIHTC investors;
- Provide up to a 10-year deferral for income taxes arising due to cancelled or restructured business debt;
- Extend the New Markets Tax Credit; and
- Provide an Alternative Minimum Tax patch for 2009.
To lead the economy back to higher ground, Robson said that House and Senate conferees must ensure the $15,000 home buyer tax credit remains intact and is part of the final legislative package.
“The $15,000 housing tax credit has strong support on Main Street and will start working the day the bill is signed into law,” he said. “It offers the best chance to revive housing and the U.S. economy.”
‘Treasury’s New Plan Is Right on Target’
The Real Estate Roundtable also enthusiastically supported the sweeping efforts aimed at removing illiquid assets weighing down the nation’s financial institutions and threatening the economy.
“The Obama Administration’s comprehensive approach to stabilize financial markets by bringing liquidity back to the economy through responsible fiscal policy is right on target,” said Real Estate Roundtable CEO Jeffrey DeBoer.
[The] plan announced by Treasury Secretary Geithner [yesterday] dramatically expands the Fed’s Term Asset-Backed Securities Loan Facility (TALF) to include new commercial real estate securities. “The Treasury’s announcement today is an extremely positive step toward reconnecting the credit markets for the huge commercial real estate sector. Extending the Term Asset Backed Securities Loan Facility to newly originated AAA securities backed by commercial real estate loans is a prudent and common sense reform that will have direct, positive effects for the economy. One especially important element of the plan is how it would attract private capital, which is essential to strengthening the economy and minimizing the impact on the taxpayer,” said DeBoer.
He added, “Treasury is pursuing the right strategy now to help avoid a potential foreclosure disaster in the commercial real estate sector, which is a cornerstone of the economy. With hundreds of billions of commercial real estate mortgages maturing this year alone and no functioning credit market, many people are concerned that borrowers will technically default. Left unchecked, this could have extremely negative implications for local communities, jobs, and investors.”
Real estate directly and indirectly generates economic activity equivalent to about 20 percent of GDP. It creates some 9 million jobs and generates millions of dollars in federal, regional and local tax revenue. Credit to commercial real estate markets from many sources has been paralyzed and needs to be revived. “How and when the slide in property values is abated depends a great deal on policy actions in Washington, and we should pay careful attention to the details to make sure we get this crucial part of the plan right and the program can reach its full potential. Today’s announcement, coupled with the job creating stimulus bill being debated on Capitol Hill, starts to chart a path out of the current downward economic spiral. Additional steps may be necessary, but the essential foundation for restoring a credit market is now being laid,” said DeBoer.
Breaking It Down by State
States took the biggest hit in the Senate package, as members halved the House’s $79 billion State Fiscal Stabilization Fund, aimed at helping states pay education bills, and eliminated a $20 billion school construction fund.
The Senate offers more generous tax breaks, notably $70 billion to help some taxpayers avoid the alternative minimum tax this year, a tax credit of $15,000 or 10 percent of the purchase price of a new home and a tax break for new car buyers.
House Majority Leader Steny Hoyer, D-Md., conceded that the AMT fix probably will stay in the final bill- it has long had broad support- but the fate of the car and home tax breaks is uncertain. States and education groups also are lobbying fiercely to get money restored.
Looming over the deliberations is uneasiness about whether the bill will prod the economy significantly.A Congressional Budget Office analysis of the Senate measure found that it would add $214 billion to the projected $1.2 trillion fiscal 2009 deficit, and add another $441.2 billion next year.
RISMEDIA, February 11, 2009-(MCT/RISMedia)-The Senate, with only scant Republican support, passed an $838 billion economic-stimulus plan Tuesday that would provide significant tax breaks for new car and home buyers but sharply trim billions in aid that states have been seeking. The vote was 61-37.
The House of Representatives passed similar legislation last month, and a negotiating committee of top congressional tax and budget experts plans to begin reconciling differences immediately.
Their goal is to produce legislation that costs no more than $838 billion -the House version was $819 billion - by the end of the week, so that President Barack Obama can sign it Monday, on Presidents Day.
The Senate vote came on a historic day, as the Federal Reserve and Treasury Department unveiled details of their effort to bolster the banking industry and credit markets and Obama took his stimulus campaign to Fort Myers, Fla., which has been rocked by the mortgage foreclosure crisis.
At the Capitol, the drama now shifts to the negotiators, and the final Senate debate Tuesday illustrated the difficulties that they face.
Part of the problem is political, as the vote reinforced the notion that despite Obama’s efforts at bipartisanship, the legislation is very much a Democratic bill.
Democrats hailed the bill as historic and necessary. “Every generation must face up to its own challenge. This economic emergency is ours,” said Senate Finance Committee Chairman Max Baucus, D-Mont. “Let us pass this bill and rise to the economic challenge of our generation.”
Most Republicans, however, dismissed the measure as loaded with spending that would do little to stimulate the economy. Sen. Kay Bailey Hutchison, R-Texas, noted that the bill costs “$1 billion per page.”
Republicans railed against such inclusions as $200 million to consolidate the Department of Homeland Security in Washington, $100 million for grants to small shipyards and about $1 billion to improve parks.
“In every version of the stimulus we’ve seen, wasteful spending has attracted the most attention,” said Senate Republican leader Mitch McConnell of Kentucky. “But even more worrisome to many is the permanent expansion of government programs.”
Republicans, though, control only 178 of the House’s 435 seats and 41 of the 100 Senate seats, giving them little say in the final product.
More crucial will be the three Republican senators who became the only Republicans in either house of Congress to vote for a stimulus bill, Maine’s Olympia Snowe and Susan Collins and Pennsylvania’s Arlen Specter.
They agreed to join the Democrats after winning agreement to cut about $110 billion from the original Democratic-authored Senate package last week.
They’ve signaled that they’re reluctant to see those cuts restored, however, which could prove a problem for House Democrats.
Collins, for instance, has made it clear to the White House that, as she put it, if the bill ends up with “a lot of the unnecessary expenditures crammed back in it” and less tax relief, “the Democrats will lose my vote.”
House Speaker Nancy Pelosi, D-Calif., has called some of the Senate cuts “very damaging,” suggesting that negotiations will be rough.
NAHB: $15,000 Home Buyer Tax Credit Will Get U.S. Economy Back on Track
In a statement released by the National Association of Home Builders (NAHB), the organization applauded Senate passage of economic stimulus legislation.
“The enhanced $15,000 tax credit offers a powerful incentive for home buyers to get off the sidelines and represents the best opportunity for economic recovery,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. “Congress must make sure that the full $15,000 tax credit remains in the final stimulus plan.”
The bipartisan amendment to the stimulus package, offered by Sens. Johnny Isakson (R-Ga.) and Joe Lieberman (D-Conn.) and approved by unanimous voice vote, would create a $15,000 home buyer tax credit available to all purchasers of a principle residence for one year after its date of enactment. The tax credit would not have to be repaid and buyers could claim it against their 2008 and/or 2009 tax returns.
The $15,000 home buyer tax credit would replace and sunset a much narrower tax credit that was enacted last year. Available only to first-time home buyers, the current $7,500 tax credit works like an interest-free loan that must be repaid over a 15-year period. It is set to expire on July 1.
Extending and expanding the home buyer tax credit will spark the activity the economy needs to stop shedding jobs and begin creating them, said Robson.
“Increasing demand for housing will create jobs and help reduce excess inventory, stabilize home values, mitigate foreclosures, bolster consumer confidence and set the stage for a broader economic recovery,” said Robson.
NAHB estimates that the $15,000 tax credit would boost home sales by almost 500,000, create more than 255,000 jobs, generate $12.3 billion in wages and salaries and increase federal, state and local tax revenue by $8.7 billion.
The Senate bill also includes several other provisions that will help small businesses and bolster the housing market.
The legislation would:
- Increase bonus depreciation and Section 179 small business expensing;
- Allow a five-year carry back for net operating losses;
- Provide $2 billion in gap financing for the Low Income Housing Tax Credit (LIHTC) program and accelerate credit claims for LIHTC investors;
- Provide up to a 10-year deferral for income taxes arising due to cancelled or restructured business debt;
- Extend the New Markets Tax Credit; and
- Provide an Alternative Minimum Tax patch for 2009.
To lead the economy back to higher ground, Robson said that House and Senate conferees must ensure the $15,000 home buyer tax credit remains intact and is part of the final legislative package.
“The $15,000 housing tax credit has strong support on Main Street and will start working the day the bill is signed into law,” he said. “It offers the best chance to revive housing and the U.S. economy.”
‘Treasury’s New Plan Is Right on Target’
The Real Estate Roundtable also enthusiastically supported the sweeping efforts aimed at removing illiquid assets weighing down the nation’s financial institutions and threatening the economy.
“The Obama Administration’s comprehensive approach to stabilize financial markets by bringing liquidity back to the economy through responsible fiscal policy is right on target,” said Real Estate Roundtable CEO Jeffrey DeBoer.
[The] plan announced by Treasury Secretary Geithner [yesterday] dramatically expands the Fed’s Term Asset-Backed Securities Loan Facility (TALF) to include new commercial real estate securities. “The Treasury’s announcement today is an extremely positive step toward reconnecting the credit markets for the huge commercial real estate sector. Extending the Term Asset Backed Securities Loan Facility to newly originated AAA securities backed by commercial real estate loans is a prudent and common sense reform that will have direct, positive effects for the economy. One especially important element of the plan is how it would attract private capital, which is essential to strengthening the economy and minimizing the impact on the taxpayer,” said DeBoer.
He added, “Treasury is pursuing the right strategy now to help avoid a potential foreclosure disaster in the commercial real estate sector, which is a cornerstone of the economy. With hundreds of billions of commercial real estate mortgages maturing this year alone and no functioning credit market, many people are concerned that borrowers will technically default. Left unchecked, this could have extremely negative implications for local communities, jobs, and investors.”
Real estate directly and indirectly generates economic activity equivalent to about 20 percent of GDP. It creates some 9 million jobs and generates millions of dollars in federal, regional and local tax revenue. Credit to commercial real estate markets from many sources has been paralyzed and needs to be revived. “How and when the slide in property values is abated depends a great deal on policy actions in Washington, and we should pay careful attention to the details to make sure we get this crucial part of the plan right and the program can reach its full potential. Today’s announcement, coupled with the job creating stimulus bill being debated on Capitol Hill, starts to chart a path out of the current downward economic spiral. Additional steps may be necessary, but the essential foundation for restoring a credit market is now being laid,” said DeBoer.
Breaking It Down by State
States took the biggest hit in the Senate package, as members halved the House’s $79 billion State Fiscal Stabilization Fund, aimed at helping states pay education bills, and eliminated a $20 billion school construction fund.
The Senate offers more generous tax breaks, notably $70 billion to help some taxpayers avoid the alternative minimum tax this year, a tax credit of $15,000 or 10 percent of the purchase price of a new home and a tax break for new car buyers.
House Majority Leader Steny Hoyer, D-Md., conceded that the AMT fix probably will stay in the final bill- it has long had broad support- but the fate of the car and home tax breaks is uncertain. States and education groups also are lobbying fiercely to get money restored.
Looming over the deliberations is uneasiness about whether the bill will prod the economy significantly.A Congressional Budget Office analysis of the Senate measure found that it would add $214 billion to the projected $1.2 trillion fiscal 2009 deficit, and add another $441.2 billion next year.
Treasury Unveils Comprehensive Bank Rescue, New Start
RISMEDIA, February 11, 2009-(MCT)-Treasury Secretary Timothy Geithner unveiled an ambitious and comprehensive plan Tuesday to revive the struggling banking sector, thaw the credit markets, spark more lending to consumers and reverse a nationwide housing slump.
Geithner took the wraps off the Obama administration’s bank rescue plan an hour before the Senate was to begin voting on an $827 billion economic stimulus plan. President Barack Obama is counting on both efforts to reverse course in what economists call the worst economic downturn since the Great Depression.
Speaking in the Treasury Department’s ornate Cash Room, Geithner said that federal bank regulators would be empowered to conduct “stress tests” on banks to determine their financial health. These tests could lead to moves to close banks before their problems worsen and compound the economic slowdown.
“Instead of catalyzing recovery, the financial system is working against recovery,” he said. “And at the same time, the recession is putting greater pressure on banks. This is a dangerous dynamic, and we need to arrest it. It is essential for every American to understand that the battle for economic recovery must be fought on two fronts. We have to both jump-start job creation and private investment, and we must get credit flowing again to businesses and families.”
Geithner acknowledged that there’ll be another round of capital injections into ailing banks. The Bush administration injected almost $300 billion into 319 financial institutions, but the piecemeal effort has been heavily criticized for a lack of transparency and scant accounting of how the money was used.
The new Treasury plan imposes far greater reporting requirements for new capital injections and tougher limits on executive compensation.
The plan also has an expanded role for the Federal Reserve. The nation’s central bank will aggressively buy up new issuances of complex securities whose underlying collateral is pools of car loans, student loans, credit card debt and even motorcycle loans.
Over the past two decades, lending expanded greatly as loans were pooled together and sold into a secondary market to investors in a process called securitization. The market for these asset-backed securities has gone dormant as investors have little appetite for risk. Enter the Fed, which will supplant the role of the private sector and will step in as the buyer of last resort to spark consumer lending.
The Obama administration also is preparing a comprehensive effort to help halt foreclosures nationwide, which rose 81 percent last year. At least $50 billion will be set aside to help modify distressed mortgages and prevent foreclosures, in the belief that more foreclosures lower home prices and add to the glut of homes that are on the market.
Geithner also outlined a public-private partnership to corral off distressed mortgages and other bad assets that are stuck on banks’ balance sheets. The details of this effort are still being finalized, but the idea is to have the private sector, not taxpayers, purchase these assets, with some government sharing of potential losses or rewards.
The cost of the “bad bank” will be $500 billion to $1 trillion, with the government providing limited funds and loan guarantees to encourage private-sector participation.
After unveiling the plan, Geithner is expected to be grilled by lawmakers on Capitol Hill. Federal Reserve Chairman Ben Bernanke also will testify before Congress on Tuesday afternoon in a day full of economics and intrigue.Adding to a sense of urgency over righting the economy, General Motors announced Tuesday that it’s cutting 14 percent of its salaried work force _ 10,000 jobs _ amid a plunge in car sales and as part of a congressional mandate to revamp the company in exchange for government bailout money.
© 2009, McClatchy-Tribune Information Services.
Geithner took the wraps off the Obama administration’s bank rescue plan an hour before the Senate was to begin voting on an $827 billion economic stimulus plan. President Barack Obama is counting on both efforts to reverse course in what economists call the worst economic downturn since the Great Depression.
Speaking in the Treasury Department’s ornate Cash Room, Geithner said that federal bank regulators would be empowered to conduct “stress tests” on banks to determine their financial health. These tests could lead to moves to close banks before their problems worsen and compound the economic slowdown.
“Instead of catalyzing recovery, the financial system is working against recovery,” he said. “And at the same time, the recession is putting greater pressure on banks. This is a dangerous dynamic, and we need to arrest it. It is essential for every American to understand that the battle for economic recovery must be fought on two fronts. We have to both jump-start job creation and private investment, and we must get credit flowing again to businesses and families.”
Geithner acknowledged that there’ll be another round of capital injections into ailing banks. The Bush administration injected almost $300 billion into 319 financial institutions, but the piecemeal effort has been heavily criticized for a lack of transparency and scant accounting of how the money was used.
The new Treasury plan imposes far greater reporting requirements for new capital injections and tougher limits on executive compensation.
The plan also has an expanded role for the Federal Reserve. The nation’s central bank will aggressively buy up new issuances of complex securities whose underlying collateral is pools of car loans, student loans, credit card debt and even motorcycle loans.
Over the past two decades, lending expanded greatly as loans were pooled together and sold into a secondary market to investors in a process called securitization. The market for these asset-backed securities has gone dormant as investors have little appetite for risk. Enter the Fed, which will supplant the role of the private sector and will step in as the buyer of last resort to spark consumer lending.
The Obama administration also is preparing a comprehensive effort to help halt foreclosures nationwide, which rose 81 percent last year. At least $50 billion will be set aside to help modify distressed mortgages and prevent foreclosures, in the belief that more foreclosures lower home prices and add to the glut of homes that are on the market.
Geithner also outlined a public-private partnership to corral off distressed mortgages and other bad assets that are stuck on banks’ balance sheets. The details of this effort are still being finalized, but the idea is to have the private sector, not taxpayers, purchase these assets, with some government sharing of potential losses or rewards.
The cost of the “bad bank” will be $500 billion to $1 trillion, with the government providing limited funds and loan guarantees to encourage private-sector participation.
After unveiling the plan, Geithner is expected to be grilled by lawmakers on Capitol Hill. Federal Reserve Chairman Ben Bernanke also will testify before Congress on Tuesday afternoon in a day full of economics and intrigue.Adding to a sense of urgency over righting the economy, General Motors announced Tuesday that it’s cutting 14 percent of its salaried work force _ 10,000 jobs _ amid a plunge in car sales and as part of a congressional mandate to revamp the company in exchange for government bailout money.
© 2009, McClatchy-Tribune Information Services.
Monday, February 9, 2009
Keeping You Updated on the Market for the week of Feb 9, 2009
MARKET RECAP
If a retailer wants to stimulate sales, what does he do? He lowers prices. It's a simple, yet powerful, principle of economics that we've been proselytizing over the past two months, and for good reason, it works. To wit: The National Association of Realtors (NAR) reported that its index of pending home sales, which measures contracts signed but not closed, rose 6.3% to 87.7 in December. Year-over-year, the pending-home-sales index was up 17.5% in the West and 1.6% in the South. Even more encouraging, the index's numbers reflect the most favorable combination of home prices, mortgage interest rates, and family income since tracking started in 1970.
Lower mortgage prices have contributed greatly to improving housing affordability. The prime 30-year fixed-rated mortgage has been floating below 6% for the past three months. But the mortgage market's contribution could diminish in the near term. Recent news that the federal government is seeking ways to lower mortgage-rates further sounds like a positive, but could actually be doing more harm than good. Yes, lower rates are a good thing (and we understand the NAR supports intervention to push rates lower), but if people are always anticipating lower rates, they hesitate to act today. Let's not forget that mortgage rates in the 5% range are darn-good rates, and even those can be readily refinanced if the feds succeed in pushing rates down.
While housing prices and mortgages have trended lower, unemployment has trended higher. Jobs, or the lack thereof, is the monkey wrench that could conceivably grind the housing-recovery gears to a halt (operative word being “conceivably”). On that front, there was much media teeth-gnashing and lamenting last week because the unemployment rate rose to 7.6% on 598,000 lost jobs in January.
How did the financial markets react to the “dire” unemployment news? The Dow Jones Industrial Average surged ahead 150 points in the first hour of trading. Like we stated last week, many economists view the recent job cuts as a bottoming of the recession, not an omen of things to come. It appears the stock market shares the same view.
Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Wholesale Trade (December)
Tues, Feb 10,10:00 am, et
0.6%(Decrease)
Moderately Important. The expected decrease is within the norms of a slowing economy.
Mortgage Applications
Wed, Feb 11,7:00 am, et
None
Important. Despite a recent spike in rates, application activity remains in an upward trend.
International Trade(December)
Wed, Feb 11,8:30 am, et
$37 Billion (Deficit)
Moderately Important. Lower energy prices have pushed the trade deficit to a multi-year low.
Retail Sales(January)
Thurs, Feb 12,8:30 am, et
1.0% (Decrease)
Important. The sales decline has likely been exacerbated by January's poor economic data.
Business Inventories(December)
Thurs, Feb 12,10:00 am, et
0.6% (Decrease)
Moderately Important. Inventories naturally decrease with a decrease in sales.
Consumer Sentiment(February)
Fri, Feb 13,10:00 am, et
52 Index
Important. Sentiment is expected to hit a new low, but will improve as the economic data improve.
A Few Words on Improving Psyche
Last week, The Financial Times ran an op-ed that pretty much confirmed what we've been saying all along: The constant barrage of negative news creates adverse feedback loops that overwhelm the psyche. The most immediate way to thwart these loops and improve psyche is simply turn off the news, or at least throttle back the number of times you read the same account.
Another way to improve psyche is not to get too caught up in the here and now. People tend to absorb news as if it actually happened to them or will happen to them in the near future. Fertile minds tend to conjure numerous scenarios, most of them bad. They also tend to extrapolate today into infinity. Life is not the movie Groundhog Day. Trends do not last forever.
We are not Pollyannas by any means; we understand the economy needs to work out quite a few kinks, not the least of which is the business borrowing environment. (Harley-Davidson was recently forced to borrow at a 15% annual rate, which is absolutely absurd.) That said, we are feeling a little more sanguine every day. After all, what's not to like about a housing market that is showing the best combination of borrowing costs, prices, and affordability in nearly 40 years? Add a little optimism to the mix and we'll be in full-fledged recovery mode before you know it.
If a retailer wants to stimulate sales, what does he do? He lowers prices. It's a simple, yet powerful, principle of economics that we've been proselytizing over the past two months, and for good reason, it works. To wit: The National Association of Realtors (NAR) reported that its index of pending home sales, which measures contracts signed but not closed, rose 6.3% to 87.7 in December. Year-over-year, the pending-home-sales index was up 17.5% in the West and 1.6% in the South. Even more encouraging, the index's numbers reflect the most favorable combination of home prices, mortgage interest rates, and family income since tracking started in 1970.
Lower mortgage prices have contributed greatly to improving housing affordability. The prime 30-year fixed-rated mortgage has been floating below 6% for the past three months. But the mortgage market's contribution could diminish in the near term. Recent news that the federal government is seeking ways to lower mortgage-rates further sounds like a positive, but could actually be doing more harm than good. Yes, lower rates are a good thing (and we understand the NAR supports intervention to push rates lower), but if people are always anticipating lower rates, they hesitate to act today. Let's not forget that mortgage rates in the 5% range are darn-good rates, and even those can be readily refinanced if the feds succeed in pushing rates down.
While housing prices and mortgages have trended lower, unemployment has trended higher. Jobs, or the lack thereof, is the monkey wrench that could conceivably grind the housing-recovery gears to a halt (operative word being “conceivably”). On that front, there was much media teeth-gnashing and lamenting last week because the unemployment rate rose to 7.6% on 598,000 lost jobs in January.
How did the financial markets react to the “dire” unemployment news? The Dow Jones Industrial Average surged ahead 150 points in the first hour of trading. Like we stated last week, many economists view the recent job cuts as a bottoming of the recession, not an omen of things to come. It appears the stock market shares the same view.
Economic Indicator
Release Date and Time
Consensus Estimate
Analysis
Wholesale Trade (December)
Tues, Feb 10,10:00 am, et
0.6%(Decrease)
Moderately Important. The expected decrease is within the norms of a slowing economy.
Mortgage Applications
Wed, Feb 11,7:00 am, et
None
Important. Despite a recent spike in rates, application activity remains in an upward trend.
International Trade(December)
Wed, Feb 11,8:30 am, et
$37 Billion (Deficit)
Moderately Important. Lower energy prices have pushed the trade deficit to a multi-year low.
Retail Sales(January)
Thurs, Feb 12,8:30 am, et
1.0% (Decrease)
Important. The sales decline has likely been exacerbated by January's poor economic data.
Business Inventories(December)
Thurs, Feb 12,10:00 am, et
0.6% (Decrease)
Moderately Important. Inventories naturally decrease with a decrease in sales.
Consumer Sentiment(February)
Fri, Feb 13,10:00 am, et
52 Index
Important. Sentiment is expected to hit a new low, but will improve as the economic data improve.
A Few Words on Improving Psyche
Last week, The Financial Times ran an op-ed that pretty much confirmed what we've been saying all along: The constant barrage of negative news creates adverse feedback loops that overwhelm the psyche. The most immediate way to thwart these loops and improve psyche is simply turn off the news, or at least throttle back the number of times you read the same account.
Another way to improve psyche is not to get too caught up in the here and now. People tend to absorb news as if it actually happened to them or will happen to them in the near future. Fertile minds tend to conjure numerous scenarios, most of them bad. They also tend to extrapolate today into infinity. Life is not the movie Groundhog Day. Trends do not last forever.
We are not Pollyannas by any means; we understand the economy needs to work out quite a few kinks, not the least of which is the business borrowing environment. (Harley-Davidson was recently forced to borrow at a 15% annual rate, which is absolutely absurd.) That said, we are feeling a little more sanguine every day. After all, what's not to like about a housing market that is showing the best combination of borrowing costs, prices, and affordability in nearly 40 years? Add a little optimism to the mix and we'll be in full-fledged recovery mode before you know it.
Subscribe to:
Posts (Atom)
