Great First Step Mr. President: Here’s 3 More Things You Can Do.
February 19th, 2009 Categories: Buyers, Local Real Esate Sales Numbers & Things, Mortgages & Loans, Real Estate News, Sellers
Yesterday, President Obama announced his first step to stop the hemorrhaging of the housing market. It’s a good first step. (For the full speech, click here) After eight years of leaders who were throwing money at a problem, by either lowering interest rates or giving cash to bankers, a plan that has some real action is welcomed. This new approach is going to take a little getting used to. But bring it on.
One thing this plan isn’t going to do it save everyone. As it should be. The public is suffering from bail-out overload. The general public doesn’t want to help someone they think caused the problem in the first place. So before you pass judgment, read the goal of President Obama’s actions.
Why This Plan Will Help
If you bought a home after 2005 & possible 2004 after this year is out, you are upside down on your mortgage- meaning that you owe more on your mortgage than you can sell your house for if you were to put it up for sale. So– if you have a 3–1, 5–1 or 7–1 ARM– it will be almost impossible for you to refinance your mortgage if your short term interest rate is getting ready to mature. This plan will help you.
It’s aimed at people who are current on their mortgage, lost value in their home & need to refinance.
There are other parts of President Obama’s plan, but guidelines will be issues in early March- so stay tuned for what happens next.
Why This Plan Won’t Solve Everyone’s Problems
The plan is not targeted to people who who invested in a risky market & lost; or, to people who have jumbo loans outside the FHA limits. Many people aren’t going to get a free ride when they find out the limits on any loan adjustments they are offered.
This is a complicated problem & everyone isn’t going to like the results. We have to focus on solutions that make sense in the long term while curbing the short term crisis.
Foreclosures & short sales aren’t going to evaporate from the market overnight. We drove up housing prices to a place where the average buyer couldn’t afford to buy their first home. We had artificial housing prices driven by artificial mortgages. We have taken the artificial mortgages off the market. We are experiencing a free market that is adjusting the artificial housing prices. I worry that in our attempt to stop the foreclosure madness, housing prices won’t fall back to an affordable level for average people. The president’s plan may get to that affordable level– but at a slower rate. This plan won’t have any impact in the market for at least another 6 months. It won’t be until next year until the real estate market gets back on its feet. Will this program be the catalyst? I hope so.
Now that President Obama has taken the first step to stabilize the housing market, there are 3 more things he can do to advance the housing market for some marginal growth during the next four years. Keep in mind– the actions that President Obama has taken over his first month in office were to stabilize an economy in a free fall; his next step is to introduce policies at advance that economy.
Three Steps President Obama Can Take To Advance The Housing Market
As someone who works in this housing market everyday– I see first hand the issues people who are trying to buy a new home face. These are not people who are trying to game the market, or expect buy a new home & have 40% equity in their home in 3 years. These are regular people who are first time buyers, people who need more space because they are recently married or have increased their family size. While the rest of the world is in crisis– there are people around us who are just trying to live their lives.
A few years ago, these same people could have gotten a mortgage with little or no money down; they have good jobs & therefore were & still are good risks; they could sell their current smaller home to buy a larger one. Now the rules of the game have changed & they need some direction on how to play it. So these are my ideas.
1. Make It Easier For People To Buy Short Sale & Foreclosed Homes
President Obama’s plan is not going to stop foreclosures or save everyone headed in that direction. (It is not meant to– despite what you might think.) Distressed properties are a reality of the market over the next few years. So let’s come up with a better way to buy them!
We have made the assumption that the mortgage companies want to sell these properties as quickly as possible. We are wrong. I have one client who has now put in 4 offers on 4 different distressed property– has actually gotten 2 offers through only for the deals to fall apart on the seller side somewhere along the way.
The mortgage companies have to clean up their act. It shouldn’t take more than 60 days on their side to close a deal for a distressed property. Short sales are harder to close than foreclosures. We need to understand why. I surely don’t.
If you’ve agreed to a short sale– commit to it. List the property at the bottom line price & tell the buyer that. Don’t list the property at a price you know you are not going to accept. People are not over bidding distressed properties– get over it. Don’t under price the property expecting a bidding war- those days are gone. Do whatever you have to do to sell this property. You will end up getting more on the dollar than if you proceed with a foreclosure. If the second mortgage holder is not going to agree to the price- then you don’t have a short sale– do you? So work it out between all of you BEFORE you put it on the market.
– Hire people with authority: don’t expect a low level clerk to handle the offer & have to wait for a VP approval on every deal.
– Communicate! Don’t let an offer sit for months waiting for more offers to come in. Make a decision! Someone is on the other side who has to move. They can’t close in 5 days once you made your decision.
– Respect state real estate laws. You can’t require a buyer to get a loan with your company or to use your favorite closing company. In Virginia the buyer is allowed to pick his or her own title company. Don’t expect to get the new loan out of the deal.
– Tell it straight: Provide in the listing back taxes, HOA/condo fees or anything else that you aren’t going to pay at closing.
– You don’t drive the process. Each state has real estate laws. You can’t bypass them by providing an addendum that supersedes 100 years of local law. If you want a universal contract- work with the National Associations of Realtors (NAR) to develop one. We’ve been in this business for 100 years, we sorta know how things work.
It’s time to fix this process to get these properties through the system. There are plenty of people that want to buy them.
2. Provide Low Interest Loans To People Who Buy Distressed Properties
I have shown enough short sale or foreclosed property to last me a life time. I now have to keep a flashlight in my car because the electricity is shut off. (or for protection- but I won’t go there) There are many war stories to tell about these properties: there was the house with the hole in its roof & broken walls; or the one with the baby roaches across the first level (we never bothered to go further); the dead ferret; squirrel nests; mold; missing appliances; missing floors; back taxes; utility turn-on fees. I could go on– but you get the picture.
People who buy these properties should be applauded because of the nightmares that come along with it. They may reap the benefits when the market rebounds– or they may not. They are taking a big risk in buying these properties. (Even if they don’t think so right now.) But- they are now becoming a responsible member of the community, will pay their property taxes & their new mortgage.
If they are already buying a property that is under-valued– let’s allow them to get a low-interest home improvement loan to fix up the distressed home they just bought. It should have it’s own restrictions:
– can’t borrow more than 10% of the appraised value;
– new buyer has to qualify for the loan;
– money can only go to home improvements;
– the loan is provided at a fixed rate over 15 or 20 years.
This will make these properties more desirable to first-time buyers, infuse some money into the hard-hit home improvement industry & will improve the quality of the surrounding neighborhood.
3. Create An Incentive For Buyers To Save For A Down payment
People don’t know who to save money. Let’s face it– we live in a instant society. We want things when we want them & don’t remember how to plan for anything.
Our society is shifting. We are going back to a time where we save for what we want. It’s a new concept to most people. So– we already have special savings plans for retirement (401Ks) & college tuition (529s)- now it’s time for a home savings plan.
It should be:
- short term (3–7 years);
– a high interest account;
– free of capital gains tax for people to use only for a down payment.
– collected out of one’s paycheck similar to a 401K account.
I’m not a financial wizard to now how something like this should work- but people need to save money for a down payment on a house. They don’t know how– so a plan like this will help them reach that goal.
President Obama– I’m a big fan. Your success is our success. After you stop the bleeding from the last administration you will need something to advance our economy. I hope I’ve given you some ideas.
| Discussion: 2 Comments »
All this spending won’t pull us out of a recession. It is a repeat of the Roosevelt years of spending. It is a shame that the government got us into this mess by forcing banks to make stupid and risky loans. The banks went for it because they thought they Fannie and Freddie would have their backs. Greed and ignorance – what a shame.
IMHO it is a bailout for the banks. It will allow them to have some funds return and take some pressure off of the USA.