Wednesday, December 17th, 2008 at 9:52 AM
Free Advice
N.A.R. is touting their plan to stimulate the housing market:
- Make the $7500 first-time homebuyer tax credit available to all buyers and eliminate repayment requirements. The credit’s limited availability and repayment requirement severely limit the credit’s use and effectiveness.
- Make the 2008 FHA, Fannie Mae and Freddie Mac loan limits permanent. New rules for 2009 will reduce them. Now is not the time to limit mortgage affordability.
- Get the Treasury relief program back on track and target more funds to mortgage relief. Create a federal mortgage interest buy-down program to make below-market rates available and stabilize home prices.
- Permanently bar banks from engaging in real estate brokerage and management. The banks have proved they have enough to do to simply manage the loan process. Banks should not manage home sales and purchases.
The first and fourth ideas are a joke, but #2 and #3 could help the market without an unfair bailout.
What can the Obama administration do to help? There are two caveats; we know the government will want to throw money at the problem, and we know tax revenues will probably need to be increased. What policies can they implement to achieve the best results?
Here’s my list:
- Leave the Fannie/Freddie limits where they are, and have FHA/VA match ($546,250 in SD).
- Commit to ‘mortgage rates in the 4.5% to 5.5% range’. The market has miraculously achieved this on its own, but to hear that the government will provide support to keep rates that low will keep buyers from making hasty decisions to buy. Re-evaluate every six months.
- Feds adopts California’s CC2923.5, giving delinquent homeowners three notices in 30 days to provide loan modification help and credit counseling. If no resolution after 30 days, foreclosure proceedings begin. No “foreclosure freeze”.
- No short sales of federally-insured mortgages. Make your payments or get foreclosed.
- Waive or suspend ARM resets or recasts. Neg-am loans will take care of themselves, I/Os to streamline refinance without an appraisal if well qualified. Avoids major meltdown without costing taxpayers a bundle.
- Raise long-term capital gains tax back to 20% (from 15% now)
- Change the two-out-of-five-year tax benefit to $150,000 for singles, and $300,000 for couples. The market has knocked down equity positions, so this shouldn’t bother too many folks. We have to identify tax-generating possibilities somewhere, and the original bill sparked too much speculation, let’s reduce that in the future.
- New restrictions: Minimum five-year teaser rate periods for ARMs, and mortgage originators to have a fiduciary duty to their borrowers.
These would hopefully spend the least amount of taxpayers money, yet provide some general stimulus to the housing market.
When President Obama steps up to the podium on January 20th, what do you want to hear him say? I’ll send him the package tomorrow.
Posted on Wednesday, December 17th, 2008 at 9:52 AM in Uncategorized | | 
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I think the only policy that might have a chance of successfully achieving the goals that government seems to want (i.e., shoring up prices) would be to allocate large amounts of money toward acquiring most of the new developments built in the past five years, bulldozing them to the ground and restoring them to undeveloped open space.
GeneK | December 17th, 2008 at 10:03 amI’m with GeneK! But would we make them state/national parks, or let them be redeveloped in the future? (Yes, I’m a tree-hugger.)
Kwaping | December 17th, 2008 at 10:11 amThe new administration can simply not renew the Bush tax cuts. I don’t remember off the top of my head, but I believe their expiration date is near. Those cuts never did more than throw a bone to the middle class, I doubt we would miss them much.
ToadB | December 17th, 2008 at 10:43 amHow about a compromise Jim? Rather than “set” FHA conforming with a price ceiling why not eliminate it entirely? The original idea was to keep the lending to the low end. That’s gone. Also gone is limited funding capacity. So, just accept any loan for consideration regardless of price. You can make some really good loans $1m plus. Besides, the making of low loans hasn’t work anyway.
Rob Dawg | December 17th, 2008 at 10:54 amI have a really good idea. Forclose on everyone that can’t pay their mortgage. Then sell the properties for the price the market will bear.
shadash | December 17th, 2008 at 11:22 amShadash,
Rob Dawg | December 17th, 2008 at 11:32 amWhat are you? One of them rabid believers in the rule of law and fair play?
How about arresting all the crooks in the real estate business to start?
arizonadude | December 17th, 2008 at 11:51 amShadash’s plan is too simple to work. We need a circuitous plan to hide all the money being handed out and relieve people of their gambling debts.
As Jim pointed out the 1st idea is a joke, it boils down to “Subsidize housing by handing out taxpayer money directly to people for their down payment.” Why stop at $7500? Why not have the government buy up houses and give them away as charity? The only difference between the two is how big a handout we’re talking about.
A $7500 interest free loan to be repaid is a completely different proposition than $7500 free money from taxpayers.
I like a lot of Jim’s ideas and they’re not that hard to do. Neither is Shadash’s idea, which is apparently the last thing NAR wants.
BDiego | December 17th, 2008 at 12:00 pm“Make the $7500 first-time homebuyer tax credit available to all buyers and eliminate repayment requirements.”
How about I raise you on that? “Make mortgages available to all buyers and eliminate repayment requirements”. That should fix the problem, right there!
Daniel | December 17th, 2008 at 12:17 pmLet’s re-institute debtors’ prisons. It would return us to a better era, when men were men and novels were Dickensonian.
greenlander | December 17th, 2008 at 12:41 pmHere’s my probably incomplete, but certainly more effective than the NAR’s preferred handouts, list:
1. Commit to not obstructing foreclosures, and streamline the foreclosure process. Lenders need assurance that they will be able to collect collateral on defaults to continue lending, which is a major impediment to freeing up credit again.
2. Limit the FHA loan funding to a smaller amount (say, $10 billion annually), to ensure that they are targeting people who really need assistance, and not just pushing down the market.
3. Limit GSE’s and bank’s ability to hold properties by adding a federal tax (say 5% annually) on total property value of properties owned for more than 90 days. The value for each property will be the last sale price or foreclosed value, whichever is higher. Also impose stiff penalties if properties are not maintained, secured, etc. while owned by banks.
4. Raise the standards for all loans purchased or insured by the GSE’s, while substantially lowering the total amount they are allowed to own (as opposed to insuring). Their standards should equate to historically “most secure” loans (eg: 20%+ down, high FICO, verified income, etc.).
5. Commit to a free market for interest rates, and a policy of non-manipulation. Interest rate uncertainty will encourage people who are on the fence to buy when rates are low, instead of waiting until asset prices get all the way down (which, based on Japan’s experience, will be a while).
6. Forget about raising taxes to compensate for additional expenses. Nobody thinks we’re going to pay back our national debt anyway; might as well not hurt the economy any more by collecting slightly higher amounts while were spending trillions more than we take in.
7 (for bonus): Abandon the wealth redistribution programs masquerading as stimulus BS, fix the government statistics to be honest, and spend some money actually educating consumers. For example, you could counter the NAR propaganda with some simple “more you know” type ads about not getting over your head in debt, housing doesn’t grow faster than inflation and is thus a bad investment, NAR propaganda is not truth, etc.
Nick | December 17th, 2008 at 2:23 pmRob,
Love the no-limit! Let’s have all loans be available for mortgage pools, and let those who are BUYING THEM decide which ones they want, and how much they will pay for them.
Right now those with jumbo loans are being discriminated against by the government. Free money for everyone, or no one.
Jim the Realtor | December 17th, 2008 at 2:27 pmJust an aside on NAR’s #4. They have been beating that drum for years, trying to get legislation passed banning banks from operating real estate brokerages.
What are they afraid of? Great Western tried it, and got out quick, as did Merrill Lynch.
I say let banks get into the brokerage business, and let me be a bank so I can get my own TARP-money. Come on NAR, push that through!
Jim the Realtor | December 17th, 2008 at 2:31 pmFrom Diana Olick:
Mortgage brokers I talked to this morning said the floodgates are open, and it’s mostly refis. In fact, the Mortgage Bankers Association’s weekly applications survey showed that last week, with rates historically low, 77 percent of applications were for refis, not new purchases. One broker I spoke with said he’s got so many refi clients that he’s having a hard time finding the time to speak to potential new home purchase clients, because that takes far longer than current clients who already know him and just want him to lock in a rate.
But another broker cautions, when we’re talking about these low low rates for the 30-year fixed, and this morning it was around 4.875 percent, it’s with no points, and the borrower must have a 740+ FICO score, not to mention at least 20 percent to put down on the home. If it’s a refi, especially cash-out, they want to see at the very highest a 75% loan-to-value ratio. And this is only for old-fashioned $417,000 conforming loans.
Jim the Realtor | December 17th, 2008 at 2:43 pmThe low rates are mostly helping people with substantial equity.the people who owe more than their house is worth are just plain screwed.I think it would really help a lot of people if they could get this low rate.I wonder if people could get loans based on the current value of the house and then have the original lender subordinate the rest of the original loan to the new 1st loan.It might be a way to keep some more forclosures out of the system?Instead of eating the huge loss in forclosure the original lender might actually get paid back.
arizonadude | December 17th, 2008 at 3:30 pmPurchases and refi’s on these terms sound like to me like the best form of “economic stimulus.” People who have demonstrated their ability to handle mortgages and/or savings already know better than to use their current homes as cash machines or max out their indebtedness to buy the biggest home they can possibly qualify for. They will use the reduced rates to lower their monthly out-of-pocket home payments, which will leave them with more disposable or savable money at the end of the month. This is the only effective way to help “fix” the economy; we’re certainly not going to do it by putting more money in the hands of people who have already proven their inability to handle it.
GeneK | December 17th, 2008 at 3:41 pmNAR should become bank-holding company and file for TARP money.
anon | December 17th, 2008 at 3:59 pm“The low rates are mostly helping people with substantial equity.the people who owe more than their house is worth are just plain screwed.”
Well, credit scores mostly help people who have handled money well. There’s a reason why these people are supposed to be the ones low rates are offered to first.
And people who owe more than their house is worth are not “just plain screwed” just because their home value has gone down. As long as they were not defrauded on the loan terms and are making their mortgage payments on time, they still have the same house and are still paying the same mortgage they were before the house went down.
Are you “just plain screwed” because the car or the TV or the refrigerator you bought in 2006 is now worth less than you paid for it?
GeneK | December 17th, 2008 at 4:02 pmNo more exotic loans. Period! If you can’t muster up 10-20% down and have a DTI ratio of 30%ish, you don’t need to be buying a house. Remember what got us here in the first place? Prices cannot be artificially propped up. There are laws in economics just like there are laws in physics. We have violated economic laws for the last 10+ years by confusing debt with wealth. We can go back to a sound economy willingly or otherwise. But we are definitely going back.
Dr. Detroit | December 17th, 2008 at 5:27 pmMarket did not achieve 4.5-5.5% rates on its own.
BGinRB | December 17th, 2008 at 5:32 pmExactly, if you bought responsibly you’re never going to be screwed just because of the current market value of your house. It will matter however if you go unemployed, get transferred, or get divorced and bought a house with little equity.
In other words, imagine if your local dealership started selling cars at 1/2 off, including the model you bought 3 years ago. Would you call yourself screwed on that basis? After all, your car has depreciated in this time and you couldn’t sell it to take advantage of this deal. The point is, the payments you agreed to pay haven’t changed, and any financial hardship you suffer has nothing to do with the car you bought.
BDiego | December 17th, 2008 at 6:38 pmWhy not just foreclose on “NAR” so we longer have to hear them anymore or there crazy ideas?
Nathan | December 17th, 2008 at 6:40 pmshadash wrote:
I have a really good idea. Forclose on everyone that can’t pay their mortgage. Then sell the properties for the price the market will bear.
==========================
There is the answer to all the housing problems (which are really debt problems). Beautiful in its simplicity, efficiency, and effectiveness.
CA renter | December 18th, 2008 at 12:16 amNobody ever talks about supply and demand. When prices are low, it’s necessary to reduce supply and/or increase demand.
My list:
1. Supply:
Using a lottery in surplus markets, destroy houses, pay off the mortgage with public funds.
2.Demand:
james swain | December 18th, 2008 at 4:03 ama. Offer automatic US citizenship to any foreigner who emigrates to the US, buys a place, and makes it their primary residence for 3 years.
b. Offer grants to 3 million homeowners to redo kitchens and bathrooms.
c. Offer grants to owners with houses more than 50 years old,to destroy the building and re-build on the existing lot.
james swain,
You should just give $$$ to home owners. They deserve it! Their properties haven’t appreciated in the last 10 months.
Your perversion of the laws of supply and demand is rediclious. What you’re describing is government supported property ownership socialism.
Why don’t you just try living within your means and not asking/begging for government handouts.
shadash | December 18th, 2008 at 5:10 amI think Dr. Detroit has a good idea. People must put down at least 10% for a home purchase. Make this the law. Why? Well one of the biggest problems is people have no skin in the game so if their home value is less than their mortgage, even if they have a 1% interest rate, the temptation is great to skip out on the mortgage.
Second I don’t agree with you Jim about the 7,500 tax credit. I think their needs to be a tax credit that is given towards the down payment. The catch: a) you cannot have had a foreclosure or been late on a mortgage payment, b) it must be for your primary home, c) you cannot currently own a home, and d) you must qualify with traditional underwriting. I think this is a fair plan to give something to those of us who did not act irresponsibly, get into a home we could not afford, and jump in on the buy now or be priced out forever. I call it the fairness portion to reward good behavior. And given the limits, the cost will be minimal.
I think the govt. needs to step in and set some bare minimum underwriting guidelines that must be followed and consider changing some rules that require any loans that are packaged and sold to have more recourse back to the originator.
And finally — there is nothing price cannot fix. You want to fix the RE market, get the mid to upper end sellers to drop their prices by 20% and you will see a much more active Re market.
And isn’t it funny how the Feds and talking CNBC folk tried to claim the lowering of the interest rate was really meant to help spur new purchases yet the exact opposite is happening — it is just encouraging refinancing? Personally I think they always wanted it to spur refinancing of those who could afford to do so — after all they are the only ones (except us bitter renters) who have the ability to take savings and spend it.
Bob | December 18th, 2008 at 8:00 am“Your perversion of the laws of supply and demand is rediclious.”
I think this is probably my fault, because I started the comments off with a comment on what the government would have to do to prop up home prices rather than what it SHOULD do.
GeneK | December 18th, 2008 at 8:17 am“Personally I think they always wanted it to spur refinancing of those who could afford to do so — after all they are the only ones (except us bitter renters) who have the ability to take savings and spend it.”
In addition to refinancing homeowners, people who saved their cash during the bubble and are now standing by waiting for their desired neighborhoods to hit bottom before they buy will also benefit, so long as any rate reductions are maintained long enough for that to happen.
I’m not in favor of credits or other programs to help subsidize or reduce down payments. This is the time when any programs launched should be directed at reducing long term mortgage rates for current owners who had the sense to not use their houses as ATMs and those non-owners who had the sense to stay out of the bubble market and save up cash for a proper 20% down payment, not to reduce the amount of skin people have to put in. Stop trying to prop up the prices, and a lot of people who don’t quite have their 20% down payment right now will probably have it in 6-12 months.
GeneK | December 18th, 2008 at 8:25 amA tax credit for downpayment? $7500? where is the skin in the game?
where is the subsidy for the less affluent who have to rent? or those who chose to rent?
how about: 20% dp, 25% DTI, no favorable capgains exclusion on sale, no mortgage interest deduction!
FreedomCM | December 18th, 2008 at 9:48 am…how about: 20% dp, 25% DTI, no favorable capgains exclusion on sale, no mortgage interest deduction!
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Love it!!!
CA renter | December 18th, 2008 at 6:21 pmRaising capital gains tax will discourage investment in homes or anything else so that makes no sense. The government for decades has spent more that it makes so why raise taxes as they will print what they want in any event. How about this: Reduce capital gains to ZERO on real estate. This would stimulate individuals to buy real estate as an investment (nothing wrong with qualified investors benefitting as they supply homes for tenants) as an investor would prefer to pay no taxes in real estate investments vs cap[ital gains in the stock market. This would probably help stabalize real estate values. These low rates are great but until Fannie suspends appraisal requirements the majority of people (very good people with income and people that put 20% down and have been faithfully paying their mortgage) can’t refinance as their home values have dropped. Since the Federal government has catagorically said it will buy any fannie mortgages why do we care what the underlying home is worth. The value of the home was the investors security in the “old America”. The investors security, in the “new America” is now the government so why worry about the value.
reinkailua | December 21st, 2008 at 10:39 am