I am writing to thank you for everything you have done over the past year to suture our economic wounds and stimulate our housing market. It has been very helpful. Now, please stop.
I know that all of the rules and regulations implemented over the past year were designed with only the best intentions — to provide opportunities for homeowners to keep their homes while restoring stability and sanity to a messed-up housing market and an economy run amok. But now, as a real estate agent, each day at the office is like staring at a big, expert-level Sudoku puzzle, only the logic in the solution is lost on me.
In California, you recently passed a new law placing a 90-day moratorium on foreclosures. "Good one!" I thought, assuming that the families at risk are going to be magically better off in three months than they are now. But that is just one potential flaw. The other became apparent as we had a conversation with our client’s lender confirming receipt of his short-sale package, a conversation that sent me back to the fine print.
"We see in our file that we already, unsuccessfully, attempted a loan modification," stated the clearly bored file processor.
"Well, no, you didn’t," we explained. "He lost his job, he can’t afford the property at any price, and he called several months ago asking you to take the keys."
"That’s right. Lost his job, can’t afford to pay, modification failed," she winked as she checked off the corresponding box.
She was just following procedure — the new procedure. The moratorium, it turns out, doesn’t apply to lenders who have a loan modification program in place, which is apparently everyone except Jim’s Appliance Repair and Mortgage Mania.
And even Jim has downloaded the paperwork and will be applying for an exemption, just as soon as he clears the clogged air gap. Once exempt, he will be free to foreclose away, just like the big institutions that already have their checklists in place as a result of the old federal moratorium.
Then there is President Obama’s Homeowner Affordability and Stability Plan, which allows 105 percent loan-to-value refinancing of certain loans. I suspect that this has helped many borrowers restructure their debt. The couple I spoke with yesterday isn’t among them.
They have a first at 6.5 percent, which will be resetting in 2012, but it is their second loan, currently at 10 percent, that is causing them the most grief. Their lender kicked them to the curb when they asked for a loan modification.
It seems they have made two serious mistakes: They not only have had the audacity to pay their mortgage on time every month, but they both hold responsible, well-paying jobs, so the lender has decided that they can afford a usurious 10 percent rate.
Talk about keeping people in their homes. They can’t sell short because they can’t prove hardship. They can’t refinance because their home is upside down. So now they want to move, because the only way they can enjoy the better, prevailing rates (which would also increase their buying power by about 30 percent) is to buy a different home.
The problem is that a sale would require them to bring approximately $45,000 to the table, and while they could do this, it would leave them about $45,000 short of the down payment on another property, so they would have to rent. The assistance plans don’t apply to them.
Meanwhile, their neighbors are getting modified like mad because they haven’t made their payments and they can’t afford their own high-rate loans. Maybe, if we are going to help people, we can help them all. Just sayin’ …
The Home Valuation Code of Conduct was noble. While we were helping some people get out of trouble, we recognized the need to keep all the rest from getting into new trouble. Only, it’s mostly serving to derail a lot of our traditional sales as underpaid and overworked appraisers apply the new "Random Valuation Method" to homes in neighborhoods they have never heard of before.
Oh, and the careers of a few established, veteran appraisers have been sacrificed in the process. I just hope the appraisals on their own homes come in within 5 percent of their outstanding loan balances. At least for those living in California, there is a new moratorium on foreclosures in effect. Sort of. …CONTINUED
Now I hear that FHA loans on condominium projects are being streamlined to better serve us. I hear this because a client just got the rug pulled from under her FHA financing one week prior to closing as a result.
The FHA tells us that "In accordance with the passage of the Housing and Economic Recovery Act (blah, blah, blah), FHA will now allow lenders to determine project eligibility, review project documentation, and certify to compliance of Section 203(b) of the (blah, blah, blah) regulations."
This goes into effect in October. Cool. Only they are killing our old, streamlined "spot" approvals in the process, and our client’s lender decided this week that it was better to just forge ahead with the new program now, our client’s spot-approved loan and packed moving boxes be damned.
Lawmakers, what I think we have here is a jumbo-sized water balloon. We are repeatedly squeezing one side of the issue to find a protuberance on the other. I know you are trying to deliver us unto a normal market, so let me tell you a story about a normal family involved in a normal sale. It’s a little game I call "count the moving trucks."
This family, the clients of one of our company’s agents, had their home on the market. They wanted a bigger one because of a growing family and had in fact found the perfect property.
This is what we call the discretionary move, and it is the discretionary move that holds the key to our recovery. These discretionary sellers had multiple offers on their home, and they were in final negotiations when one of the sellers lost her job. So, let’s talk about trickle-down economics.
This family could no longer sell because they could no longer qualify for a new loan. The family who would have sold their larger home to our clients now would not be moving either, thereby affecting another family yet. Meanwhile, on the down leg, the couple who was buying our client’s home was now back in their agent’s backseat.
Counting the moving trucks, I come up with at least four. Handymen? A few. Appraisers, loan underwriters, escrow officers, title reps, and property inspectors? Ditto that. The list goes on, and you can add a couple of listing agents who are out-of-pocket four figures and a lot of time with nary a paycheck in site.
And for every person financially impacted, there are dozens more who will be impacted as they sell fewer goods and services (manicures, flank steaks, health insurance) to the cars in our derailed train as a result.
So, I appreciate the stimulation. I think it was inarguably necessary and, from a big-picture standpoint, a success. Now, please stop. And I don’t mean "stop" as in quit taking steps to lead us unto recovery. Rather, stop focusing on the symptoms, because it is starting to feel like we have reached the point where all we have left are delay tactics.
We still need stimulation, and while you might hasten the process or soften the landing, ultimately you can’t really change the outcome. Free-market forces are tenacious and will ultimately prevail.
Prices had to come down; most will agree on this point. Income had to be verified in underwriting new financing if loans were to be repaid; we figured that one out the hard way.
But maybe, we have saved all the victims of the housing bubble that we can. The next victims will be the indirect consequences of our current economic environment, and we are already seeing the implications.
The reality is that nearly one out of 10 adults nationally, and nearly 12 percent in my state, are currently unemployed, and all the loan modifications and tax credits in the world are not going help these people buy a home — or save the ones they currently own.
What we need now is jobs.
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