Richard's Real Estate Thoughts

It's over - unofficially anyway

Thu, 19 Nov 2009 16:10:34 -0600

Recently the Fannie Mae Chief Economist, Doug Duncan, in the November Economics Development report offered this encouragement:

It's (Unofficially) Over!

Backed by this graph.

The report addresses many of remaining serious problem - consumer confidence, housing market stability, and JOBS, JOBS, JOBS.

But great encouragement is to be taken with the significant turn around in GDP, evidenced in the chart.

A concern is how much the tax credits have created demand that may not be sustained, and whether consumers will continue to spend.

The report states, "While the improvement in consumer spending may not be durable, it does not mean that the recovery is in doubt. The Conference Board's Index of Leading Indicators, which is a gauge for economic activity over the next six months, increased in September for the sixth consecutive month after reaching its trough in March. The string of gains in the index supports our view that the recovery is taking hold."

On the mortgage side, the report looks for a boost in existing and new home sales spurred by the extension and expansion of the home buyer tax credit. But despite this boost in purchases, overall mortgage orginations are predicted to decline significantly for 2010 as rates tend back upwards.

RESPA changes will hurt consumers

Wed, 18 Nov 2009 16:04:46 -0600

The more I look over the HUD RESPA changes that start January 1, the worse they seem.

The latest version of the RESPA FAQ is an astonishing 49 pages long.

HUD has simplified the Good Faith Estimate by making it 3 pages rather than 1 page. That is the logic of government.

The stated goals are to increase transparency, to increase accuracy, and to encourage shopping.

I think the accomplished facts are to increase banker advantage by enabling bankers to hid their premium income. Bankers have always been able to hid their premium income. Brokers have always disclosed their premium income. HUD now will require brokers to add the premium income to the upfront charges, creating the false perception that brokers are charging more upfront.

It is an advantage that the regulators are giving to banks. It amounts to an anti small business policy.

But even for bankers, as well as closing agents, it is astounding that HUD would impose such a poorly conceived encumberance as these new RESPA requirements. At a time when lenders, brokers, and others in the housing industry are struggling to get through the down turn, HUD decides it is best to add further cost and burdens of new software, new forms, and new training.

You would think that HUD is intent on further restricting the housing market.

At any rate, one of the more consumer unfriendly, and more poorly thought out, aspects of the RESPA reform is the requirement that any Good Faith Estimate is fully binding on the loan originator. For the consumer this means that application, including credit, will probably be required before the application can receive an estimate of costs.

From HUD's FAQ - "An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information."

We will have to wait and see how this strict binding requirement impacts consumer ability to shop for terms, but I think it will limit them. And I think with the additional disclosure requirements placed on brokers, over that required of bankers, the consumer will be steered to larger bank lenders out of confusion rather than based on a fair and accurate understanding of the costs and terms.

The exact opposite of the stated goals of HUD.

For more on RESPA reform, please look at my article in November's Scotsman Guide.

Mortgage Insurance Companies - losses increase concerns

Sun, 08 Nov 2009 19:13:08 -0600

Mortgage insurance company losses are a mounting concern for the industry.

A concern that has not received much coverage in the media, nor in Congress. These companies have taken a beating in the market downturn.

Mortgage insurance enables home buyer to purchase with less than a 20% down payment. For FHA loans, the home buyer purchases government mortgage insurance from HUD. For conventional loans, the home buyer purchases private mortgage insurance.

Several companies offer mortgage insurance. All have taken heavy losses and as a result have tightened their lending guidelines. In many cases the MI companies have tightened their guidelines more than Fannie Mae and Freddie Mac have.

In other words, Fannie or Freddie might allow a loan to be, if the borrower can obtain mortgage insurance. But if the mortgage insurance is not availabie, then the loan cannot be made. Even though Fannie and Freddie guidelines would have allowed it.

Mortgage insurance is critical to home affordability and to the housind market.

Mortgage insurance is in trouble.

Standard and Poor's is looking closely at the larger mortgage insurance companies. This look may mean a credit rating downgrade.

The impact - higher premiums, tighter guidelines, less approved loans. It may be that Congress needs to look into what can be done to support this industry that is so vital to the continued housing recovery.

In an earlier post I suggested a twist on the home buyer tax credit that might have provided a boost to the struggling mortgage insurance industry, and might have actually helped create new home buyers. Both of these issues remain unaddressed.

Tax Credit Extended and Expanded - Signing today

Fri, 06 Nov 2009 13:55:22 -0600

As part of a $24 billion economic stimulus bill, the expanded and extended home buyer tax credit is now law.

The features of the bill are as publicized throughout the week;

deadline extended through April 30
April 30 deadline requires only that the contract is signed
Qualified purchases must close by June 2010
a reduced tax credit of up to $6500 is opened to existing home owners

Other provisions in the new stimulus focus on extending unemployment benefits. Today's increase in unemployment percentages provided the backdrop of today's signing

Here are the President's remarks. In his remarks, President Obama made the point that the credit is "fully paid for." Though he did not elaborate on that. I think he is referring to the deferring a seperate business tax credit.

The president also remembered those suffering in the Ft Hood shooting.

Congratulations Red Bank Lions 10-0 and Ranked 1

Thu, 05 Nov 2009 17:02:05 -0600

Congratulations to the Red Bank Lions football team. Last week they finished regular season play undefeated and with the number 1 ranking in the state.

Tomorrow they begin their playoff run.

Anything can happen of course, but this is a special team.

Great job and good luck tomorrow.

The employment factor

Thu, 05 Nov 2009 08:10:50 -0600

As the economy starts the turn around, employment becomes more important measure of the strength and sustainability. As a lagging indicator, employment gains will always trail recovery, but families and the economy need more jobs. The job creation target is 400,000 new claims. Today's New Unemployment claims number of 512,000, despite continuing improvement, remains above that magic job creation level.

This means the economy is still losing jobs. On a personal note, the paper mill in my hometown has just announced plans to close. The impact on my home town will be massive. 1100 jobs. Wow. And what do you do with a closed paper mill?

Tomorrow's unemployment numbers will be very important, more so than usually. September showed an increase breaking a trend of monthly improvement.

The question is - Was September's increase a blip or a trend. Expectations are unemployment will slide higher, maybe to 10%?

Estimates are that 16-20% are underemployed - combining the unemployed seeking work with the working parttime instead of full time or no longer seeking employment.

To sustain the recovery jobs must come back. With closing factories, the jobs may need to be in new industries.

Volleyball State Champs - Red Bank and Boyd-Buchanan - Congratulations

Sat, 31 Oct 2009 13:09:01 -0500

Last night two local teams, the Lady Bucs of Boyd-Buchanan and the Lady Lions of Red Bank, won state championships in high school volleyball. For Boyd-Buchanan this year was a return trip to the Class A state final. This year they won, completing a 20-0 season within their state classification.

The final match was 3-0.

For Red Bank, where my son played basketball and my daughter was on a state championship soft ball team, this is the first time in the class AA state final in 19 years. This is the first state title for the Red Bank volley ball team.

Red Bank won their final match 3-1, after fighting through the loser's bracket.

This past decade Red Bank has won state championships in football and in girls softball.

The MVP's were Stephanie Sivvvlvers for Boyd and Courtney Lawson for Red Bank.

Congratulations to both teams and both schools.

Calculated Risk Blog - New Home Sales Distressing Gap

Sat, 31 Oct 2009 08:49:58 -0500

The Calculated Risk Blog is a highly recommended read. This week there was a post with this chart on the growing distinction between new and existing home sales. The phrase used is "Distressing Gap."

In the post, some important points were made about the increased value to employment and the economy from new construction home sales.

Graph posted with permission from Calculated Risk blog

The impact on the local economy of new homes construction is very great.

A report prepared by the NAHB in June 2009, gave a very detailed presentation of the economic impact of new construction for local communities.

The model used estimates "impacts on income and employment in 16 industries and local government, as well as detailed information about taxes and other types of local government revenue." The model "estimates of the local impacts of building 100 single family units, 100 rental apartments, and $10 million worth of spending on residential remodeling (equivalent to 100 remodeling jobs at $100,000 each)1 in a typical U.S. metropolitan area, "

The estimated 1 year local impact of 100 single family new construction homes:

$21.1 million in local income
$2.2 million in local govenment revenue
324 local jobs created

The estimated continuing annual impact of 100 single family new construction homes"

$3.1 million in local income
$743,000 in local government revenue
53 local jobs created

Similar estimates are provided for multi-family construction and residential remodeling.

The information from these studies should be emphasized and understood. We are all fully aware that new construction has fallen off, but I assumed that the drop was in line with the drop in home sales in general. The statistics in the Calculated Risk post show that new home sales have fallen significantly more than existing home sales.

This is not good for local economies to have such a disparity between existing home sales and new construction home sales.

The push for First Time Home Buyer with the tax credit and the increase in distressed properties are cited in the Calculated Risk post as major contributing factors to this growing gap in new and existing home sales.

To those factors I would add the loss of many construction financing programs, and the general tightening of qualifying standards in general that has pushed a very large portion of potential buyers out of the market - many of them minorities. On that topic, I will write more later.

Recovery funds and job creation

Fri, 30 Oct 2009 13:42:05 -0500

With numerous good reports on the economic front over the last few weeks, many are starting to suggest that the recession is over. Jobs though continue to be a problem.

To answer questions about the impact of the stimulus program, the administration has announced that the stimulus is approaching 1,000,000 jobs saved or created. From the White House blog.

According to information on Recovery.gov, Tennessee has been an especially fortunate recipient of the stimulus funds.

Still, Tennessee's unemployment remains over 10% through September, despite the 1156 jobs identified as created by the stimulus. Some good news is starting to be announced locally. More on that later.

UPDATE STIMULUS IMPACT FOR TENNESSEE: Posted November 1, 2009

As promised the stimulus figures were updated on Recovery.gov. The new figures indicate that the stimulus has created over 640,000 jobs nationwide, and 9548 in Tennessee.

First Time Home Buyer tax credit moving forward - no longer just first time home buyers

Fri, 30 Oct 2009 07:03:17 -0500

The administration support, and the approaching deadline, has given much momentum to the extension and the expansion of the First Time Home Buyer tax credit.

And the Senate Finance Committee has pushed forward a proposal to extend a credit to existing home owners. Included in the Senate bill is also extended unemployment benefits.

In fact it would no longer be a first time home buyer tax credit. Just a home buyer tax credit.

Provisions of the tax credit agreement

Deadline to be extended to April 30
Existing home owners, who have owned prior residence at least 5 years, may receive up to $6,000
Income limits increased to $125,000 for singles and $225,000 for couples
Homes over $800,000 are not eligible

There would be a significant change to the new deadline - rather than closing by April 30, the contract must be accepted by April 30. (No back dating, right.)

Some senators are insisting that this is the "last extension."

Estimates on the boost from the tax credit, as far as actual new home sales, vary - from no impact to significant impact.

One thing known - the cost. Another $10,000,000,000 or so.

I love the logic about how to pay for the tax credit. From the HILL.com , "Senate Finance Chairman Max Baucus (D-Mont.) said that the cost will be offset by delaying a tax break for U.S.-based international corporations that was scheduled to start in 2010."

This tax credit will be funded by delaying another tax credit - not by cancelling the other tax credit but by delaying.

Chattanooga Community Kitchen Fast Day fund raiser

Thu, 29 Oct 2009 14:31:43 -0500

The Chattanooga Community Kitchen is in the process of its Fast Day Fund raiser.

Member churches and other organizations ask their members to skip a meal and to donate the cost of that skipped meal to the Community Kitchen.

This fund raiser has taken different forms, but has been the main fund raiser for the Kitchen for many years.

The Kitchen has received national recognition as a model for a local non profit organization. It was originally started in 1982 as a feeding program. There were 7 downtown churches that partnered to meet a growing need in Chattanooga.

The Kitchen has its own blog. You can stay current on needs and on offerings by checking updates here.

The main program is to provide food 365 days a year:

Breakfast 7:00am to 8:00am seven days a week
Lunch 11:00am to 11:45am seven days a week
Dinner 4:00pm to 4:45pm weekdays

Other programs focuson employment, shelter, counseling. A big help for many homeless is that the Kitchen provides a place for basic, essential services like bathrooms and showers, telephones, mail, washers and driers, and more.

The Community Kitchen is well known and well respected in Chattanooga because of its long service to the needs of our community.

You can help by volunteering or with a donation. Click here to make a donation.

First Time Home Buyer Tax Credit - Administration supports extension

Thu, 29 Oct 2009 10:47:18 -0500

Whether or not you agree with the First Time Home Buyer tax credit, the Obama administration through Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan has called for the credit to be extended.

Such support from the administration may very well be sufficient to pass the extension. Evidently, the tax credit is seen as a critical to continue the jump start of the economic recovery.

It still seems to me that the tax credit is not doing much in the way of creating new buyers, and that it mostly takes from from future sales. But the recent and unexpected drop in home sales appears likely to push through the tax credit extension.

Udate: Bloomberg article describes building momentum for extension and for expansion of the tax credit.

Chattanooga Renaissance Oktoberfest was great fun

Wed, 28 Oct 2009 14:19:17 -0500

The Chattanooga Renaissance Oktoberfest was held this past weekend.

Despite the threat of rain and the cool weather the turnout was good. Music, food, activities and fun times highlighted the event. The proceeds went to help the Chattanooga Education, Arts, and Culture programs.


Dancing and music on Walnut Bridge	The view in Coolidge Park

One of the bands playing on the bridge

Glass Blowing in the Bluff View District	In the park with Mel and Dude from Mellow Mushroom

My friend and local social networking hero, insurance agent extraordinaire Jon Moss provided these videos.

"I love Chattanooga"

The Chattanooga Choo Choo by violin

Parade Magazine misrepresents Reverse Mortgages

Tue, 27 Oct 2009 12:05:12 -0500

This past Sunday Parade Magazine published an article entitled "Beware of Reverse Mortgages." The article was misleading on a number of fronts, but the biggest issue I have with the report is that it presented legitimate issues that a home owner should consider immediately beside fraud and discriminatory abuses that apparently exist. (Although the article did not provide any supporting documentation for its accusations of cited abuses.)

Parade Magazine should apologize for misrepresenting FHA Reverse Mortgages.

The article associated reverse mortgages with subprime lending. This association of legitimate issues involved with considering a reverse mortgage, with subprime lending and with predatory practices has misrepresented what is a good loan option for many seniors. As a result Parade has probably done a serious disservice to those seniors.

The use of phrasing such as "strapped US homeowners" inaccurately places the reverse mortgage option in language associated with the housing and financial market collapse. In fact a reverse mortgage is not possible for most "strapped US homeowners" as the equity requirements pretty much exclude many of the circumstances that might make a homeowner strapped.

The article states "consumer advocates have long cautioned that reverse mortgages should be a last resort because of their high fees." This statement is made without citing the source. Further, it presents a comparative judgment as a fact, without even the least attempt made to provide supporting information for comparison.

Finally as I stated initially, the most gross violation of responsible reporting is that the legitimate issues to consider in the decision about a reverse mortgage are tied directly to non specific cases of illegal fraud and discrimination. One specific illegality mentioned has to do with coercision to execute a title transfer.

In actuality, such a practice has nothing to do with a reverse mortgage.

No reference is given. There is a vague mention of the FBI and HUD, but there are no specifics.

No verifiable statistics are given.

The writer simply uses emotionally loaded language - scam artists, unscrupulous loan officers, aggressive tactics, defrauding, scheme, steered.

Parade Magazine should issue an apology to the nation for its misrepresentation of an important loan option available to seniors and take full responsibility for its irresponsibly unbalanced and misleading presentation - omitting relevant facts and actual comparisons, associating legitimate considerations with predatory and illegal activity, failing to cite sources and supporting facts.

Here is a link to the Parade Magazine article.

Some facts about a reverse mortgage.

there is no title transfer of home ownership
the home must have enough equity to qualify
the senior does not have a monthly house payment to make
closing costs that are supposedly high include costs that a traditional mortgage would pay in monthly installments
the senior cannot outlive the loan or lose their home because of the loan terms
the senior is guided in their decision by HUD approved housing counselors, not just the loan originator
a link to the FHA FAQ for reverse mortgages

Here is a reverse mortgage calculator to find how much you might qualify for with a reverse mortgage.

Bank closings reach 100 for the year- FDIC Chairman Bair talks on You Tube

Fri, 23 Oct 2009 18:23:19 -0500

With four closings today, totaling 8 in October, the FDIC closed bank list broke 100 to reach 103 for the year.

Today there were 3 Florida banks and 1 Georgia bank. The ramifications are many.

You Tube video from FDIC Chairman Shelia Bair,

At present the FDIC fund is stretched.

The loss of local banks always has adverse local impact. Of course these banks are not lost, only sold. And most depositors are protected.

The local bank though becomes part of a larger bank.

The worst news is that some projections look to as many a 400 more bank closings can be expected over the next few years, costing as much as $100 billion.

The recovery may be underway, propped up by massive federal spending and tax credit.

Unemployment, commercial real estate, closed businesses and lost industries, have not yet finished taking their toll.

I hate to end the week on a negative.

Congress and regulators are looking at changes to improve the capital structure of the financial markets and institutions. Federal Reserve Chairman Ben Bernanke called today for quick Congressional action to finalize new legislation for capital requirements and to improve regulation and supervisory enforcement.

We have a ways to go.

Update: 3 more banks, in WI, MN, and IL, were closed yesterday after I wrote this post. Total now 106, and counting.

First Time Home Buyer Tax Fraud

Fri, 23 Oct 2009 07:23:34 -0500

The more I think about the First Time Home Buyer Tax Credit, the less I like the program. In one previous post, I concluded that the credit was not creating new buyers as promised, but only borrowing from future sales.

In other words, we are paying for purchases that would have taken place without the incentive. One analysis suggests that 4 out of 5 tax credit recipients would have purchased anyway. This means that each new buyer costs the Treasury $40,000.

In another previous post, I suggested an alternative to the tax credit, which my numbers indicate would cost less, help more, and better target need. This alternative might also help revitalize the MI industry, which was hit as hard as any by the financial crash.

This alternative involves an MI risk subsidy for $8,000.

Today though I am writing about another reason NOT to extent the First Time Home Buyer Tax Credit - TAX FRAUD.

Already, just with tax year 2008, tax fraud associated with the First Time Home Buyer Tax Credit has been rampant.

19,000 claims for the credit did not actually purchase a new home
74,000 claims for the credit have previously owned a home

So, in addition to not being effective and to having a very high cost, the tax credit is leading to a significant amount of tax fraud and questions are being raised as to whether the program is being managed well.

Rural Development purchase money funds are tight

Thu, 22 Oct 2009 16:38:59 -0500

Rural Development is projecting that funds for purchase money transactions may run out as soon as October 27, pending receipt of actual funds from the recently passed Agricultural Appropriation Act for FY 2010. The announcement indicates that it takes about 3 to 4 weeks to receive the funds from the Office of Management and Budget.

Just another thing to work though. The Tennessee Rural Development office earlier this week made a commitment to get received loan file submissions processed in time for the tax credit.

For some home buyers, funding might be an issue. For those with pending Rural Development purchases, contact your loan officers to make sure your funding is set.

All about the women - Women's Expo 2009

Thu, 22 Oct 2009 10:54:30 -0500

The 2009 Women's Expo in Chattanooga, presented by Memorial Health Care System, was held Tuesday.

The annual event is all about the women - Food, Fashion, Fun.

This year featured Taste of Home Cooking School and Belk's Fashion Show. The MaryEllen Locher Foundation receives 10% of the ticket sale proceeds.

Vickie Phillips and Tina Christein from our office went this year and came back raving about all the new things they learned.

Tina and Vickie came back excited from the Women's Expo

Photos from some of the booths.

Battlefield Imaging

Café LeMont and Lady J's Bakery

Estee Lauder

Tina at the Woman's Way Magazine booth

Tina and Vickie were also interested in the Time 2 Save Workshops and the P90X Fitness Program.

FHA Delays Condo Rule Implementation, Again

Wed, 21 Oct 2009 16:20:07 -0500

FHA has just announced that the implementation date for the new condo guidelines has been pushed back again, until December 7.

Good news for condo buyers and owners.

Originally, the new rules were to take effect at the end of October, but FHA granted a reprieve until November.

Now the new implementation date is December 7. Lender spot approvals will be accepted until then.

Possibly even more important with the announcement today, FHA will issue new guidance with "additional leniencies to address the difficult market conditions."

A new mortgagee letter is expected out in a couple weeks with updated guidance. Mortgagee letter 2009-19 initially announced the new condo guidelines.

Chattanooga's Renasissance Oktoberfest

Tue, 20 Oct 2009 16:02:00 -0500

The excitement is building for the First Annual Chattanooga's Renaissance Oktoberfest, this weekend, October 24, from 11am to 7pm.
The event is growing and gaining much momentum, with announcements seemingly daily about new offerings and activities for the one day celebration of Chattanooga as the "South's Renaissance City."

The Renaissance Oktoberfest is being directed by the City of Chattanooga's Department of Education,Arts & Culture and will benefit the EAC afterschool initiative.

Activites include:

Chattanooga Market: "Market on the Bridge". The Market will continue its celebration of Chattanooga's Renaissance on Sunday, back at the First Tennessee Pavilion. With Big River Grille and Brewing Works, the Chattanooga Market will host the Oktoberfest Beer Gardens on Walnut Street Bridge and in Coolidge Park.

The Choo Choo Musical Parade will end the day, featuring performances by students from the Center for Creative Arts singing Chattanooga Choo Choo. Other local artists include Emily Grace, Tim Jester, B Wordstar, Dennis Massengale and No Big Deal band, Neshaw Callaway, Frank Taylor and Dalton Roberts as the Choo Choo's engineer.

Across the River at the Bluff View Art District, celebrations will include glass blowing, local farmer ware, face painting, food and drink from all of the Bluff View restaurants.

The Hunter Museum will have discounted Oktoberfest admission to the last weekend of its New York Cool exhibit, including work by American artist Adolph Gottlieb. Enjoy German music on the outside plaza.

On the Coolidge Park Stage there will be local performers, including No Big Deal as the feature band, along with Elijah James, Jerry Rogers, John Latham, and T-Ran Gilbert& 22Visions.

Chattanooga Parent Magazine will present the Renaissance Oktoberfest Children's Village in Coolidge, with arts and activies for children and families.

This is a business and government partnership event taking place on both side's of the River. Just another example of how great Chattanooga works and celebrates together.

It is going to be a fun time. Can't wait til Saturday.

Fiber Optics Available Now in Chattanooga Areas

Tue, 20 Oct 2009 14:27:18 -0500

Fiber optics has been coming to Chattanooga for a long while. There have been law suits and regulatory attempts to stop it, but fiber is now available in many locations in Chattanooga.

The promise is "virtually unlimited bandwidth," along with consistency and increased reliability.

Check availability for your area here.

This technology is a must to maintain Chattanooga's momentum as a growing and forward looking community.

I expect there will be direct benefit even for those who do not switch to fiber, as Comcast and the other Internet access options compete for customers.

Real income down in US, despite indications that the recession may be over

Mon, 19 Oct 2009 17:06:33 -0500

Several important reports support the economic consensus that the recession is ending. Despite many encouraging numbers the fact remains that people are struggling.

Chart from Bureau of Labor and Statistics

Unemployment continues to grow. As recent Bureau of Labor report show, even for many who are working, real income is down.

The Bureau of Labor reported today, "Since reaching a high point in December 2008, real average weekly earnings have fallen by 1.9 percent."

Loss of jobs and loss of income will make it difficult for consumer spending to drive the recovery.

Federal Reserve Chief Bernanke today shifted focus towards the budget deficit, but also for the world economies, especially China, to push for greater trade balance. If the US consumer is not in a strong position to increase personal spending, then Bernanke suggested it is necessary for other nations to "boost consumption."

He is looking for the world economies to develop more of a balanced trade as one of the requirements to avoid future world financial crises.

Red Bank Lions - Win division

Sat, 17 Oct 2009 09:55:51 -0500

Congratulations to the Red Bank Lions football team for clinching their district football championship. This year is beginning to develop into a special year, like the last state championship team of 2000,

Red Bank is ranked #1 in the state for their division 4A and 14th overall in the state.

Last night they clinched with a 42-8 win over rival Brainerd. The win was especially significant as Brainerd has the second best offense in the district, behind Red Bank.

The win pushed their record to 8-0. Congratulation to the players, to Coach Tim Daniels, and to the Red Bank High School.

Go Lions.

Tax Credit Alternative

Sat, 17 Oct 2009 09:18:49 -0500

The First Time Home Buyer tax credit has spurred recent home sales. Several options are being considered to extend the credit, in some form.

While the credit has current increased sales, there are questions about whether the credit has stimulated new sales or just encouraged already decided buyers to purchase sooner rather than later. In other words, no real boost to the overall housing sales that would have occurred anyway over the next several months.

If this is the case, then the sales in the coming months may be adversely impacted by the present tax credit incentive.

Other objections are the cost to the treasury, and the apparent fact that the buyers and the areas benefiting from the tax incentive may not be those most needing the help.

The good news for the economy is that in a few months there will be billions of dollars in tax credits being spent by the lucky recipients. Of course it is billions of dollars that will be provided by us good old tax payers.

In a recent post, I tried to review the considerations for extending the credit - its effectiveness, its cost, its target. One comment suggested that I had mentioned the problems, but had not offered an alternative solution. I felt that was a fair criticism of the post.

How else might the government stabilize the housing market, if the tax credit idea is not effective and is too costly?

An alternative to the First Time Home Buyer tax credit.

Here is my alternative solution, using the same $11 billion that is the reported cost of the credit to date. (Of course, with still another several weeks before the deadline, I suspect the final cost will be close to double.)

Use the $11 billion, in increments of up to $8,000, to encourage new home buyers - those who want to purchase but have found that in the new lending realities, they are no longer qualified to purchase.

A year they could have purchased with lower scores or with a lower down payment. Today they are locked out.

One of the problems with the housing market is that prices have dropped because of surplus homes and the impact of foreclosure sales.

Another reason for depressed prices is that the pool of qualified buyers has dropped significantly. Credit score requirements have increased. Unemployment has increased. Down payment requirements have increased.

Fewer buyers. More inventory. Lower prices.Less sales.

If we use the tax credit money to offer a guarantee, matching dollar for dollar, to private and government mortgage insurance then it might enable the qualifying requirements to be lowered. Providing more qualified buyers.

More buyers. Less inventory. Higher prices. More sales.

For those who would participate in the subsidized MI program, they could receive a higher rate that could offset some of the cost and risk. But these new borrowers would be able to qualify with less down or with lower credit scores.

These borrowers would still meet underwriting guidelines, just relaxed guidelines.

If we used the $11 billion so far spent in the credit, largely by people who would have bought anyway (no net increase in home sales over time), then there might have been over 1,300,000 home sales that were actually new buyers.

(A real net increase in home sales over time.)

Most home buyers who would qualify unter tighter guidelines would not take the higher rate or higher MI required for the subsidized MI program. Those buyers would still purchase, without the incentive.

We would have the funding for over 1,000,000 new purchasers who would not have qualified without the subsidized MI.

The MI companies could charge the full premium and cover only half the risk. This would help restore the MI industry. (Damage to the MI industry has not received much discussion, but it is a critical issue.)

It might be possible to subsidize MI even for qualified buyers who purchase in targeted, depressed areas. This would give a reduced MI premium, and be market driven solution.

If we consider that the MI subsidy would not really be all be spent, but only for those homes lost to foreclosure, most of the buyers receiving subsidized MI would keep their homes, then the $11 billion could be used to subsidize even more purchases.

Using a 30% default rate, the $11 billion might be stretched to cover 4.5 million new home sales.

Now that would stabilize the housing market.

$8000 tax credit - to extend or not to extend?

Fri, 16 Oct 2009 17:22:59 -0500

The popular First Time Home Buyer $8000 tax credit is due to expire November 30, 2009. There are some efforts to extend the tax credit, but there are many who question whether the incentive has been effective.

No doubt the tax incentive, as with Cash for Clunkers, brought buyers out to take advantage of the incentive, but the question is whether the incentive produced the desired result of stabilizing the housing market.

"If you pay people to buy something, they will."

The question is if we are getting new home buyers or just encouraging home buyers to purchase earlier. In other words, are we taking away from next quarter's home sales by having them purchase this quarter instead.

The question is if we, the US tax payers, can afford $8000 or $15,000 each to pay people to buy a home. Would it not be better to find real solutions to foreclosures, to unemployment, to provide for easier home loan qualifications, to enhance financing options.

Is the tax incentive program building a sustainable housing market?

For those interested in qualifying for the incentive, it would be wise to finalize your property search and purchase contract, and to get your financing approved quickly. Most lenders are anticipating a mad rush to close these purchase transactions, and many will likely miss the deadline.

Lenders are already taking longer in underwriting, and lender delays will only get worse. Some home buyers who try to squeeze in will be disappointed.

That is unless the deadline for the tax incentive is extended.

There is interest in trying to improve the incentive: to extend through this year or even through 2010, to offer to more buyers, to increase the amount, to be more targeted to specific needs.

An NPR Planet Money story quotes Andrew Jakabovics, associate director of housing at the Center for American Progress, "Four out of 5 of the buyers were given $8,000 for doing something they were going to do anyway."

From an article posted by David Abromowitz, a fellow with the Center, "We overspend because the credit is insufficiently targeted to provide purchase assistance primarily to those in need of the help. This credit effectively costs roughly $40,000 for every truly new purchase that would not have happened otherwise."

The Center has close ties with the Obama administration, and, if the thinking is that the $8,000 tax incentive is not effective in stimulating new home sales or to addressing targeted needs, only encouraging many to purchase sooner and helping those not needing help, then the tax credit might not seen as worth the cost.

The reported cost to date for the incentive is $11 billion. Of course when the credits are received they should give the Spring economy a spending boost. $11 billion plus is a lot of pocket change.

Today the administration announced the new record deficit of $1.42 trillion, with more to come as we struggle with increased spending demands, reduced income, and still growing unemployment. Such numbers will be factored into the decision whether to extend or not to extend the First Time Home Buyer tax credit.

In response to one of the comments, I posted my alternative solution to the tax credit here.


Battlefield Imaging	Café LeMont and Lady J's Bakery

Estee Lauder	Tina at the Woman's Way Magazine booth

Richard's Real Estate Thoughts

It's over - unofficially anyway

RESPA changes will hurt consumers

The more I look over the HUD RESPA changes that start January 1, the worse they seem.

Mortgage Insurance Companies - losses increase concerns

Mortgage insurance company losses are a mounting concern for the industry.

Tax Credit Extended and Expanded - Signing today

Congratulations Red Bank Lions 10-0 and Ranked 1

The employment factor

Volleyball State Champs - Red Bank and Boyd-Buchanan - Congratulations

Calculated Risk Blog - New Home Sales Distressing Gap

The impact on the local economy of new homes construction is very great.

Recovery funds and job creation

First Time Home Buyer tax credit moving forward - no longer just first time home buyers

The administration support, and the approaching deadline, has given much momentum to the extension and the expansion of the First Time Home Buyer tax credit.

Chattanooga Community Kitchen Fast Day fund raiser

The Chattanooga Community Kitchen is in the process of its Fast Day Fund raiser.

First Time Home Buyer Tax Credit - Administration supports extension

Chattanooga Renaissance Oktoberfest was great fun

The Chattanooga Renaissance Oktoberfest was held this past weekend.

Parade Magazine misrepresents Reverse Mortgages

Parade Magazine should apologize for misrepresenting FHA Reverse Mortgages.

Some facts about a reverse mortgage.

Bank closings reach 100 for the year- FDIC Chairman Bair talks on You Tube

With four closings today, totaling 8 in October, the FDIC closed bank list broke 100 to reach 103 for the year.

First Time Home Buyer Tax Fraud

The more I think about the First Time Home Buyer Tax Credit, the less I like the program. In one previous post, I concluded that the credit was not creating new buyers as promised, but only borrowing from future sales.

Today though I am writing about another reason NOT to extent the First Time Home Buyer Tax Credit - TAX FRAUD. Already, just with tax year 2008, tax fraud associated with the First Time Home Buyer Tax Credit has been rampant.

Rural Development purchase money funds are tight

All about the women - Women's Expo 2009

The 2009 Women's Expo in Chattanooga, presented by Memorial Health Care System, was held Tuesday.

FHA Delays Condo Rule Implementation, Again

Chattanooga's Renasissance Oktoberfest

The excitement is building for the First Annual Chattanooga's Renaissance Oktoberfest, this weekend, October 24, from 11am to 7pm.

Fiber Optics Available Now in Chattanooga Areas

Real income down in US, despite indications that the recession may be over

Red Bank Lions - Win division

Tax Credit Alternative

The First Time Home Buyer tax credit has spurred recent home sales. Several options are being considered to extend the credit, in some form.

An alternative to the First Time Home Buyer tax credit.

$8000 tax credit - to extend or not to extend?

Today though I am writing about another reason NOT to extent the First Time Home Buyer Tax Credit - TAX FRAUD.

Already, just with tax year 2008, tax fraud associated with the First Time Home Buyer Tax Credit has been rampant.