On a lighter note

Because sometimes we just have to laugh. Some tickle my funny bone more than others, but as has been pointed out on other blogs humor can reach and educate some more than others, take note of the mister housing bubble 2/3 of the way down, great stuff.

Housing related Suicides

ABC news had a couple of different articles highlighting recent suicides that are related to housing issues and the economic crisis as a whole. Last night the acting chief financial officer for Freddie Mac committed suicide by hanging himself in his basement. I, like many others, believe there was a great deal of deceit and unethical behavior by the up and ups in Freddie Mac and Fannie Mae, but I wouldn't want to see them committing suicide. Some might see it as a sign of guilt, perhaps this man felt the company and situation was beyond repair. If he has a family I wish them the best.

ABC also had an article detailing foreclosure related suicides. With financial woes comes increased levels of depression and suicide.

I reiterate what I noted on my post detailing the additional costs of foreclosure....while we are trying to "fix" the market we need to be providing additional resources to help those impacted by it. Failure to do so could prove costly in the long run, not because it is our fault they committed suicide, but because I honestly believe we lost something because they did.

I have an extended family member who committed suicide many years ago over financial issues. I wouldn't wish it on any family.

Enter the Staw Man

Perhaps justice will be served on some of those who have contributed to the current housing and economic crisis. The article discusses the activities of two businessmen who acted as "straw buyers", allowing their name and fico score to be used to purchase properties. Usually these properties are rented out, but the rent "paid" is pocketed rather than paid to the mortgage company. The homes are then either allowed to go into foreclosure (unbeknown to the renters) or resold using inflated appraisals to turn a tidy profit.

The straw men get kickbacks for the use of their name and score, but are not usually directly involved with the rest of the scam. In this case they also inappropriately utilized money to "pay" for false fees involved in the buying process.

"The trio is accused of one count of conspiracy as well as multiple counts of mail fraud, wire fraud and money laundering."

The primary vicitms in this case were lenders and builders....oddly enough the renters who were fooled were not included in the list.

Home Run: Can it get around the bases

The Utah Legislature recently passed the Home Run grant, administered by Utah Housing Corporation. In short the grant provides $6,000 if you purchase new construction (single family) in the state of Utah. Why are we encouraging them to buy new homes? Well, its because we have hundreds of homes sitting empty from unsustainable building (encouraged by irresponsible financing and real estate speculation). Some are calling the grant the "Clark Ivory Bailout Bill". Lets talk about the good, and the bad.

THE GOOD

Right now we have hundreds of empty new homes. Empty houses are a target for vandalism and theft. The more empty homes there are the greater the risk. Moving them is good.

Contractors are struggling. They have huge loans on these subdivisions that they cannot pay on....because the borrowed planning on selling homes to pay along the way (fairly standard procedure). This could keep some of them from going under and save jobs.

The grant is for anyone buying a new home, not just a first time home buyer. Those who may be ready to move up could do so, and their cheaper affordable homes would become available to families who should be buying those rather than newer more expensive homes.

The grant requires a fixed interest rate 30 year loan.

Income guidelines are pretty loose.....$75k for single, $150k for a couple.

THE BAD

As noted above, some see this as a bailout for builders who overextended themselves. Are we really helping homeowners or are we encouraging them to purchase overpriced homes?

This hurts homeowners who are trying to sell. A family whose home is being foreclosed upon will have an even harder time selling their home, since the an incentive to buy new is essentially a disincentive to buy existing used homes. This is really poor judgment on the part of the legislature, as it increases the risk of foreclosures in Utah.

Why buy new when there are so many more affordable homes out there? My fear is we are once again encouraging potential buyers to look at homes that are out of their price range. Contractors are not the only ones who stand to benefit here. Lenders and realtors are paid commission based on the sales price. If they can get consumers to buy newer more expensive homes, who are we really helping? Is this an incentive for homebuyers or a subsidy for builders, realtors and lenders?

No education requirement for new home buyers. Of course not. That would make sense.

My overall Impression: Not good. The bill seems designed to help lenders, builders, and realtors. It encourages the purchase of newer homes (most of which are more expensive than existing market options) while hurting families that are already struggling. It does NOTHING to address the issue of households in foreclosure and will probably exacerbate the problem. How many families could we have helped with this money? 1,600 grants for new homes...... The amount of help it will provide, cash incentive to borrowers, commission to realtors/lender, bailing out builders, compare to the costs; higher risk of unaffordable loans, money "lost" in higher commissions on higher home sales, and the collateral damage caused by a disincentive to buy existing homes that are in trouble. I touched on the real costs of foreclosure in a prior post, we are talking tens of thousands of dollards (minimum) for each foreclosure, and over a hundred thousand dollars when you consider the collateral damage to credit, surrounding homes, crime etc. Now imagine 1,600 of those homes foreclosing because some one purchased a new home instead. Who is the Utah legislature looking out for, their constituents or an aggressive lobby by real estate professionals? I think the answer is clear.

Utah: Welcome to Fraudville

Utah enjoys a particular distinction, the testing ground for new forms of fraud. If it works in Utah, the crooks take it on the road elsewhere. How bad is the problem?

The article points out some interesting facts:

Fraud charges are almost twice what they were a decade ago.

We continue to enjoy new fraud schemes as well as provide continued support for old frauds.

Despite our record for high fraud we still don't have a fraud prosecutor. Funding for the position was cut with the budget.

Fraud is difficult and time consuming to investigate.

In Utah County alone, the FBI says it is investigating mortgage fraud cases in which losses have exceeded $150 million. I wonder what it is for the whole state......

With these kind of losses, I have to wonder why it isn't receiving more attention.
Part of the reason we are in the situation we are now is a result of home value inflation scams that pushed prices up in targeted neighborhoods, contributing to the number of homes that are underwater. Yet due to the difficulty of investigating these types of scams many of the perpetrators will walk away to scam again another day.

Dealing with these scams are difficult for another reason. Those in the best position to identify the scams often benefit from them. Lenders and realty agents are paid on commission, so seeing higher home values equals more money for them when the home sells. This creates a disincentive for them to report suspicious price levels and activities.

What kind of disincentives can we create for scammers? How can real estate and lending professionals help?













http://www.abc4.com/news/local/story/Insurance-fraud-on-the-rise/SQWVJTUdHU-BsBKIJTDSqA.cspx

The Financial Stability Plan: Take Two

More details have emerged regarding this particular piece of the stimulus package. I felt that some of the details were worth a correction on my part.

The affordable refinance program is only available to borrowers who have loans that are owned/securitized by Fannie and Freddie. This reduces the number available to utilize the program, in particular among minorities and low income households. Studies have found that minorities were much more likely to receive a sub prime loan, even if their credit qualified them for a prime one, than other groups. If the loan was such that is cannot be conforming, then it will not be purchased by Fannie or Freddie. As such a higher proportion of low income and minority borrowers will be excluded from the program. Indirectly the program states it will not work with any nonconforming loan, (since they are not purchased by Fannie and Freddie).

The loan modification program comes right out and says that nonconforming loans do not qualify....well...it says it in the Q&A for housing counselors (how many regular joes are going to dig that deep?). This means once again that a higher percentage of minority and low income borrowers will be excluded from utilizing the program due to higher incidents of nonconforming loans. This is a real shame, since the loan modification program targets loans before they go bad, a proactive move I approve of.

Not all of the news is bad news. One of my criticisms of the program hinged on the high dollar figure, Roughly three quarters of a million, that qualifying homes could have. By requiring qualified loans to be conforming this automatically adjusts by area, since conforming loans have a maximum limit set by FHA that varies from area to area. So, someone in Cache Valley with a $700,000 or even $400,000 home will not qualify. Their loan is above the limits, and is considered a "jumbo loan", therefore nonconforming and ineligible for either of the programs listed above. To see what the limits are for where you live look here.

So what do you think? Does the conforming limitation unfairly impact minorities and low income families who should have qualified for a prime loan but were sold a different product by their lender?

Reaction to the Action

Obama has finally opened up and showed us the guts of his housing plan. USA Today does a fair job of outlining the details. This is a program that appears to have some potential, and addresses three core areas, refinances, loan modifications, and lender incentives.

What I like:

The loan refinancing is only available to those with good payment histories. We are rewarding those who have acted responsibly and paid their mortgage in a timely manner. This is the sort of thing that we should have been doing in the first place.

The loan modification requires proof of hardship. Those who simply overextended themselves will not qualify. The borrower must prove they can sustain payments on the new loan. The cost of the home has a maximum, so we won't see 5 million dollar mansion qualify. The plan is proactive and can be used BEFORE they fall into default.

Incentives to servicers have a set dollar value. I like this because it keeps them prioritizing high cost loans over lower value loans. The loan is reduced to 31% of income, IE affordable terms, through reducing the first mortgage and extending the loan term.

What I don't like/see:

No requirement for financial education. This is the magic wand approach. We fix the loan but do nothing to help the borrower keep themselves out of this situation in the first place.

The dollar cap on homes is still pretty high, and does not appeared to be adjusted by where they live. Lots of homes in LA cost more than $720,000...none of them will qualify. In contrast I am guessing 98% of the homes in Cache Valley would meet this requirement. We shouldn't be modifying a mortgage on a $700,000 home in Cache Valley!! It may be a regular home in LA, but here that is a mansion. FHA already has loan limits that are established and adjusted by area, why on earth aren't we using those, (or some percentage of them, like 120% of the limit or something?). Any time the government takes a blanket approach it is both unequal and unfair, and families lose.

Dealing with lenders/servicers is all carrot no stick. Asking them to play nice is fine and dandy, what about legislation that penalizes lenders who give loans that are blatantly unaffordable/inappropriate? Many of the subprime loans that were issued over the last 5 years were to families who would have qualified for prime loans.....but the lenders don't make as much money that way.....

Conclusion:
Anything is better than nothing. While it begins to address the problem we have today, it does nothing to lay the framework for avoiding this in the future. We are seeing more reaction to the problem, rather than action that leads us to a more permanent solution.

Housing Tax Credit: Take Two

Second verse, same as the first, a little bit louder, a little bit....better?

The word is out on the new housing "tax credit" compliments of the Obama administration. The bill looked too good to be true coming in, and endured a good trimming before an end result was reached. The lighter bill will certainly be cheaper for the government (and us, our money after all).

First things first. The amount was cut from $15,000 to $8,000, bringing it closer in line to the false "tax credit" we currently have. The reduction in cost means they could in theory serve more people and will keep the whining down from those who purchased last year and only qualified for the $7,500 interest free loan version.

This brings me to my second point. This one is a genuine credit. It is fully refundable, meaning even if you have no tax liability you can get paid the full $8,000. Since it is a credit and not a tax deduction we are talking dollar for dollar benefits.

While the reduction from $15,000 to $8,000 may seem like a big deal, it isn't the most important change made in the bill. That honor goes elsewhere. The senate version allowed the credit to be claimed by any home buyer who purchased during the time frame. The house bill, the one ultimately adopted, limits this to first time home buyers who purchase from 1/1/2009 to 11/30/09. This cuts the majority of those who might have claimed the credit out of the picture. Think of it this way. Bob the first time home buyer purchases a home from Ted...who is buying a house somewhere else from Jerry, who is buying a home in the city where his new job is etc... Under the senate plan all of these individuals would claim the credit. Under the new bill only Bob gets the credit. The limitation may keep some homeowners, who would have viewed this as an ideal time to purchase somewhere else, sitting on the fence while waiting for the market to stabilize.

Now, what do I think of the above? Well, it certainly is cheaper! I am guessing the cost of the new bill will be 1/5 or less of what he old one would have cost us. This would be good news if I didn't believe that the money will simply be spent elsewhere rather than "saved". If if is for rum exports to Puerto Rico, as some of the stimulus package is, well, I can't help but think it would have been better spent in the housing tax credit.

What will it do? Some are estimating as many as 300,000 first time home buyers will take advantage of the incentive and take the plunge. Sadly, this is only a drop in the bucket compared to the number of foreclosures we are seeing. Heck, households lost more jobs in the last couple of months than that paltry number! It will benefit a few...it won't do much to stimulate the economy (a familiar refrain the more I look at the "stimulus" bill).

Other problems remain as well. The credit does nothing to address the issue of down payments. Our savings rate has been ridiculously low over the last few years...how many of those first time buyers have actually saved anything at all? Are they purchasing homes with no money down....at with 100% LTV ratios....haven't we been down this road before? There is a reason private mortgage insurance exists (the insurance the borrower pays if they have less than 20% down payment, this insurance protects the lender). It exists because studies show that those who make smaller down payments are more likely to walk away from their home and/or let payments lapse.

Proverbs say that "Where there is no vision, the people perish". Until we catch the vision of personal responsibility and SACRIFICE, understanding that a home is something to be worked for and not a right, I think we will continue to see home owners perish.

I am going to pretend it is my bill now. The credit is only available in the form of a match, 2:1, for what the family is bringing to the table. They want $8,000, they better bring $4,000 for down payment. What about those who don't have it? They could set up a plan with a bank to save X number of dollars a month to reach their goal, and those who enrolled during the time frame of 1/1/09 to 11/30/19 and stick to their plan would still qualify for credit. For example: Bob wants to buy that house, but hasn't saved a dime. He decides to he can save $150 a month. He sets up a savings account with Wiser Bank and commits to saving $150 a month for the next 27 months. At the end of 27 months he has his downpayment, and his $8,000 match. This won't do much to stimulate the economy now (if anything saving money will hurt it a bit) but in the long run I think it is a smarter move than throwing good money after bad and allow potential homeowners who can't buy now a chance to work towards it in the future. I suspect those who worked and sacrificed to get the credit are more likely to make their payments than those who got $8,000 back from Uncle Sam with no effort and used it to pay for their new living room furniture.

The second thing I would require is education. Home buyer education can help them actually understand the documents they are signing, avoid being taken advantage of by sellers, ensure they have a budget (in theory, they still have to choose to follow it), and help them understand what to do if they fall behind on payments (or even think they will). If they don't want to get education....they can find their own $8,000.

In the meantime we won't see this make much of an impact. Some might buy homes who wouldn't have. Some of them might spend the $8,000 they get from Uncle Sam, and thereby stimulate the economy that much more. Maybe a third verse is in order....Third verse, where is the harm, give it one more shot, third times a charm.

Foreclosure: What families really pay

We all know what the F word means...it means someone is losing their home. A family that has a foreclosure loses what is usually their largest financial asset, but what happens after that? I want to take a minute to explore the real impact of foreclosures on families.

1: First things first. Any equity in the home is lost. Depending on how long they have been in the home this may or may not be that big of a deal. For some, like the family from the Washington Post article a couple of blogs back, it was to the tune of $300,000 . It is hard enough for me to imaging having that kind of money, let alone losing it ;).

2: Deficiency. Whether the home is sold in a short sale, returned via a deed in lieu, or foreclosed upon a lender can seek a deficiency judgment against the borrower for losses. If you owed $200,000 on the mortgage and the lender can only sell it for $150,000 they can come after the original borrower for the difference by taking them to court. The lender will add those pesky court fees to this amount (as they should)as well. Once a deficiency judgment is in place the borrower may find their future wages garnished, liens placed against other property, and may even have financial assets seized. Sometimes the lender won't come after you to pay the money, that sounds good, right? Well, except for the fact they will tell the IRS the money was forgiven.....which means the family has to claim it on their taxes as income! With deficiencies in the hundreds of thousands of dollars in some areas you can imagine what that could do to a tax return......Maybe you could cover it with you $7,500 tax "credit" :) A family who cant pay may turn to....

3. Bankruptcy. Bankruptcy and foreclosure often go hand in hand. The loss of the home may have been precipitated by the loss of a job or major medical problem that will take time to resolve. Just because the home goes away doesn't mean these other problem do as well. Often families in trouble are missing payments on credit cars, cars, student loans, and other obligations as well. Throw a deficiency judgment or increased taxes on top and the elaborate mess is complete. While this may be good news to some, it certainly isn't for the families.

4. Finding a new "home". If you don't have the money to pay your mortgage, how much are you going to have to pay the deposit on your new apartment? Will a change in where you live affect basic expenses, such as travel to work, school, and to purchase goods? Will your children need to change schools? Will the time taken to secure housing impact work schedules while they try to move? How will family and friends be impacted if they crash with them until they get back on their feet or procure new housing? What kind of choices for housing will they have when they now have bad.....

5. Credit. Potential landlords can, and do, check your credit history. When they see a family just lost their home what kind of message does that send to the landlord about their capacity to make payments? For many families that mean they may not be able to obtain reputable housing, accepting landlords who are less scrupulous because they cannot find a place anywhere else. They are unlikely to report bad landlords if they feel that is their only housing option.

Our credit problems don't stop with housing though. Families with poor credit pay more for everything, from credit cards to vehicle loans and even insurance rates. With the family already down on their luck the last thing they want to see is higher insurance rates for their car and credit card rates jump to 29%, yet that is exactly what happens. If they have problems with an overdraft account or auto loan they may find difficulty using that bank again in the future. A family may not even be able to secure a checking account, requiring them to use check cashing services that come with a price.

6. Hard to measure impacts. Money is the easy problem to track. What about lost time? How can depression and stress from financial situations impact parents at work or children at school? Foreclosures are linked to higher levels of deviant behavior including domestic abuse, drinking, suicide, and risk taking behaviors like gambling. While we are busy bailing out banks who will foot the bill, or even more importantly provide the counseling/supports for families after they lose their homes? (Not every one lost it because they overextended their credit or obtained a stupid loan). High density foreclosure areas often have higher levels of crime and unoccupied buildings can serve as safe havens for illegal activities and contribute to neighborhood/price decline. Yet with our economy struggling social service agencies and police departments who need extra help to cope are finding their budgets cut instead.

The real irony here is this does not even look at the impact it has on banks, investors, and neighborhoods as a whole. The cost is truly staggering.

The foreclosure is a hard pill to swallow, but its the after taste that has me worried.

So where do we go from here? Like it or not, keeping families in their home is usually the best option. That means we need loan servicers, and more importantly the investors they represent, to be willing to work with borrowers who can reasonably afford to pay for their homes. This may require some kind of loan modification to ensure the solution is a long term one.

Perhaps its time we supported building smaller homes? If the homes were smaller, and more affordable in the first place, would we still have this problem?

We need to look for supports to families who need assistance procuring safe affordable housing and dealing with stresses on the family stemming from the foreclosures. We need more money headed towards social services, not tax breaks for race track owners and rum exports from Puerto Rico. Perhaps the main thing that needs to be cut from government spending is the paychecks and benefits of lawmakers who waste our time and money.

Too good to be true? The truth behind the housing tax "credit"

The Housing and Economic Recovery Act of 2008 announced a new tax "credit" allowing qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009 to claim up to $7,500 on their taxes. The credit is a dollar for dollar reduction for taxes paid (rather than a deduction from your taxable income) but the term credit may be a bit deceptive.

You see, unlike any other tax "credit" that I can think of, this one has to be repaid. The credit truly acts like a zero interest loan that is repaid over the next 15 years, or when the house is sold if there is sufficient gains. So if a family claimed (ie borrowed) $7,500 they would repay that by owing an additional $500 on their taxes each year for the next 15 years.


An interest free loan is a good thing though, right? It can be, if used constructively. My beef lies in calling it a tax "credit". You don't have to repay your earned income tax credit, or child and dependent care tax credit. In fact, I can't seem to find a single "credit" that you have to repay.....except this one, which makes the name all the more galling. It seems that it sets the stage for an expectation, free money because it is a tax credit, when in fact it is nothing of the sort.

Won't borrowers take the time to learn the rules and read the fine print so they won't be surprised when they owe $500 more on their 2010 taxes? If we have learned anything from the market meltdown we shouldn't even have to ask this question. So lets look at the possibilities of how this "credit" could impact families now.

Lets start with the good. We will assume a family actually owes $7,500 in taxes and will therefore be able to claim the whole credit. In our current economy this could be a fantastic boon for a household in distress. If they are struggling to make ends meet they could use this to make up the difference rather than turning to a high interest credit card or insane interest payday loan. They could use it to pay down existing debts and bills, leveraging the no interest loan in a smart way to wipe out high interest payments and freeing up cash reserves. It could even act as emergency savings for the family, they could sock it away for a rainy day to help cover medical expenses or vehicular distress. This is a great tool for families.

If they spend it that way. Remember, part of the reason the government is providing the money in the first place is to stimulate the economy. They want them to spend it. If they spend it to make ends meet, the family is helped, and the government gets what they want. If it is used to pay down debt, it has little impact on the economy (unless it frees up money for the family to spend in the future by reducing payments). It could however be used for our favorite past time, increased consumption. Increased consumption implies we are spending more than what is required to meet our needs, and all too often in a world of instant gratification this is the way of most financial windfalls. Many households have developed the habit of spending the tax return frivolously, why should we expect them to approach this larger windfall any differently? If the money is spent on increased consumption then the family has not "gained" anything, they are simply spending today what they could have spent tomorrow...for the next 15 years.

Regardless what the initial $7,500 is spent on, lets look at the other end. For the next 15 years the family will owe $500 more on their taxes. Will families even remember to take this into account in 2010? What impact will this have on our spending for the next 15 years in and around tax time?

What about the other option? What if I sell my home and the government wants their money back? Profit from the sale is subject to recapture up to the amount claimed. My concern here is the fact that many homeowners put little to nothing down in the first place, and as such when they go to sell one or two years later, especially with the current home appreciation rates ;) there may not be much, if any, profit from the sale. When you pay off the $7,500 on top of that (or whatever is left over based on how long you have been shelling out $500 a year for)....I suspect many homeowners will have little to nothing to show for their time in the home unless they stay for five years or more. This means no down payment for the next home, meaning if they want to keep being a home owner they will have to look at another low to no down payment loan....haven't we been down this road once before? Or they could go back to the renting. Either way the family has made no progress.

It all comes back to how it is sold. The US government gets grumpy with businesses for false or deceptive advertising. How is this any different? It could have been called many things, a tax refund advance (implying a loss of future refunds) or most appropriately, a no interest first time home buyer loan. What it never should have been called, is a credit. They are not freebie bailout bucks. Do you think the Better Business Bureau accepts complaints against the US government? No matter what we say on the side of the package, its the contents that matter most.

The most confusing part of all? The proposed new housing tax credit doesn't look like it will have to be repaid at all. But we will call both of them credits, just to make things clear ;) .

Riding the waves till they break

As mentioned in my last post the Washington Post presented an excellent article highlighting some of the difficulties faced by families in the current market.

The article shares the story of Robin Bohnen, who purchased a 1.16 million dollar home in Riverside County, CA. The home came with a $6,400 monthly payment (thats right, she was paying $76,800 annually!), and Robin's income came primarily from her furniture store which rode the boom selling to new homeowners. With climbing equity in her home and great sales what could go wrong?

Now her sales have dried up and her family can no longer afford to make payments on the home. She can't sell it either though, since falling prices mean the mortgage loan is higher than the value of the home. When the wave broke on the housing market Robin and her family found themselves first swamped, and now thoroughly under water.

The article noted that one family in five is now upside down on their loan. Considering that our home ownership rate is in the high 60's percentage wise, that is a great many families who may have to find other accommodations.

It is important to point out that she was not a subprime borrower, but she certainly should never have obtained the loan she did. Robin and her husband opted for an interest only loan for the first five years and used a Stated Income (meaning they did not have to prove what they actually made) loan (known as as Alt A mortgage). While they had a hefty down payment (more than 200K, money pulled from their first home that never sold and is now also in foreclosure) with the loss of Robins furniture income and fewer sales commissions from her husbands job the payment became unaffordable. Now that the property has lost value as well, they cant sell it without taking 200K in losses.

In the meantime they have maxed out their credit cards trying to make ends meet and in Robin's county unemployment has soared to 10%, hampering her ability to obtain employment that will save her home.

The article pointed out that beginning in last October more prime loans were in default then subprime.

This doesn't mean that the prime loans were good, many families acquired regular loans that were unsustainable, but many of the loans we will see in default over the next year and a half will be Alt A, Interest only, and prime ARMs. The Washington Post was quick to point out that many of the loans issued were only appropriate for high asset high credit borrowers and were instead issued to mediocre credit asset poor borrowers in an effort to keep sales high. Robin and her husband acquired an

The article gave a couple more great examples of other families who got in over their heads and indicated that some opt for keeping their car over their home, thinking they can take a ding on their credit and buy again a few years later.

What do we do about it? Is if fair to force mortgage companies to refinance existing loans for the current value of the home (forcing them to take a huge loss)? Forget about fair, do we really think the banks can afford to do that?

Is it the governments responsibility to tell families what they can and cannot afford?

Take a look at the last couple of paragraphs in the article that share an exchange of views between Robin and Shane (her husband). What kind of impact are we seeing on the family? Should the government be looking into an increase in funding to family counseling agencies/providers or do you think these problems will go away when the hard times are over?

How do we help those who may have lost their home, maxed all of their lines of credit, lost their job (or have truncated employment), and now can't even afford a deposit on an apartment?

Give that home a snorkel.

I want to play a little game called spot the swimmers. Take a gander at this. Look at the average listing price, then look at the average home sales price. Some of the states really shine..... do you see it yet? Look at Wyoming, for example.

Avg List price: $610,035 Avg Sales Price $130,702

So, the average listing price is 4.67 times higher than the average sales price?!

Utah: Average List $486,538 Average Sale $129,000 3.77 times.

Idaho: Average List $357,490 Average Sale $85,000 4.2 times.

Anyone see a pattern?

Why is the average list price so high when the average sale price is so low?
What does this tell us about the type of homes that are having "problems" right now?

Well, there are a couple of possibilities here, so lets toss some around. Perhaps there are more homes for sale in big cities that had higher prices and are experiencing the largest decline in home values. With a few exceptions this seems to hold true.

There is another possibility here: that there is a higher concentration of expensive homes on the market across the state. I used a fairly crude method to test this. I jumped back to the trulia.com website and pulled up the data on Cache county , and compared this to the data on population pulled from this site on area codes and inputting those at the and the census bureau fact finder.

Then I put the numbers in a little chart so I could see the population of each zip code (this information is dated, last census was 9 years ago but no other data by zip code is available)compared to the average list price and number of homes that are on the market. One quick thing I want to point out, the LOWER the per person number, the more homes are being sold in the area per person.

The zip code with the most homes for sale per person is 84325 with just over 1 home being sold for every 32 people compared to the overall average of one home per every 103 people in the zip code! It also has the third highest average sales price. The two zip codes with the highest average sales prices are just above and below the average per capita. The next 3 are all well below average (meaning more homes on the market than you would expect for their population). This is interesting to me, since it seems to imply that the wealthiest families (those in the 2 zip codes with the highest average home price)seem to have an average number of homes for sale. Just below that, in what could be termed wannabe wealthy zip codes we have a disproportionate number of homes for sale (especially in that number three slot). I have to wonder if this might hint at a group of people who got in over their heads. People who perhaps wanted to appear well to do, and are now reaping the consequences.

One thing is for sure, being upside down or "underwater" on their loans is something we are sure to see more of. The washington post indicated that 1 in every 5 homeowners now owes more on their loan than the home is actually worth . I plan on taking a closer look at that article more indepth on my next post. In the mean time I plan on waiting a month and then doing this little exercise again to see how home sales are doing for each zip code. (Note, this does not include homes that are for sale by owner, or by a builder who has not posted them on the MLS.)

While we wait, maybe we should invest in some fins and a snorkel?

Home sweet home

It used to be that the American Dream meant being able to come to America, from anywhere, and through hard work achieve your dream, what ever that may be. You could work as whatever, believe whatever, and achieve whatever. Somehow, part of that dream has been redefined to include the house and picket fence.

What does it mean for homeowners now? How have families used their homes (besides for shelter) during the time that lead up to the current crisis? Demos has provided some insight on what is happening with homeowners and why we should be concerned in:

A House of Cards: Refinancing the American Dream. Borrowing to Make Ends Meet

I want to look at a couple of the highlights and share why I think there may be some concerns.

From 1973 to 2004 homeowner equity fell from 68.3% to 55%. The number of people in homes was up, but they owned less as a whole. The real scary thing is the market had not bottomed out yet. Where is our equity at now?

Where did the equity go when times were good? From 2001 to 2005 alone households cashed out $715 billion dollars in home equity. 51% of who pulled money used some/all of it to pay for other debts, and 25% used it to pay for consumer purchases.

So what? People pulled money out of their homes to pay off credit card debt or buy a car. Thats a good thing, right? They pay less in interest on a home equity loan than they would with a credit card or car loan, so what is the big deal?

Well, its not just falling equity.....from 1998 to 2004 the average credit card debt held by households increased from $2,768 to $5,129. Our savings rate decreased, to near nothing, and is at the lowest it has been since the great depression.

Surely these numbers reflect young people who bought into home when they couldn't really afford it and had to put money on a credit card to make ends meet. But the older generation, those getting ready to retire or already retired, they are not in the same boat. Right? Well, on average people over 65 only have $4,906 in credit card debt, a bit below our overall average noted above. The real concern? While the overall average increased roughly 85%, the average for elderly increased 194% over the same time frame.

Dropping property values may be a boon to elderly trying to pay rising taxes, but it certainly does them no favors if they were hoping to use a reverse mortgage to make ends meet. Higher health care costs, more debt (as evidenced by rising credit balances), and likely depleted retirement funds from the tanking market may be placing our elderly at greater risks to make ends meet.

The elderly to be are at risk as well. Baby boomers lead the pack in refinancing their homes and undercutting their equity. As they near retirement not only will they face high health care costs and depleted retirement accounts, they will probably still have a house payment. If they truly retire, and their income goes down accordingly, how exactly do they plan to make ends meet?

While the government discusses bailing companies out and dithers over what to do with homes in foreclosure there is little discussion over the only slightly more distant future. Give the economy a couple of years to recover (and time for Alt A, interest only, and ARM loans to default) and they seem to think we will see the silver lining on the clouds. Maybe. If we don't prepare households to utilize their homes wisely and manage their debt payments we may find storm still going strong.

Demos isn't quiet about what they think should be done. I am not saying I completely agree with all of their suggestions, but here is the gist:

Enact a Borrower’s Security Act: limiting interest rates and fees on credit cards. (Still very relevant, could have a big impact on struggling families)

Maintain Existing Bankruptcy Laws: They were up for review. The new legislation is a bit tighter, and better (in my opinion). Demos would have liked to have seen it remain the same.

Address Real Estate Practices: Fight appraisal fraud (Better late than never, though two years ago would have been a good start)

It will be interesting to see what the new administration does. Hopefully Obama will at least consider some of these issues. Whether we help families now, or let them default/declare bankruptcy later, one thing is for sure: taxpayers will continue to foot the bill. Stronger polices for families in financial distress may be the order of the day.