It is amazing how time flies! Honestly, I don't know where my summer has gone. I didn't even get to go to the beach. Even though it's been 107 degrees Fahrenheit this week, with random torrential downpours, even hail at one point, I still can't believe it's September! My smart little brother will be attending UCLA as a freshman in 3 weeks. Between UCLA and UC Berkeley, I would definitely conclude that we are a University of California family!
But enough about me. Let's talk about the real estate activity and news. On a personal level, there seems to be more activity in the area. More seller price reductions as they become more realistic about the market, and not coincidentally, more buyer calls on those homes. There was a period of time a few months ago, where I wasn't sure if the office phones were even working because it was so quiet. It's not a hot market by any stretch of the imagination, but it's not dead either.
Yesterday President Bush announced a plan to help homeowners who can't afford their mortgages. The two key ideas were to:
1. give a bigger role to the Federal Housing Administration, which was created in 1934 during the Depression to make houses affordable to lower-income families but shrank in recent years as it was elbowed aside by aggressive private-sector subprime lenders
2. to temporarily suspend the income tax that families face on the portions of their mortgage debts that are forgiven by lenders.
The plan will allow people who borrowed from private-sector lenders to switch into lower-cost FHA-insured loans. Thus the lenders would get fully paid off, and the risk of default would be transferred to the FHA and to taxpayers. Well-to-do speculators could also benefit from the tax break for forgiven debt. The way the tax code works now, if you fall behind on a $300,000 loan, and your lender agrees to cut the amount you owe to $250,000, the $50,000 you saved is treated as income, and you have to pay tax on it. Bush wants to waive that tax liability temporarily. Dean Baker of the liberal Center for Economic & Policy Research says that this break will be of little value to low-income families that face relatively low tax rates, but of great value to affluent speculators. The big winner, if the plan is adopted, would be the FHA, a government agency that until recently seemed in danger of withering away because of restrictions on its ability to compete for business with freewheeling subprime lenders. The FHA provides mortgage insurance through a network of private lenders. Bush called on Congress to pass an FHA "modernization" bill that would enable the FHA to insure loans with lower down-payment requirements and higher loan limits. He also announced an FHASecure plan, which will allow families with strong credit histories who had been making timely mortgage payments before their loans reset—but are now in default—to qualify for refinancing. Until now, the FHA wasn't allowed to give refinancing loans to people in default because it was seen as too risky. And for the first time, starting Jan. 1, 2008, the FHA will charge higher rates for riskier borrowers instead of giving the same rate on all loans.
Source: BusinessWeek.com.
Martin Feldstein, the President of the National Bureau of Economic Research gave a speech recently. According to Feldstein "the housing sector is now at the root of three distinct but related problems: First, a sharp decline in house prices and the related fall in home building that could lead to an economy-wide recession; Second, a subprime mortgage problem that has triggered a substantial widening of all credit spreads and the freezing of much of the credit markets; And, third, a decline in home equity loans and mortgage refinancing that could cause greater declines in consumer spending."
Click here to read the full text from WSJ.com.
Foreclosures usually make us think of a family being kicked out of their home when they're unable to make their payments. But lately we're discovering that a good chunk of mortgage defaults are due to investors. According to the Mortgage Bankers Association, as many as 1 in 5 mortgages in default in California belongs to borrowers who are not living in the homes with the troubled loans. The numbers were worse in Nevada, Arizona and Florida, where one-quarter to one-third of defaults as of June 30 were tied to investor loans. Many of the vacant, foreclosed homes dotting neighborhoods these days were bought by speculators who intended to "flip" their real estate investments for a quick profit but couldn't once the housing market slowed, said Doug Duncan, the trade group's chief economist.
Source: LA Times.
~Tina Jan~
Coldwell Banker Kivett-Teeters
1655 E. Sixth St.
Beaumont, CA 92223
Work: 951-845-5520 Ext. 105
Fax: 951-845-4916
Cell: 909-446-2666
Toll-Free: 1-877-TINAJAN
tina.jan@coldwellbanker.com
www.tinajan.com
