There’s an interesting article in Slate for people, like me, who aren’t immersed in the world of Fannie Mae and Freddie Mac, and thus have a lot to learn. Titled "Freddie and Fannie’s Healthy Cousin," it’s covers the FHLB.

For the past 12 months, an obscure agency created by President Herbert Hoover during the Great Depression has come to the rescue of the banking industry. It is called the Federal Home Loan Banks.

Like Fannie Mae and Freddie Mac, the FHLB is a government-sponsored enterprise. But it differs from the wounded giants in some significant ways. Instead of being owned by public shareholders, as Fannie and Freddie are, the 12 independent regional FHLBs are owned by their 8,100 members.

(If you want just an overview of the FHLB, Slate links to one.)

So the housing stimulus bill was signed into law yesterday. Is it good? Is it bad? What does it mean? (Yes, yes, and we’re gonna try to sort that out.)

First, the practicalities as they affect REALTORS®. Well, practicality, because there’s only one, but it’s a biggie: that $7,500 tax credit. It’s basically a 15-year interest-free loan for first-time homebuyers from your dear old Uncle Sam.

To take advantage, you must not have owned your home during the three-years before the purchase; you must buy a home between April 9, 2008 and July 1, 2009; and you must have an income less than $75,000 ($150,000 for married couples).

So many, many people will qualify, and it’s something you need to bring up when you’re working with first-time buyers and trying to counsel them in an uncertain market.

And that, of course, is the idea: Give folks an interest-free loan and hope it convinces them to buy a home. But the housing bill is more complicated than that, and it has some notable downsides — and its share of critics.

The good

Offering first-time buyers an incentive in the form of, essentially, an interest-free loan, should help increase home sales, according to NAR. At the very least it could push some ‘fence-sitters’ over the edge and into home ownership. Supporters say even a small increase in home sales could be enough to jump-start the housing market.

The bill also extends a line of credit to Fannie Mae and Freddie Mac, and increases oversight of the companies — both these things should restore confidence in the secondary mortgage market that’s been clobbered by its over-enthusiasm on housing prices.

And the bill also allocates $300 billion, through the Federal Housing Administration, to let the government back cheaper mortgages (to bail out homeowners who can’t afford theirs) and for local governments to repair foreclosed homes and increase property values. “Mortgage relief” is a phrase that thousands of people will love to hear as they try to cope with skyrocketing payments on ARMs that reset on homes that lost value.

The bad

All these programs cost big money, money the government doesn’t have. And when government spends too much, you get inflation. Critics also point out that much of this money is going to bail out private corporations and irresponsible homebuyers, rather than letting the free market determine their fates. Many of the same critics say that this economic adjustment is necessary, and that meddling in the housing market with artificial stimuli will only postpone a full economic rebound.

(There are some other buried measures in the bill that haven’t gotten as much press, but should at least raise an eyebrow. For example, anyone working in the mortgage industry will be fingerprinted. )

While it’s easy to say that the housing bill is “great for America” or “a long-term disaster,” the reality is that, in any legislation this complex (600 pages!), there’s good and bad. And trying to predict its long-term effect on a monster economy like ours is all but impossible. So hang on.

Out on the Net

RealCentralVA brings us Ron Paul’s take: “[T]oday’s vote on the House floor dealing with the housing bubble there’s no sign that we’re about to tighten our belt and live within our means.”

From the Piedmont Real Estate Blog: “First, you should know that almost no one really likes this bill. But even those who don’t will generally admit they think it’s a necessary evil.”

Marc, a REALTOR® in Florida, offers his perspective: “It’s being touted as a panacea for our mortgage and housing market ills, but unfortunately comes nowhere near to being such.

Musings of Caroline Virginia says: “The Housing Bill that President Bush approved on July 30, 2008 appears to be a life preserver for many communities.”

Matthew Kelly of Geek Estate offers a detailed list of suggestions.

And the National Association of Home Builders has lots of information, too.

Word on the street is that mortgages are a lot harder to come by these days, but people are still buying homes. So what’s the real deal? Tell us on our new front-page poll.

I was glad to see (per ABC News) that Daniel Mudd and Richard Syron (CEOs of Fannie Mae and Freddie Mac, respectively) are able to weather the mortgage crisis that has, effectively, forced their companies to ask for a government bailout.

Daniel Mudd, the CEO of Fannie Mae, received $11.6 million in salary, stock and other compensation for 2007. Richard Syron, CEO of Freddie Mac, took home about $18.3 million last year.

These guys have a lot to worry about these days, and I prefer that they concentrate on running their companies, rather than worrying where their next meal is coming from.

In case you hadn’t heard, a law that took effect in Virginia on July 1 requires that lenders and mortgage-service companies “send delinquent borrowers with high-interest loans the names of housing counselors who can provide foreclosure-prevention guidance,” to quote from PilotOnline.

The new law requires that lenders and companies that collect mortgage payments make available a 30-day grace period to borrowers who ask for help.

By slowing down the foreclosure process, the new regulations could buy time for homeowners seeking to work out arrangements with their lenders.

[This is a true -- and ongoing -- story. Please note that it ONLY reflects the opinion of the author based on his experiences and NOT that of the Virginia Association of REALTORS^® or any of its staff or affiliates.]

I have this house, see, and I want to sell it. Have to sell it, actually — I don’t live there anymore. But I’m getting some interesting lessons in short sales, real estate law, and lender incompetence in the process.

It’s like this: We own a house in Roanoke — I should say I own it, because my wife’s name isn’t on the deed. Anyway, I lost my job when the newspaper I worked for decided it didn’t need this technology reporter anymore. Luckily, my wife was just about to accept a kick-butt job in Richmond. So we moved and rented a house in “The 804.”

Therein lies the problem: Until we sell the house in Roanoke, we’re paying mortgage and rent. That’s tough on one income, and until my freelance writing gets off the ground, that’s what we have.

So scratching my chin one day, I checked out the Web site of my lender. (Let’s just say its name begins with "N" and ends with "ational City Mortgage.") Lo and behold, there was a link, “Having trouble paying your mortgage?” Ah, I thought, maybe they have some programs to help us reduce payments or something.

I had several options, the site explained, depending in part on whether I wanted to keep or give up the house. Step number one: Fill out a form detailing my financial info so they could tell me what might work.

I did this. The form asks for a listing of my income and my expenses, what the house is worth, a copy of the listing agreement with the REALTOR^®, etc. Simple. I awaited a response.

I didn’t get it. Instead, a couple of weeks later, my REALTOR^® called to say that National City had called her. “Are you short-selling your house?” she asked. National City wanted to get an appraiser in, she told me, and was prepared to take 83 percent of the loan in a short sale.

“Huh?” I said. At that point, I had no clue what a short sale was. Was this some sort of scam? All I did was fill out a form asking what kind of programs I might be eligible for.

But wait, there was more. My REALTOR^® told me that the National City rep had given her plenty of info [...]

(more…)

REALTORS® are coming out of the woodwork in reaction to the May/June issue of Commonwealth magazine. In addition to the comments left on the three feature articles here on VARbuzz (count them #1, #2, #3), we’ve also received numerous phone calls and e-mails about the issue. Here’s what members like you are saying:

“The non-English speaking population in Virginia was disproportionately affected by the foreclosure crisis. In my opinion, mortgage brokers took advantage of these people.”

“Short sales are not for someone who is looking for a quick close. What is more interesting about the process is the same bank that can give you a response on a foreclosure in 48 hours takes 60 days to go through the file on a short sale. We all realize it is two different departments but if you are sitting on a file with all of the required documents and four offers why wouldn’t you respond?”

“Short sales are a great opportunity for investors, but I still believe they should be avoided by people who are looking for a home.”

“It was funny for me to see this [magazine cover]. I had a house listed a few years ago in Austin and advertised it with an upsidedown photo. It got a lot of attention and I got some good calls off of it.”

“This is one of the clearest and most straightforward breakdowns of short sales that I have ever seen.”

“One of the only correct, concise articles I have read about short sales! … Thanks for a great article!”

We’ve also gotten a couple of inbound links from these articles. One comes from the Memphis Area Association of REALTORS®.  The other from Jeff Royce, a Fairfax REALTOR® who was quoted in one of the articles and explained his position more fully on his blog.

In related news, Cindy Jones says REALTORS® should factor in 25% more time to work a short sale listing, based on her personal experience (see the comments). What’s your experience?

Got feedback about this issue? Leave a comment or blog about it and link to us!

Oh, you haven’t read your May/June Commonwealth yet? Now you know what you’re missing.

Smart agents are learning they shouldn’t run from short sales anymore

This article originally ran in the May/June 2008 edition of VAR’s Commonwealth Magazine

Accept the reality: Short sales are here and, for the foreseeable future, they’re here to stay. And while some agents won’t go near them, the numbers are hard to ignore — as much as 40 percent of the market in some areas around Washington, according to Jeanette Newton, chief executive officer of the Dulles Area Association of REALTORS®.

It’s just not good business to ignore that much real estate. Even better, short sales, while not as simple as typical transactions, are starting to get easier to handle.

“In the very beginning of this, nobody knew what a short sale was, because it had been 15 years since the last ones.” So said Tony Arko of Market Advantage Real Estate in Loudoun County. Agents were reminded — the hard way — what makes a short sale different: bank approval. “Agents were getting them sold, but they didn’t realize that the bank wasn’t willing to sign off on them,” Arko said. That led to some bad blood, and, once bitten, buyers and buyers’ agents weren’t anxious to give short sales another chance.

“They’re good for buyers who have the time to wait,” said Jeff Royce of RE/MAX Choice in Fairfax. But “your typical buyer probably should avoid them like the plague.”

And lenders aren’t helping much, to say the least. “The management of these companies was not telling their worker bees ‘You need to work harder to work these things out’,” said Mary Dykstra of RE/MAX Valley REALTORS® in Roanoke. “They have an old-time mindset that the agent is the enemy.”

So short sales picked up a bad rap, and agents learned to steer clear.

The times, though, are a-changing.

Smoother sailing

When short sales first appeared on the radar, lenders weren’t interested. As Arko explained, “They were willing to (more…)

Is Illinois over-reaching, or will we see this become a trend?

“Madigan spokeswoman Robyn Ziegler said the lawsuit would be filed Wednesday in
Cook County Circuit Court. In the complaint, Madigan says that Countrywide offered
unfair loans with risky features, used misleading sales techniques and encouraged
employees and brokers through incentives to sell more high-risk loans.”

Risky features, misleading sales techniques and high-risk loans … sounds like payday loan centers.  States aren’t pursuing those businesses, is this really a good idea?

H/T to BP1 for the image

Wharton Business School’s blog this week features an interesting conversation with Professor Todd Sinai on home values, how housing should be looked at differently than stock investments, and the factors that have led to the current price declines many markets are seeing nationwide.

Here’s an excerpt:

Knowledge@Wharton: Homes have long been thought of as a rock-solid investment, the thing that always gained value and never let you down. And now, in the last decade or so, a lot of people seem to have started to look at their homes as investments — and not just speculators, but ordinary people who thought there was a huge value that they could tap in their homes. And we’ve seen that now they’re behaving like investments, like stocks, which sometimes go down and don’t always go up. Has the real estate market evolved or changed, or is this just part of a regular cycle that we see from time to time?

Sinai: Wow, you’re starting with a doozy of a question. There are a lot of answers to that. So, to take the last part first, the real estate has changed, but still, there’s a lot that is the same. So let’s start with the fact that you started with, that house values are behaving like stocks now, and they didn’t behave like stocks before, that they’re exhibiting more volatility now than they used to. I don’t think that’s really quite true.

So, what we’re seeing now that we haven’t seen in the past is actual declines in house prices — nominal house prices at the national level. We’ve seen actual declines in house prices at the local level before. If you owned a house in Boston that you bought in 1988, by 1992 you were underwater on your mortgage, even though you had put 20% down. So house prices have fallen before. The thing that they’ve done at the national level is they’ve fallen in real terms, and they’ve always gone up in nominal terms.

Well, back in the 1970s, and even the 1980s, when we had lots of inflation, it was easy for house prices to go up a lot in nominal terms but still be losing real money in real terms.

Knowledge@Wharton: In other words, the price went up, but when you factor in inflation, this is where you’re really losing value.

Sinai: Absolutely. So, comparing your house price to nothing happening, to keeping money under your mattress, is probably the wrong thing to do. Comparing it to what you could have made in some other investment is probably the right thing to do. And housing has dropped a lot in the past. So it’s evolved to a kind of asset.

Now, having said that, to think of houses as an investment, I think is somewhat different. And, I think it’s partly because, for people who are living in their house — it’s being used as a primary residence — there’s not a lot of investment value to it.

And what I mean by that is that I bought a condo in mid-town Manhattan. Let’s say I paid $500,000 for it in the mid-1990s, and it’s worth $1.5 million now. Well, if I sell that and I still want to live in mid-town Manhattan, I’m still out a million-five to buy another one. So, my investment has gone up a lot, but it just covers what I need to buy with it, which is a place to live.

And the difference between housing and the stock market is that when you sell the share of stock and it’s doubled in value or tripled in value, you can buy more stuff. If your house doubles or triples in value, you can buy the same amount of housing — unless you’re going to move somewhere else where houses’ prices didn’t rise quite as much.

So it’s a very different thing to think about in terms of an investment. And I think when people say that people are using it as an investment, what they mean is they’re using it as a line of credit.