Are principal writedowns coming with loan mods?

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Home energy efficiency program coming?

The government is expected to unveil a new program in the next couple of months that if approved may reimburse homeowners for up to half the cost of making their homes more efficient. Homeowners will get the most return for the money in simple upgrades like caulking the windows, putting insulation in the attic, and changing the light bulbs - not new windows, refrigerators or dishwashers. A complete energy retrofit - which could include caulking and insulation as well as new windows, appliances and boiler, could slice a home's energy consumption in half, according to Lane Burt, manager of building energy policy at Natural Resources Defense Council. But getting all that work done might run into the tens of thousands of dollars. And any new federal program - which is still being drafted and is not guaranteed to become law - would cap the government reimbursements at $12,000, said Burt. The original proposal, which called for $23 billion to be spent on energy retrofits, was estimated to create over half a million jobs, according to CleanEdison, an association of green building professionals. Those familiar with the proposal say the final bill may set aside $10 billion for energy retrofits. Still, it's a lot more than is currently being done - while some states have reimbursement programs, there is no federal plan. The original stimulus bill contained $5 billion for low income homeowners and money to retrofit federal buildings, but nothing for middle income Americans. The new proposal has no income restriction. But in addition to creating jobs and saving consumers money, it also lays the framework for an energy efficient economy and achieving the 80% reduction in greenhouse gases most scientists say is necessary to avoid the worst impacts of global warming.

Jobless claims up

As expected, the Labor Department announced that the number of Americans filing first-time claims for unemployment insurance rose modestly last week. There were 434,000 initial jobless claims filed in the week ended Jan. 2, up 1,000 from the previous week's upwardly revised 433,000. A consensus estimate of economists surveyed by Briefing.com expected claims to jump to 440,000. The government said 4,802,000 people filed continuing claims in the week ended Dec. 26, the most recent data available. That's 179,000 down from the preceding week's unrevised 4,981,000 claims. So-called continuing claims are below their peak of 6.9 million in June and have declined for three straight weeks. The four-week moving average for new claims dropped 10,250 to 450,250 last week, the lowest since mid-September 2008 and the 18th straight weekly decline. The four-week moving average is viewed as a better measure of underlying trends as it levels out week-to-week volatility. The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, fell to 3.6 percent in the week ended Dec. 26, the lowest since January last year, from 3.8 percent.

Diana Olick on principal writedowns

Olick points out that the decline in home sales was expected - "home sales were spiked by several shots of government stimulus in the second half of 2009, and as that stimulus starts to wear off, sales activity has nowhere to go but down." With the homebuyer's credit expiring just as the 2010 season gets rolling in April, and Bernanke making noise about raising interest rates, she suggests that home buyers are likely to think twice before leaping into the market. But Olick is most concerned about the potential for principle writedown: "Most agree that the government's mortgage bailout program (Home Affordable Modification Program or HAMP) is at best unsuccessful and at worst detrimental. So now I'm beginning to hear more chatter about principal writedown, and more specifically, government-funded principal writedown. The idea is to give folks equity back in their homes so they don't walk away from their mortgage commitments. It would also help borrowers who don't qualify for modifications because they are so far "underwater" on their mortgages. The arguments are plain and simple: Bite the bullet to save the greater housing market or don't because the moral hazard is far too untenable. Anyone who's ever read this blog before knows where I stand. I would honestly rather see my home's value go down than see the guy next door (figurative: my neighbors are lovely and fiscally responsible) who made a poor/negligent financial decision get a mulligan at my expense."

More taxes coming

In his continuing quest to ram through healthcare "reform," President Barack Obama signaled to House Democratic leaders Wednesday that they'll have to drop their opposition to taxing high-end health insurance plans to pay for health coverage for millions of uninsured Americans. In a meeting at the White House, Obama expressed his preference for the insurance tax contained in the Senate's health overhaul bill, Democratic aides said. House Democrats want to raise income taxes on high-income individuals instead and are reluctant to abandon that approach, while recognizing that they will likely have to bend on that and other issues so that Senate Majority Leader Harry Reid, D-Nev., can maintain his fragile 60-vote majority support for the bill. The House wants to raise income taxes on individuals making more than $500,000 and couples over $1 million. The Senate wants to tax insurance companies on plans valued at over $8,500 for individuals and $23,000 for couples. Most analysts say the insurance tax would be passed on to consumers, and organized labor is strongly opposed, as are House Democrats, some of whom contend that the tax would violate Obama's campaign pledge not to tax the middle class. Whichever way you look at it, here come taxes on the middle class. Didn't someone promise not to raise taxes on the middle class?

Renter's market

The apartment vacancy rate ended the year at 8%, the highest level since Reis Inc., a New York research firm that tracks vacancies and rents in the top 79 U.S. markets, began its tally in 1980. Rents fell 3% last year, according to Reis, led by declines in San Jose, Calif., Seattle, San Francisco and other cities that had brisk growth until the recession. Effective rents -- which include concessions such as one month of free rent -- fell 5.6% in New York last year, the worst since Reis began tracking the data in 1990. Few markets have been spared. During the fourth quarter, vacancies increased in 52 markets, while they improved in 17 and stayed flat in 10. Vacancies increased most sharply for the year in Tucson, Ariz.; Charlotte, N.C.; and Lexington, Ky. Apartments have been squeezed because younger workers, who are more likely to rent, have experienced the brunt of job losses during the downturn. Such oversupplied markets as Florida, Phoenix and Las Vegas are hurting, even though housing sales have picked up. Marcus & Millichap is to release a separate report on Friday that forecasts a further 2% to 3% drop in apartment rents over the next year, most of which will be concentrated over the next six months. The report forecasts Washington, D.C., will be the healthiest rental market in 2010 for the second straight year.

One potential silver lining for apartment owners is the fact that many of those developments had secured financing before credit markets seized up, and since the credit crunch has frozen most new development, new apartment completions should fall by half in 2011. However, government efforts to prop up the housing market also threaten the apartment sector by making it easier for some renters to buy homes. Some landlords have reported a slight uptick in renters moving out to buy homes. Around 13% of Camden Property's move-outs last summer left to buy homes, up from 11% at the beginning of the year. But that is still roughly half of the rate seen during the housing boom, when mortgage standards were much looser. Thanks to falling home prices and record low mortgage rates, it now costs less to own than it has in the past decade on a mortgage-payment-to-rent basis. But falling rents are expected to offset some of the recent improvement in affordability, making renting more attractive than owning in some markets.

Above Post Written by: Chris Mclaughlin with Short Sale Riches.com

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