This week we greeted David Stevens of HUD as a new member here on Active Rain.
We are all glad he has brought Washington directly to us.
- Hopefully he will interact with us. We are the professionals who actually have our fingers on the pulse of the real estate market. 170,000 strong makes us a viable resource for the government to liaison with.
His blog Todays Announcements gave us a view of the changes being implemented in FHA. The measures being adopted are to raise the 2% minimum reserves while at the same time, "making sure not to overly, adversely, impact this housing market at a critical time"
One of the changes involves the "seller funded downpayment assistance" or SFDPA. These modifications will be rolled out about the time the $8,000.00 stimulus for first time home buyers will end.
- Not wishing to sound like a prophet of doom, but I personally believe, from my own practice, this will be disastrous to the recovery of our market.
The years of 2006, 2007 and 2008 are being cited as the worst years, as they relate to the current trend in mortgage foreclosures.
- Let me preface my remarks by saying we do not have one real estate market. This is not a GM or Chrysler. Real Estate conditions differ from state to state, and region to region. One size does not fit all.
- Some states are showing signs of recovering, while others are not.Some regions are doing well, while others are languishing. Agents may not view the market exactly a like, and their experiences will reflect that in their comments here.
I have past clients who are now having problems with mortgage payments, who indeed bought their homes during those years. I can assure you it is not due to bad money management. It is due to unexpected and prolonged unemployment.
The majority of people walking away from homes are not doing so because of low mortgage insurance rates, or a 6% seller assist. They are doing so because they have no options. Tightening restrictions on FHA loans is like trying to put a finger in a dike that has already split wide open.
- I have several clients who have tried in vain to get their mortgage holders to modify their mortgages or assist them in staying in their homes. Some people I know have already lost their homes while trying earnestly to get the bank to work with them. The homes were FHA loans. It appears the banks would prefer to foreclose than work with customers.
One of the biggest banks who is guilty of this, just repaid the money they received from the stimulus. It was a big deal in the news recently. I wonder if foreclosing for them is a bigger profit center, than working with homeowners to modify their mortgages? If the mortgage is insured, at least partially, then I imagine it's a pretty big incentive for the bank to grab the property and market it themselves.
- The underwater home to the homeowner, is not underwater to the bank. The bank will receive a payment from the federal governemnt under the FHA insurance program to offset the difference between the mortgage and the ultimate sales price. Addtionally, the bank is able to add more fees and costs for executing the foreclosure.
Making big bucks while putting folks out in the street. NO WONDER THE RESERVES ARE LOW!
- Many homeowners have been trying to work through the red tape up to six months. The banks are not cooperating. The Mortgage Recovery Act is a dismal failure. It was an olive branch floating on a swift moving current. Nearly impossible to reach out and grab onto.
- The only time the banks actually communicate is when the individual goes to a Credit Counseling Service, hires an attorney to represent them or files a Chapter 13 Bankruptcy. That just puts more costs on the back of the taxpayer.
I do not know of an FHA mortgage that permits the seller to contribute to the downpayment. The 6% seller assist in Pennsylvania, where I practice, is not a contribution from the seller. It is essentially borrowing the closing costs and putting them on top of the loan. The seller gives nothing to the buyer from their pocket.
- Frankly I do not see how this is causing a high default rate. Perhaps there is something I am missing. A buyer qualifies for a $132,000 mortgage. They buy a home for $125,000 and roll $7,000 in closing costs on top. The buyer puts 3.5% of their money down. It is now less than the $132,000 mortgage they qualified for.
- Does paying out of pocket 3% more for their closing costs insulate them from default if they lose their job?
What is causing the unprecedented rate in defaults is two fold.
- One: the high rate of unemployment in this country that shows no signs of reversing.
- Two: the market devaluation which put homes under water and are not sale-able unless via a short sale.
The number of short sales and foreclosures continue at an unprecedented rate. We already have a glut of inventory that is barely moving in some regions. The foreclosures further drive down the market and the values in neighborhoods. More are coming and we have no counter measures to reduce their negative impact.
- Buyers ask first about bank owned and foreclosures in hopes of snagging a good deal. That is not healthy for our market. It causes other sellers to deeply discount their properties in desperation to move on.
After the sale, that seller should become a buyer in another market when they move. Now we are hearing many of those potential buyers are scared to buy. They fear the new area they are moving to will continue to slide downward, and they will find themselves in a negative equity situation.
- Discontinuing the stimulus plus reducing the seller assist is going to further weaken the Real Estate market recovery. The majority of the buyers working with us and other agents in our Board are first time home buyers.
- We are in a part of the country which is economically depressed,and has always been below the national average in wages. Our average home sale is $150,000 or less.
Address the root of the problem
Make it mandatory for banks to work with home owners trying to stay in their homes. Get rid of this log jam. Impose penalties for banks who do not process applications in a pre-determined amount of time.
Actually it would be more equitable to take the decision to modify out of the hands of the bank. A federal department or panel who is neutral, and does not have a vested interest in the outcome, would be more fair to a homeowner.
Put the emphasis of this Administration on creating jobs and eliminating unemployment so people are able to pay their mortgages.
The only way to heal and recover - is to stop the bleeding!