Know The Law Before You Buy Detroit Foreclosure Properties

The city of Detroit has passed the Vacant Property Ordinance. Effective immediately, the city intends to enforce the ordinance in an effort to clean up the city.

JMO: For anyone that is acquiring or selling Detroit REO's, I would take this very seriously. The city needs to either revitalize the real estate market or begin recovering some of the lost tax revenue that's associated with foreclosures and unemployment. With GM, Chrysler and Ford in trouble it's likely that things will get worse in Detroit before they get better. This is reminiscent of Texas in the 80's when the oil market literally dried up.

New HUD Letter re: Tax Credit Along With IRS Guidelines

Due to the serious implications associated with the improper use or misunderstanding of this program, I am going to withhold offering an "opinion" and just provide the links to the information so each of you can make your own decisions of how this best suits your clients and their needs.

FHA HUD Letter: 09-ML-15Using First-Time Homebuyer Tax Credits, see HOT TOPICS:

IRS: Guidelines for using Tax Credit

Phoenix Housing Bust Goes Boom!

More good news about the Phoenix Real Estate Market.


JMO: If you've been following the blog, then you know I've been saying for some time now that the markets are beginning to improve. What is most encouraging about this article is that it was written in the LA Times. That means that Californians are once again, being notified of the great real estate opportunities that exist in Arizona. With the dramatic increase in tele-commuting and the unfortunate increase in the number of individuals that have lost their jobs. Moving to a less expensive location will become increasingly popular.

Plan To Allow Homebuyers To Use Tax Credit At Closing Is Repealed...For Now.

HUD Mortgagee Letter 2009-15 REPEALED



I recently posted FHA Preps Tax Credit for Down Payment Use . That was based on HUD Letter 2009-15 . It stated that the $8,000 first-time home buyer credit (that’s, of course, not just for first-time home buyers) could be used as collateral allowing the buyer to borrow against the tax credit for the down payment. HUD has taken the letter off its website. My best guess on this is that borrowing against the tax credit violates longstanding FHA rules on that issue. Borrowers must come up with their downpayment on their own. I suspect FHA rules will be quickly modified to allow the borrower to tap into the credit at closing. The $8,000 is a great incentive, but those who would typically qualify for this program tend to need cash for the downpayment. If they will be getting the credit when they file their taxes for that year, what harm would be caused by allowing them to access those funds when they really need them?

Hopefully, the letter will be quickly reinstated with some guidance from HUD and FHA.

Phoenix, Arizona showing very strong numbers

Some very strong numbers are coming out of the Phoenix Real Estate market indicating that we are in a strong recovery. New home construction numbers continue to dip as reflected in the National Housing report. However the resale market is getting stronger by the month in Phoenix. Here is some eye catching numbers.

Active listings are down 11% from last month and down 27% from a year ago. Pending sales are up 4% from last month and up 48% from last year. Sales are up 14% from April and up 42% from last may. What does this mean? Inventory is shrinking and activity is increasing, dramatically.

Here is something alarming if you are an investor. The average price per square foot is rising. The Price per square foot last quarter was $174.25, last month $177.80 and as of May 17th. $181.22. What does this mean? Although pricing is moving up home values are still historically low in the Metro Phoenix area.


There is no reason to believe that Phoenix can’t recover quickly. Arizona as a whole is nationally ranked in the top 3 in growth rate according the the census bureau. Phoenix also ranks in the top 5 for Business relocation, according to Entrepreneur Magazine. Housing affordability, climate, as well as cost of living make the Metro Phoenix area one of the most desirable places to live among the nations larger cities. This might be several reasons why the Phoenix housing market is showing signs of recovery.

The driving force in the activity in the Phoenix Housing market is first time home buyers and investors. Its well read what the Government has done to stimulate the first time home buyer market with tax credits and other incentives. Many investors are entering the Phoenix housing market to take advantage of early pricing and ample supply.

House Passes H4H Bill

House Passes H4H Bill

May 19, 2009

The House passed by a 367-54 vote a bill that revamps the FHA 'Hope for Homeowners' program and gives the HUD secretary discretion in setting insurance premiums on refinancings of underwater borrowers. The Senate is expected to pass the measure later this week. The bill (S.896) allows the Department of Housing and Urban Development to charge an upfront mortgage insurance premium of up to 3% and an annual premium of up to 1.5%. Previously, Federal Housing Administration had to charge a set premium of 3% and 1.5% respectively. It "requires the HUD secretary to weigh both the financial integrity of the program and the bill's purposes of foreclosure prevention in setting premiums," according to a summary of the legislation Servicers are expected to reduce the principal amount of the existing mortgage to qualify borrowers for the H4H program that Congress enacted last summer. However, the program is so restrictive that FHA had endorsed only one H4H refinancing as of April 30 with 916 applications pending. The Mortgage Bankers Association and other industry groups support Congress' efforts to relax the eligibility requirements and other requirements to make the program user friendly for homeowners, servicers and investors. S.896 also shields mortgage servicers from investor lawsuits and provides the Federal Deposit Insurance Corp. with more borrowing authority to deal with the rising bank failures. House and Senate leaders agreed to keep a temporary increase in the $100,000 deposit insurance limit at $250,000 through 2013.

JMO: This is a good thing. By allowing the HUD to charge "up to" 3% and 1.5% respectively, this will allow HUD to carry some for burden for affordability. These are fees that directly impact the homeowner/borrowers debt-to-income ratio. By lowering these fees, it could allow more borrowers to qualify.

TARP Repayment Line Grows

Banks are scrambling to meet the capital requirements that will enable them to repay the TARP funds.

JMO: I'm still trying to figure out how the banks are able to not only meet the capital requirements AND repay the TARP funds if they were on the brink of failure just a short while ago. They haven't been lending any NEW money and they are experiencing record defaults on the money they've loaned over the last several years.

Fed is Promoting Short Sales

U.S. Treasury sweetens housing rescue incentives

05.14.09, 04:59 PM EDT

USA-TREASURY/HOUSING (UPDATE 3):UPDATE 3-U.S. Treasury sweetens housing rescue incentives

WASHINGTON (Reuters) - The Obama administration Thursday tweaked its housing rescue plan by increasing incentives for mortgage lenders to slash the payments for homeowners in the worst-hit markets.

The changes announced by the Treasury Department would also encourage so-called short sales to help troubled homeowners escape from unaffordable mortgages. In a short sale, the lender retires the mortgage in return for whatever the homeowner can sell the property for.

"This will give (lenders) payments to mitigate some of the risk that past house price declines might reduce future payments. The way to think about this is an additional incentive for lenders and servicers to participate in these programs," U.S. Treasury Secretary Timothy Geithner told a news conference.

The Treasury will use up to $10 billion from a previously announced $50 billion pool of mortgage modification funds for payments to address lender concerns that home prices will continue falling in high-cost areas.

These incentives will be calculated on recent declines of local home prices and average home prices in these markets, the Treasury said, and may add several thousand dollars to other incentives that servicers can receive for reducing loan payments.

Under the short sale program, lenders can receive a $1,000 payment for allowing the owner to sell the house for less than the amount owed on the mortgage and accepting the proceeds as full repayment. They can also receive $1,000 for accepting a similar deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.

INCENTIVES FOR BORROWERS

Borrowers who agree to short sales or deed-in-lieu deals can received up to $1,500 in closing costs. Treasury also said it will pay second lien holders up to $1,000 to relinquish their claims in such transactions.

The new incentives are among a number of recent refinements to the Obama administration's housing rescue programs. A Treasury spokeswoman said these payments will come from the same $50 billion used to encourage other types of loan modifications and extinguishment of second-lien mortgages.

About $15 billion of these funds, from the Treasury's Troubled Assets Relief Program, have already been allocated to incentives for 14 major loan servicers under the program's initial phase.

The $50 billion, combined with $25 billion in costs absorbed by Fannie Mae ( FNM - news - people ) and Freddie Mac ( FRE - news - people ), will fund other incentives for lenders to extinguish second-lien mortgages.

"The single most critical step we need to make to stabilize home prices is to stop the bleeding and prevent what could be up to 10 million foreclosures looming on the horizon," said National Community Reinvestment Coalition president John Taylor.

He also said more actions from the Obama administration may be needed to stabilize the housing market.

GOOD START?

Since the program started in March, the Treasury said more than 55,000 loan modification offers have been extended to borrowers from servicers, who also have sent about 300,000 solicitation letters to borrowers who would qualify.

That is far short of the 3 million to 4 million loan modifications that the Obama administration hopes to achieve in the program.

"This is just the beginning. We're at the beginning of progress in these programs," Geithner said.

He also said the new incentives would encourage modifications in areas suffering from steep price declines and lenders and investors have been reluctant to modify over fears that a downward price spiral will push the loan back into default.

"If a modification is not possible, we are also announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future," Geithner said.

A U.S. Treasury official later told reporters on a conference call that a separate program that allows Fannie and Freddie refinance mortgages at up to 105 percent loan to value ratio could be examined in the future for possible for changes to raise that cap. The official said such a move was not under active consideration now, but the Treasury was committed to continue to examine the program for its effectiveness.

In some hard-hit markets such as California and Florida, price declines have been steep enough that many loans written during the housing boom exceed 105 percent of the underlying home value, making them ineligible for refinancing under the program. (For more Economics news and our MacroScope blog, go to http://blogs.reuters.com/macroscope)

Copyright 2009 Reuters, Click for Restriction

Dealers could toss wrench in automakers’ plans

Car dealers are at risk of having their dealership licenses revoked at a result of the bankrupty (or impending bankruptcy) of the Chrysler, GM and possibly Ford.

JMO: this scenario could create the same "perfect storm" that exists in the real estate market. 1. excess inventory 2. motivated seller 3. historically low interest rates 4. expansion of credit terms. I will continue to follow this closely as many of these dealers could have their inventories "repossessed" by their OWN creditors that would be looking to sell the cars quickly before newer models hit the market.

FHA Preps Tax Credit for Down Payment Use

This Tax Credit would be another big step toward promoting homes sales to end users.

JMO:
Be careful before advising your clients of this impending benefit. Under the current provisions of the Tax Credit, the money must first be used to pay any past or current tax obligations. If these still applies, homeowners should not rely upon the full $8,000 until all other tax obligations have been met. Without doing your research up front, there will be a lot of deals that die at the closing table.

The Recession Is Over...

I woke up this morning to news on two separate channels with experts indicating that the "recession is over". Liz Ann Sonders, Chief Investment Strategist for Charles Schwab says that the recession is over based on the "turn" rather than the trend. She defines the turn as the definitive change in direction of various economic indicators. Forbes Magazine declared as recently as last week that the recession is over as well.

JMO: I've been writing for more than a month that 1. optimism is the first sign of an economic recovery, and 2. that we are seeing signs of that optimism in the increase in home buying by end-users rather than investors. We need to keep in mind that the end of a recession does not mean that all is well in the world. We still have the very real situation of unemployment (whether it is continuing to rise or not does not help those that are currently unemployed) as well as the foreclosure problem (whether there is a moratorium or modifications or not, does not help those that have already been displaced from their homes). Overall, we must acknowledge the positive indicators as well as the negative in order to have a truly objective view of our situation.

B of A Wants To Repay Tarp Within Months...(With What?!)

Bank of America wants to repay TARP in months

By Greg Morcroft

BAC 13.24, -0.93, -6.6%) Chief Executive Ken Lewis said on Monday that the bank wants to repay government investments under the Troubled Asset Recovery Program (TARP) within months. "My hope is it's months, not years," Lewis said in a conference call hosted by CLSA analyst Mike Mayo. "But we just have to see how the capital markets operate and then how the economy does. Because the whole intent of this exercise has been to make sure that banks have the proper amount of capital so that they can, in fact, lend money in this environment. So the pay back will be dependent on not only our view of things, but also the regulators view of things," Lewis added.

JMO:
(I couldn't have said it better so I'm reposting the comment on Twitter by: BassFive)
Wait a second--they already received $45 billion in TARP money, and now the stress tests (which are without a doubt lowballing things) have shown that BAC needs another $34 billion to $50 billion. So, that means BAC is in the hole for at least $79 to $95 billion, and yet they're going to somehow pay back the $45 billion in a couple of months. With what money?

Bank Stress Test Results

Here are the results of the stress test.

JMO:
We will have to see what these 10 banks come up with as their strategy (they have until June 8, to outline the strategy and until Nov to implement it). I'm anxious to see if their strategies include liquidating foreclosed properties and non-perfoming assets.

Another Hard Hit Area Is Showing Improvement

Some Home Sales in Vegas Area Said to Be Heating Up

May 7, 2009

April was the strongest month in more than a year for home sales under $1 million in the Las Vegas-Henderson area, and the region's REO market also appears to be improving even though prices in that range have continued to fall. "The month registered gains in almost every category except price," said Rob Jenson, who works for Jenson Group, a company that specializes in Vegas's high-end market. The monthly supply of unsold houses fell, the overall number of listings declined and, perhaps most importantly, the number of real-estate owned listings also slipped. In houses priced under $1 million, moreover, sales were up 7.8%. But the average price in the below-$1 million sector fell by 3.4% to $161,729. It was the ninth monthly price decline in a row, but the 3,063 sales were the most recorded in a year in the beleaguered market. Mr. Jenson also said that above $1 million, listings were up, sales were down - only 12 units priced above the million dollar benchmark sold in April, an 8% decline - but the average price rose 2% to $1.53 million.

JMO

With California and Arizona also showing improvement in home sales and some degree of stabilization in home prices it is time to consider re-entering the market. Word of Caution: With the Fed less likely to continue providing bailout funds to troubled banks, the banks will be forced to create liquidity by selling off foreclosed properties and non-performing Notes. This could effect home prices but will also increase sales.

Bernanke won't disclose results of Stress Test but Cit and B of A will.

This is significant! In an effort to stave off further government intervention, Citi is considering converting the investment of the Treasury Dept to common stock. In essence, this would take our tax dollar and convert into an ownership stake in what might be a failing bank. Ironically, this article was posted just a few moments after Bernanke said he would not "predisclose" the results of the "Stress Test" but "hopes" that any banks needing to raise additional capital can do so in the private sector without additional government injections.

Cramdown Legislation Rejected...What Now?

Yesterday the senate rejected legislation that would have given judges the authority to reduce (cram down) the principal balance of 1st mortgages on primary residences for homeowners seeking bankruptcy protection.

JMO: I think this could create a wave of foreclosures from homeowners that realize they are too far upside down to ever recover. I would love to see the statistics on the number of "walk aways" (people that can afford the payment, but have so much negative equity that they choose to abandon the home) that make up the foreclosure numbers. In my opinion, passage of the cramdown bill would have created some motivation for homeowners to keep their home.

Technology Pushing REO Prices Higher Shortening DOM

REO prices are rising and Days On Market or dropping due to new technology that allows buyers agents more direct access to REO inventory.

JMO: If this technology catches on, it will virtually eliminate the need for intermediaries in transactions involving bank inventory.

Definition of an Asset "Bubble"

These links were provided by JMO Reader Dave Keller....Thanks Dave!

Real Estate Bubble Analysis 1
Real Estate Bubble Analysis 2