Treasury Announces Home Price Decline Protection Incentives

In a recent post: "Too Little, Too Late," I talked about the minuscule numbers of loan modifications taking place, despite all the Federal encouragement going on. Banks had been offered $1000 per modification given (in addition to all that stimulus money!) and they were still dragging their heels. One caller to Bill Brinker's "Money Talk" radio show described the runaround he was getting after he lost his job and was trying to avoid getting behind on payments by modifying his loan terms...a frustrating process that has been going on for weeks, as he was referred to one source after another.
As part of its effort to expand relief to struggling homeowners, the U.S. Dept. of the Treasury just released the Supplemental Directive for its Home Price Decline Protection (HPDP) program, a component of the Home Affordable Modification Program. HPDP provides additional incentive payments for modifications on properties located in areas where home prices have recently declined. The purpose of the program is to encourage additional lender participation by helping to offset any incremental collateral loss on modifications that do not succeed. All HAMP loan modifications begun after Sept. 1, 2009, are eligible for HPDP payments.
The “pay-for-success” structure of HAMP provides incentives to create sustainable mortgage modifications in a manner most cost effective for taxpayers, but as with the previous incentives, I wonder if it will do any good.

Where Does it make Sense to Invest?

A member of my dance club told me that he was considering and investment in Stockton real estate. He owns several rentals in the Bay area, and heard that there were bargains to be had there. True enough.
- Home values in Stockton have fallen 60.9 percent since the market peaked in 2006.
- In June, sales were down 12 percent year-over-year.
- The Zillow Home Value Index there fell 29.9 percent in the second quarter, compared to 32.9 percent in the first quarter.
- But foreclosures continue to be an issue, with 69.2 percent of all sales in June being foreclosure re-sales.
In the best of conditions, owning rental property so far away from home can be a problem. A reliable rental market (and reliable renters!) is essential. A top quality manager is also important. Sometimes a "bargain" is nothing but a headache for an investor in this uneven market.

All Cash Wins Every Time

This morning's newspaper brought statistics showing pretty much what we've been seeing...that some areas remain stronger than others, that extremely high end homes are still selling slowly, and that the big number of bargainers are concentrated in the very low end (under $450,000.) Not in this issue, but in one a couple of days ago, there was an article that exposed what we are seeing over and over in these less expensive bank-owned and short sale houses: the winning buyers in large multiple offers are not first time home buyers, but investors, who are able to pay all cash, or have huge down payments. The banks will accept these, even though the offers are lower than those made by someone trying to buy a house using FHA or 90% financing. The deck seems to be stacked against the first time buyers. Banks that received all this stimulus money aren't ready to take any chances, even to promote home ownership.

Follow Up on the Ice Cream Social

I wrote in an earlier post that I had written an essay about the changing demographics in the area, and that I had won a neighborhood ice cream social for 100 neighbors in a contest sponsored by Dreyer's Slow Churned Ice Cream. I held the party at the Sunset Oaks clubhouse, many people met their neighbors for the first time, and everyone loved the ice cream. One lady tried a dozen flavors and said that it was more fun than a wine tasting. There were probably close to 100 guests in all, many of whom I had never met.
An associate at Coldwell Banker brought her two daughters, Charlotte and Catherine, who were my helpers, along with my friend Larry (who acted as official roaming photographer and trucked everything to the clubhouse and back) and Bill Tom, the board treasurer who had offered to help. Bill and Catherine scooped (there were about a dozen flavors at a time kept on ice in back of the table, with the lids in front in a row, so people could make their choices.) That left me free to greet people as they came into the pool area, show them the name tags and how to enter the door prize drawing (for free ice cream coupons) and mix and mingle. Charlotte took over the children's table and had them doing crafts and getting temporary tattoos applied (neater than face painting.) We had a helium tank and balloon for the kids.
We're talking about reinstating the Fourth of July barbecue next year, so the event was a complete success.

Too Little, Too Late

The administration recently released its first monthly report detailing the progress to date of the Making Home Affordable (MHA) loan modification program. The purpose of the report is to document the number of struggling homeowners already helped under the program, provide information on servicer performance.
This comprehensive plan to stabilize the U.S. housing market was announced in February. Two weeks later on March 4, detailed program guidelines were published and authorized servicers were supposed to begin modifications immediately. MHA provides $75 billion for sustainable mortgage modifications through the Home Affordable Modification Program.
Some progress has been made, but not enough, considering the $50 billion dollars set aside for this program. As of July, only 9 percent of eligible borrowers have seen their mortgage payments reduced with modified loans. 10 lenders have not reduced a single mortgage, and the lenders who received billions in federal bailout money...B of A and Wells Fargo...have lagged far behind government expectations. Bank of America modified only 4 percent of eligible loans, Wells Fargo 6 percent, and Wachovia (which was taken over by Wells Fargo) just 2 percent.
With 1.5 million homeowners receiving at least one foreclosure-related notice in the first half of this year, it's time for these banks to speed things up.

Commentary

There was a letter to the editor in Sunday's Merc from a reader in San Leandro (strange that he reads a San Jose newspaper). He disagreed with an editorial that said that the new appraisal requirements were hurting the real estate market, and blamed the housing meltdown, at least in part, on the appraisal process. Of course
there were inflated appraisals done by unscrupulous lenders, just as buyers were approved who should never have qualified for loans, but that situation does not exist today. In fact, banks are more conservative than they have ever been, now that the abuses of the meltdown have come to light.
What he doesn't seem to realize is that extremely low appraisals brought in by out-of-area appraisers are not a "healthy correction in the market" but a detriment to an already depressed market. Honest local appraisers must base value of properties on recent sales (less than 3 months old.) If an appraisal comes in too low because the appraiser is unfamiliar with the area, a potential sale may not happen, and both the buyer and seller are hurt. He calls the complaints about inexperienced appraisers "a ruse by real estate agents unhappy with reforms in the market."
I am one Realtor who is in favor of reforms, but only those that make some kind of sense, and charging buyers twice as much for an off-the-wall appraisal by someone from the central valley or Sacramento doesn't make any sense at all.

Guess I Spoke Too Soon

The news today included another two billion for the Cash for Clunkers Program, so perhaps the first time buyers' incentive credit will survive for a while, also. If the government is able (or thinks it's able) to subsidize new cars to get gas guzzlers off the road and help the ailing auto industry, maybe it can continue to partially subsidize first-time home buyers and get the foreclosed homes off the market...while helping to revive depressed neighborhoods and the real estate market as a whole.
Now if only we could just create more jobs...