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Real Estate & The Economy

By Exit Realty Premier

Real Estate Broker/Owner with Exit Realty Premier

February 23, 2009 02:09 AM

First let me start by saying the legislators in Washington are so far out of touch with reality it is pathetic. They refer to "low-cost refinancing for responsible homeowners suffering from falling prices:" Then they use an example referring to a homeowner that has a 30 year fixed at 6.5%, with a starting principal of $ 207,000, on a house worth

$ 260,000 at the time of purchase. They say in the example, today they owe

$ 200,000.00, which is suggesting they have been in the home for over 3 years. Then they assume in the example the value of the home has decreased by 15% to $ 221,000, making them ineligible to refinance at today's low interest rate of 5.16%. The example suggests they put 20% down when they bought the house.

And if this all made sense they suggest that by lowering the rate to 5.16%, their annual payments would be reduced by approximately $ 2,300.00 per year, or just under $ 200.00 per month.

In what planet are they referring to where a house purchased 39 months ago lost 15% in value? Values have decreased in South Florida and many other areas as much as 50%. 39 months ago in South Florida and many other areas the median home price first off, was much higher than the example of $ 260,000. In 2006 the single family median price in Palm Beach County was $ 392,900.00 that is 50% more than they use in the example.

They assume a 20% down payment. With the policies of Fannie and Freddy back then, a large majority of people put down very little or nothing. Then they suggest that refinancing, not modifying the loan, would save the home owner under $ 200.00 a month. I doubt that $ 200.00 a month on a combined payment of about $ 1,800.00 a month would make much difference to that home owner. Besides the fact there are costs in refinancing a home. What about the people that have lost their jobs, or households that depended on 2 incomes that have lost one. Is $ 200.00 a month going to help them?

These are not the people that are in trouble. Some the people that are in trouble put little or nothing down. The ratio of loan to value in most cases is much more skewed than represented in the example. If the median price for a single family home was

$ 392,900.00, that means that the majority of the people will not get the help they need.

Even people like myself, I put 25% down and still owe more than my home is worth. I am now down $180,000 which was my down payment, plus another 100k that I owe more than the house is worth. My business was flourishing and the payment wasn't a problem. When the bubble burst my income declined dramatically, the payments now difficult, does that make me irresponsible. You may say my income dropped dramatically because I am in the real estate business. This economy has affected everyone, especially small business owners and not just in the real estate business.

They talk about "responsible homeowners." Was someone that was forced to spend

$ 500,000.00, to get a decent home, large enough to accommodate a family of 5 irresponsible? After all, both spouses had jobs or they owned a small business and business was good, they had a nice retirement set aside in their 401k, and housing was rising so fast they needed to buy then or they would miss the boat.

Did these people know the mortgage broker gave them bad advice, or that the bubble was soon to break? Did they know the affect the bubble would have on the economy? Did they know their house would decrease in value as never seen before in history? Did they know the economy would be so bad there would be massive lay offs or their small business would get so bad they wouldn't be able to earn a living. Did they know the value of their 401k and retirement accounts would be devalued b 50%? The answer is no, of course not. Most of these people are solid citizens that sought a better life for their families and never in their wildest dreams imagined they would be in a foreclosure situation. The government needs to get back to reality, what they are addressing with this plan is the tip of the iceberg. A majority of people will be left out in the cold.