Amherst Securities Group issued a report suggesting that programs designed to support short sales could be the most effective loss mitigation approach, as they minimize loss severity. “In all cases, the loss severity on the short sale is 15-20% less than on the foreclosure sale,” Amherst researchers reported. Amherst researchers also said the Hope-for-Homeowners (H4H) program is a “powerful alternative” to the Home Affordable Modification Program (HAMP). Amherst researchers point to H4H’s ability to mimic the impact of short sales, such as a one-time loss on the loan, which provides a softer loss severity than foreclosure sales.
Borrowers completing the H4H program become re-equified and refinanced into a new Federal Housing Administration-insured mortgage, while HAMP provides capped incentives to servicers to modify mortgages in danger of foreclosure. The US Treasury Department then adjusts the HAMP incentive caps based on the level of actual participation. Plans for the “new and improved” H4H program could be released within the next two months, resolving enough issues to maximize the net present value of loans in bank portfolios but “unlikely” to be used for loans in private label securitizations, according to the report.
Fannie Mae speeds up cash to lenders
Fannie Mae will expedite its help to warehouse lenders that provide funding to small lenders. “We’re providing faster funding to lenders so that they get cash immediately after closing to continue funding loans,” Fannie president and CEO Michael Williams said in a speech to the Exchequer Club. Fannie Mae purchases loans from small lenders and packages them into mortgage-backed securities, but it has traditionally taken a month or longer for the lender to get the funds from that sale. With Fannie providing the payment immediately, the lender can turn around and extend more loans to consumers faster.
Today Fannie, along with its government-sponsored enterprise brother Freddie Mac provide about 70% of the mortgage market’s total liquidity, with the Federal Housing Administration (FHA) providing an additional 20% and private institutions take care of the rest. Williams said it’s reasonable to expect an increase in foreclosures later this year as those suspended by the various moratoria resume and the backlog of foreclosures continues to be worked out, and that when modification isn’t an option, Fannie will make it easier to process short sales and deeds in lieu of foreclosure for distressed borrowers.
FDIC encouraging banks to lower payments on unemployed
The Federal Deposit Insurance Corp. said on Friday it is encouraging banks to reduce mortgage payments for the unemployed or underemployed for at least six months. The move would only apply to a handful of institutions that bought failed banks and participate in loss-share agreements with the FDIC. In these deals, the agency covers some of the losses incurred on the assets of the failed banks. Some 53 institutions, mainly regional or community banks, have entered into those arrangements since January 2008.
Economist claims more banks will fail and housing prices decline
Economist Nouriel Roubini, chairman of RGE Monitor and economics professor at New York University's Stern School of Business, says the economy faces a threat of a "double-dip" recession and at best a slow-growth U-shaped recovery. It's going to be death by a thousand cuts…the financial system is severely damaged, and it's not just the banks." Roubini predicted more than 1,000 financial institutions could fail before all is said and done, and that housing prices are likely to fall another 12 percent in the next year – 40 percent overall since the market began its steep decline – leaving about half of all homeowners owing more on their mortgages than their houses are worth. "The gap between supply and demand is so huge we could stop producing new homes for a year to get rid of all the inventory," he said. "This price adjustment, in my opinion, is going to continue for another year."
Another speech tonight
U.S. President Barack Obama will entertain us tonight – again – in a wide-ranging speech in which he will try to reinvigorate stalled legislation on regulatory reform. An administration official said it would also include a call for global coordination to prevent future financial crises. "President Obama will discuss the administration's plan to wind down government involvement in the financial sector, lay out a strong case for immediate action on regulatory reform and reiterate the importance of global coordination in preventing future crises. He will also urge the financial community to take responsibility, not only to support reforming the regulatory system but also to avoid a return to the practices on Wall Street that led us to the financial crisis, and to recognize their obligation to help produce a wider recovery on behalf of the American people."
Now on to our real estate education section...
Time
Ticking away the moments that make up a dull day
You fritter and waste the hours in an off-hand way
Kicking around on a piece of ground in your home town
Waiting for someone or something to show you the way
Tired of lying in the sunshine staying home to watch the rain
You are young and life is long and there is time to kill today
And then one day you find ten years have got behind you
No one told you when to run, you missed the starting gun
And you run and you run to catch up with the sun, but its sinking
And racing around to come up behind you again
The sun is the same in the relative way, but you’re older
Shorter of breath and one day closer to death
Pink Floyd
Stop & Ask…Are You More Wealthy Today than Yesterday? What about a year ago? Do you have more time and money? How are you really doing in this race we call life?
According to a Census report released a few weeks ago, most Americans are not better off than they were a few years ago…in fact, the median family income fell by over $2,000 annually.
What’s even worse, this news reflects census data from 2007 – the most recent data the government has compiled. Stop and allow this to sink in a bit; median household income actually fell by $2,000 during a relatively steady and prosperous economic era. Once you factor in inflation, the number was even worse…bringing the typical family down to pre-1998 levels. Just imagine what is taking place after the recent rise in unemployment, downsizing and other cut-backs.
Here are a few relevant facts every short sale investor should keep in mind:
U.S. GDP shrank well over 2% while unemployment races toward double-digits.
The median household income – not adjusted for inflation – fell to $50,300 in 2007 and is expected to drop substantially more once data for the current economic downturn becomes fully available.
Over 13% of Americans lived in poverty by 2008...a point higher than during 2007 and expected to climb substantially during 2009. For those fortunate souls that don’t know what the official poverty level is...hold on to your hat; it’s a mere $22,025 per year for a family of four! Yes, you read that right…for a family of four persons.
Should you fall on tough times, what type of help can you expect to receive from your good old Uncle Sam? Maybe $400 in unemployment benefits for a few months but even those will be reduced by any amount you make by working. Ditto goes for food or other forms of assistance assuming you can even qualify. The simple truth of the matter is that many people fail to “qualify” for any form of assistance even during a desperate downturn in their own personal financial situation.
On the other hand, many short sale real estate investors never need to worry about a government sponsored safety net or jumping hoops trying to get by on meager subsidy payments because they have created their own source of income via real estate. Whether buying to hold for the long term or flipping for a fast profit, short sales have generated substantial income potential far above and beyond that of the typical American family. Case in point, the average rent for a 3 bedroom home is $820 per month or $9820 per year. Just five paid in full properties could generate nearly enough rental income to equal the median household income exclusive of price appreciation. Better yet, that same income does not require getting up five days a week to spend most of your time in a cubicle or other 9 to 5 grind plus provides distinct tax advantages.
Take stock of how you are spending your time…it is productive and leading to the creation of real wealth that allows you sufficient time and income to enjoy life or are you merely getting by while growing older, broke and one day closer to death?
Why wait any longer when you have finally found the source of inspiration and information capable of showing you a new and better way? Try it and see for yourself or fall in line behind the rest of the crowd seeking solace from their own quiet desperation.
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