If we are to believe the “experts,” the economic condition we find ourselves in is a direct result of housing prices and foreclosures. The entire global recession is being blamed on housing, foreclosures and financial woes stemming from loans gone bad. These facts are why the “experts” are proclaiming that since housing led us into this mess, housing must lead us out of it. Sounds nice, but it obviously isn’t that easy. There’s a massive pork ladened bill of “change” being forced down senate Republicans throats right now, and you’ll see an antsy “I won darn it” Obama on national television tonight telling us we’re all going to die unless this pork is passed.

President Obama and everyone else is losing sight of what they’ve already told us the problem is. The problem is with housing. We don’t need to build roads, and re-sod National Mall ($21MM), we need to stem the tide of foreclosures, more specifically, we need to get the foreclosed property, REO property, off the open market so prices will stabilize. What “stable pricing” actually means is up to the market to determine. In a national market where we’re probably going to sell 4.5MM residential housing units this year, we have as many as 2.5MM homes in some sort of foreclosure process. That means a glut of inventory of the REO type, and that means lagging prices for all until that inventory is cleared from the open market. The problem isn’t a lack of stimulus from Washington, it’s the REO properties themselves. In order to help fix the economy, the foreclosures need to be front and center in the process. How to do it? How sweet of you to ask…

We’ve already tried loan modification for consumers who are facing foreclosure. I never liked that option, and now that loan modification has proven completely futile in preventing foreclosures, let’s just get past that as being a viable option. Studies have shown that consumers who have received loan modification intervention are just as likely to default on the newly modified loan. Remember, folks are getting foreclosed on for two primary reasons. Either they lost their job, in which case, buying them 60 days or reducing their rate by a percent isn’t going to make an ounce of difference, or they’ve just made the sometimes wise financial decision to let the bank take their equity-less home. So once we get past loan modification as a means of stemming the foreclosure tide, let’s get straight to the foreclosed homes that now flood our markets with REO property and drive prices downward as banks cut bait and run.

First, you have to understand the REO process, and the condition of most REO homes. The process is daunting, consumer unkind, and filled with procedural folly. The homes are generally run down, stripped of appliances, curtains, copper piping (that’s a joke usually) and in general disrepair. Many were winterized improperly by the banks who own them, and there are plumbing issues just waiting to be discovered. In short, these homes require capital to purchase them. To say nothing of tightened lending standards, these homes will require money to fix them up once a sale is complete. This is the situation, yet as a nation we’re looking to the first time home buyer to bail us out of this REO mess? Not a chance. First time home buyers generally lack the capital and desire needed to fix up the property, and are many times scared off by the process of an REO purchase. The answer isn’t in the first time home buyer, as the NAR and Washington would like us to believe, which is why they offered that $7500 first time home buyer credit (loan) last year, the answer lies with the real estate investor.

Every market, no matter how small, has a handful of serious real estate investors. Guys and gals, and small investment groups who own rental properties, who buy and sell for a living or for fun, in general, just regular people who just like playing with real estate and making money in the process. These people have the capital required to pull off an REO purchase and repair, and they have the knowledge to see how the investment can pay off. These are also the buyers that are for the most part sitting on the sidelines waiting for prices to become even more attractive. These are the buyers that can absorb much of the REO inventory in this country should they so desire. These buyers are the answer to our REO crisis. Yet the NAR and Washington don’t realize it. They’re throwing money at first time home buyers, trying to throw money at road projects and billions in bank bailouts, but they’re not offering incentives to the actual demographic that is willing to get their hands dirty and bail us out of this mess.

Here’s the Dave Curry proposal to fix this mess. Stop modifying loans for consumers. If they want to get foreclosed on, let the process begin, and let’s hurry it up so we don’t string this recovery out any longer than necessary. My apologies to those who have lost their jobs, but please remember, I’m a Realtor, which means I basically lost my income last year but continue to work for free, so I can understand your plight. Force the banks that have been receiving TARP funds to lend 75% of the money they’re receiving. Loans are readily available, but anyone who tells you they’re just as easy to get as they used to be needs to go out and get a loan themselves right now so they shut up and realize the lending world has changed- for the worse. Then the piece de la resistance, tax credits and capital gains tax abolition. Investors who are purchasing these homes need motivation to do so, and the motivation is easily accomplished with a two step plan.

First, offer a $15,000 federal income tax credit to any buyer who purchases an REO or short sale property, or a property at sheriff’s sale. Make the $15,000 good for the tax year that they purchased the home in, and apply it as you would a child tax credit, just take the amount off the tax payers bottom line. That provides an immediate, significant piece of motivation that is realized during the year of the purchase. Next, make the gain from the sale of such a purchase capital gains tax free for a period of 5 years from the date of purchase.

That would apply to short term and long term capital gains, as well as re-sales completed in less than 12 months when the gain would be taxed as ordinary income. Take the capital gain problem one step further, and reduce the overall capital gains tax rate from 15% to 10%. That would give the residential and commercial markets a shot in the arm. The incentive here is obvious, let’s just let these people buy and sell these homes, or rent them for a number of years and then sell them when the market improves, and let’s let them keep 100% of their profits. After all, they’re bailing us out of this mess, so let’s throw them a monetary bone. This sort of actual market stimulus wouldn’t require capital expenditures by the federal government, it would just result in less tax revenue, which means… gasp… they’d have to spend less money, which I believe is called conservatism. Of course the federal government doesn’t work well on reduced revenue, which is why they’d rather pump up a bloated pork packed “stimulus” bill wherein they can pay back all of the unions and industries that helped them get elected.

If we could piece together these two bits of legislation, we could see a dramatic increase in REO sales which would benefit housing prices, the overall economy, and in turn the financial markets. If a buyer buys an REO home for $100k, he is giving business to his lender, insurance agent, utility companies, Realtor, and title company immediately. If he then spends $15k on improvements, he’s putting tradesmen back to work, buying materials, and stimulating the local economy. If he sells that home for $160k, he’s paying a Realtor, a title company, the State, and hopefully, just hopefully, making $30k or so of 100% profit which he’ll in turn spend on the tires that his truck as been needing. See how this works? It’s called capitalism, and perhaps the federal government and President Obama ought to give it a try.

D. Curry

McLEAN, VA — Freddie Mac (NYSE:FRE) today released the results of its Primary Mortgage Market Survey (PMMS) in which the 30-year fixed-rate mortgage (FRM) averaged 4.85 percent with an average 0.7 point for the week ending March 26, 2009, down from last week when it averaged 4.98 percent. Last year at this time, the 30-year FRM averaged 5.85 percent. The 30-year FRM has not been lower in the life of Freddie Mac’s weekly survey, which dates back to 1971 for the 30-year FRM.

The 15-year FRM this week averaged 4.58 percent with an average 0.7 point, down from last week when it averaged 4.61 percent. A year ago at this time, the 15-year FRM averaged 5.34 percent. The 15-year FRM has never been lower in the life of Freddie Mac’s weekly survey, which dates back to 1991 for the 15-year FRM.

Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 4.96 percent this week, with an average 0.7 point, down from last week when it averaged 4.98 percent. A year ago, the 5-year ARM averaged 5.67 percent. The 5-year ARM has never been lower in the life of Freddie Mac’s weekly survey, which dates back to 2005 for the 5-year ARM.

One-year Treasury-indexed ARMs averaged 4.85 percent this week with an average 0.6 point, down from last week when it averaged 4.91 percent. At this time last year, the 1-year ARM averaged 5.24 percent.

“The Federal Reserve’s announcement that it intends to purchase Treasury securities over the next six months caused bond yields to drop and mortgage rates followed,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Rates for 30-Yr FRMs peaked last year at 6.63 percent on July 24th. With this week’s 30-Yr FRM, the interest rate difference is almost 2 percentage points, which amounts to a savings of about $225 in monthly mortgage payments for a $200,000 loan.”

“And potential homebuyers are taking notice of these historically low mortgage rates. Both new and existing home sales rose 5 percent in February. First-time homebuyers accounted for half of all existing home sales, according to the National Association of Realtors®. In addition, mortgage applications for home purchases consecutively rose over the first three weeks in March, based on figures published by the Mortgage Bankers Association.”

Dear Homeowner,

I was very sorry to hear about the possible foreclosure of your home. I’m sure this is a very unpleasant time for you.

I’m sure none of it is your fault. Your friends and neighbors were on their way to becoming millionaires, on paper at least, from owning real estate. You’d have to have been crazy not to take advantage of such an easy money making scheme. The friendly loan officer (that called you one night while you were eating dinner) said that real estate would NEVER go down in value! And banks really wanted to lend you the money. They visited the mortgage broker offices every week offering fabulous programs for their clients. And the fact that your job pays just a bit more than minimum wage was a simple obstacle to overcome. You just got a “stated” loan and stated that you had enough income to afford the house of your dreams. I understand, really I do.

Did you have to get that second cash-out refinance though? You’d already bought a new car, a motorcycle and furniture for the house. You’d already taken the family on an amazing vacation in Hawaii. Well okay, it was YOUR house and you had equity right? Or did you?

Do you remember when I came to appraise your home? Do you remember telling me that you wouldn’t pay for the appraisal unless my appraisal made your loan work? Did you know it’s illegal to pressure an appraiser like that? Do you recall telephoning my office and threatening to report me to the state appraisal board because my appraised value was “short”? That’s okay, your loan officer found a new, “good” appraiser, a new appraisal was done and you got your money. By the way, not that you’d care, but your loan officer never called me again because my appraisal almost killed his deal and I lost another source of work. This happened a lot during the real estate boom. My family’s cars are old, our furniture threadbare and there hasn’t been a vacation in a long time because I didn’t inflate appraisal values.

I’m not a whiner. I would have just faded into the woodwork on this topic but lately I’ve been hearing about how appraisers caused this mess and how homeowners should be helped to stay in their homes even if they can’t afford them. I’m hearing that my tax dollars and those of my children and grandchildren are going to be used to help people like you who lived way above their means and are now crying fowl. It hurts to think that after all the fun you had with the bank’s money and with no prospect of making good on the legal contract you signed to pay it back, that you can’t just take your lumps and rent for awhile. It would be the honorable thing to do.

I was just trying to protect you that day we met, from borrowing more money than your home was worth. I hope you can appreciate that now. For the future, may I make a couple of suggestions? You might want to take a look at your household income and figure out how much you can afford a month for housing. Most financial experts recommend putting no more than 1/3 of your income into housing costs (including utilities). This leaves money for other expenses and even savings. Savings are another important component of smart money management. Having an emergency fund decreases reliance on credit cards when the car needs new tires or other unexpected things come up. This is not a good time to run up your credit cards. I would also recommend reading over any document you sign. Just because some of the print is small doesn’t mean it doesn’t apply to you. And finally, with all due respect, could you stop blaming appraisers for your poor decisions? You’ll continue to have the same disastrous outcomes in your life until you come to terms with your past mistakes and learn from them.

Sincerely,

Your Former Appraiser

R. Bradley

Question: Can a homeowners association force unit owners to use its contractor to repair unit interior damage when the HOA is responsible for repairs? In this case, water seeped in due to failed waterproofing and damaged carpet, drywall, paint, baseboards and insulation. The HOA is paying a contractor to do both exterior and interior repairs but I do not want to use this contractor. I’7’ll accept the HOA’7’s cost estimate to do my interior repairs but want to get my own contractor.

Answer: The reason the HOA wants one contractor is it’7’s easier, faster and cheaper to use one contractor for all repairs. But unless interior repairs involve things like structural repairs (safety issue) or mold remediation (health issue) which can adversely impact neighboring units, individual unit owners have the right to take care of interior repairs using their own contractor.

Question: I am a real estate agent specializing in HOA property. In the past, I was used to seeing a charge for resale disclosure packages of around $100. Yet, recently I’7’ve seen charges up to $250. Isn’7’t there some sort of regulation that prohibits price gouging?

Answer: HOAs and their management companies are entitled to a reasonable charge for producing information related to HOA home and unit sales. This should not be a profit center for a self managed HOA although it is usually a profit center for an HOA management company. The board needs to make sure that charges are commensurate with the actual work required and not allow the management company to set any price it wants, especially if it could hamper sales.

That said, some states have more complex resale disclosure requirements than others so time requirements to fulfill them varies from state to state. Also, Fannie Mae and Freddie Mac (the two entities that underwrite the majority of condominium mortgage loans) enacted more stringent underwriting requirements in 2007 and 2008 which expand lender verifications of HOA reserve studies, renter occupancy, delinquency rates and insurance. This has placed additional burden and time on boards and managers to comply with resale disclosure so an increase from $100 to $250 may be entirely reasonable. You need to inquire on a case by case basis what the justification for the additional cost is.

Question: We bought a lot in an HOA and were given a copy of the recorded governing documents prior to closing. We read them carefully before we closed the sale. Several months later, we submitted house plans to the Architectural Review Committee (ARC) for approval and were informed that we could not build any structure within 30 feet of the back of our property line. This restriction was outlined in the ARC’7’s “0“Landscape Guidelines”1”, something we were not provided a copy of before closing. As it turns out, the standard rear setback is 15 feet but a 30 foot restriction applies to a few lots (including ours) to maintain a “0“view corridor”1”. Can the HOA really enforce this kind of selective setback restriction on us?

Answer: It depends. You apparently were aware that there were HOA architectural restrictions since you knew to submit plans to the ARC for approval. Did you not think to inquire about what those restrictions might be before closing? On the other hand, the seller most certainly knew about the special setback on this lot. If it was not disclosed, you have an issue with the seller. Finally, any setback or other restriction that applies to selected lots should be made part of those lots’7’ title record so prospective purchases can be made aware of it prior to closing.

You likely have a strong case in your favor to get the restriction overturned. However, you may be fighting your neighbors who will get their view blocked as well as the HOA to get it done. You should retain an attorney that specializes in HOA law to help you sort it out.

R. Thompson

Hiring an attorney to negotiate a loan modification can be an expensive proposition, possibly costing thousands of dollars. It isn’t something that many homeowners feel they can afford right now. When you take a closer look at the numbers, however, the cost of a loan modification compared to the cost of foreclosure is a pittance:

$151,000 estimated cost of a single foreclosure (Joint Economic Committee of Congress):

Homeowner: $7,000

Lender: $50,000

Local government: $19,000

Impact on neighboring home values: $75,000

Estimated total cost of one foreclosure: $151,000

$3.3 trillion total decline in property values in the U.S. in 2008 (Zillow)

1 in ever 6 homeowners owe more on their homes than their homes are worth (Zillow)

11.6 percent reduction in the median home price to $192,119 (Zillow)

1 out of every 200 homes will be foreclosed upon (Mortgage Bankers Association)

Every 3 months, 250,000 families enter into foreclosure (Mortgage Bankers Association)

1 child in every classroom in America is at risk of losing his or her home (NeighborWorks America estimate based on numbers from Mortgage Bankers Association)

43 percent of American households spend more than they earn each year (Homeownership Preservation Foundation poll of 60,000 homeowners)

52 percent of employees live paycheck to paycheck (The MetLife Study of Employee Benefit Trends)

Nearly 42 percent of all American households do not have enough in liquid financial assets to support themselves for at least three months, and 46 percent of American households have less than $5,000 in liquid assets, including IRAs (Asena Caner and Edward N. Wolff, “Asset Poverty in the United States: Its Persistence in an Expansionary Economy,” Levy Economics Institute of Bard College) Compare these numbers to the costs and benefits of obtaining a loan modification:

$4,000 or less is the cost of having an attorney who specializes in loan modification negotiate an affordable solution for catching up on missed payments and lowering the monthly payment

68 percent: the percentage of low- and moderate-income borrowers who are less likely to lose their homes when they enter a repayment plan (Dona Dezube, “Heroic Homeownership,” Mortgage Banking, (June 2006) page 82) Some may argue that we overlook the cost of a loan modification to the lender or investor who sees a loss in revenue as a result of lowering the homeowner’s monthly mortgage payment. This is true – no doubt about it, a single loan modification can cost a lender tens of thousands of dollars in lost revenue. A loan modification is not a profitable proposition for lenders – it’s a loss mitigation tool for paring down the lender’s potential losses.

If the lender does not agree to a loan modification and proceeds with foreclosure, there is no revenue to speak of, and the lender has to cover the cost of foreclosure (by some estimates $50,000 to $80,000 per foreclosure). This is the very reason that lenders are often willing to consider a loan modification – for cases in which the alternative would be worse (more costly). A loan modification allows the lender to transform a non-performing asset into a performing one and avoid the cost of foreclosure.

Homeowners also stand to benefit – by keeping their homes and paying less per month and over the life of the loan. Even if the homeowners were to pay $4,000 for a loan modification that lowered their house payment a modest $150 a month, the loan modification would pay for itself in a little over two years. Over the course of ten years, it would save them $14,000 over and above the cost of hiring a professional! Anyone with a calculator can plainly see that the potential savings from a loan modification are well worth the cost – for both lenders and homeowners.

R. Roberts

The advancement of technology is meant to ease the burden of everyday living by making things more efficient, accurate and less expensive but when it comes to determining the value of real estate, can technology really be better—or, take the place of a certified appraiser?

In a prepared statement by the Nation’s Professional Appraisal Organizations (the American Society of Appraisers; the Appraisal Institute; the American Society of Farm Managers and Rural Appraisers and the National Association of Independent Fee Appraisers– which represent 35,000 real property appraisers in the U.S.), contend that using only computer-generated Automated Valuation Models (AVM) to determine the value of homes can lead to trouble.

“Inadequate home valuation requirements leave taxpayers exposed to unnecessary losses and homeowners vulnerable to improper exclusion from Treasury’s loan modification plan,” the release states.

It further states, “Our organizations applaud the fact that the plan will allow millions of families to remain in their homes. However, we are deeply troubled that the Treasury Department’s $75 billion government-guaranteed modification program fails to protect taxpayers from avoidable losses when reworked loans default in the future, as some of them inevitably will; and fails to protect homeowners from mistakenly being declared ineligible for modification because they are told, erroneously, that the current market values of their homes do not meet plan underwriting criteria.”

According to the released statement, the reason some may not meet the underwriting criteria is because of the way the valuation of the homes is determined by the use of AVMs or Broker Price Opinions. “For reasons we find inexplicable, Treasury’s plan ignores this invaluable “safety and soundness” human resource and, instead, relies on computer-generated values and the opinions of real estate agents who are not subject to nationally accepted appraisal qualifications and standards to safeguard taxpayers and determine whether homeowners are or are not eligible to decrease their mortgage burden.”

To be most effective and accurate, Michael H. Evans of Evans Appraisal and also a member of the American Society of Appraisers says that certified and designated expert appraisers must be used. “It’s kind of a black box,” says Evans about the information that comes from AVMs. “Unless that valuation is done by an appraiser who understands the data and interprets it, we don’t know if it’s accurate or inaccurate,” says Evans.

The appraisal industry is making an effort to ensure that its voice is heard. Earlier this month industry members testified before congress about what it perceives to be structural weaknesses with regulations in the mortgage industry. Evans says, especially now, relying on AVMs is risky, “In a down market it’s really hard for the AVM to analyze listing data or understand that concessions were made on a particular sale and how much they were,” says Evans.

“An AVM can be an excellent tool in the hands of a professional, the problem is the people who are putting that data in are not appraisers, nor are they looking at the data and interpreting it and saying ‘Yes, that’s okay, that makes sense or no, I need to get something better than that,” he added.

Evans says using a certified and designated appraiser provides you with a report and someone who is responsible for the information in it. “The appraiser is tied by his appraisal to the transaction, pretty much, for the life of the loan. If we do something wrong you can come get us for the life of the loan—we’re tied to it,” says Evans.

But part of the attractiveness of AVMs is that they’re cheaper. A traditional appraisal costs approximately $250 – $300 to pay for several hours of evaluation done by a certified appraiser whereas an AVM can cut the cost to about $50 – $100 for a typical single-family home.

The National Association of Realtors supports the call to protect consumers and is recommending that lenders be required to inform borrowers about how their property value was determined as well as provide them with a copy of the appraisal for no additional cost. The National Association of Realtor, President Charles McMillan, had this to say to the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit, “Realtors believe that a strong and independent appraisal industry is vital to restoring faith in the mortgage origination process.”

P. Chongchua

If there was ever a time to strike a deal on home improvement, remodeling and alteration services for the home, this is it.

A semi-annual survey of 5,000 U.S. homeowners, the”Spring 2009 Remodeling Sentiment Report”, from Sunnyvale, CA-based RemodelOrMove.com, reveals four times as many homeowners answered “probably not” when asked if they will remodel this year, as compared to the 2007 survey.

In this most recent survey, 68 percent of participating homeowners reported that they probably would remodel this year, down from 84 percent in the fall 2008 report and 92 percent in 2007.

It’s the economy, stupid.

Previous Remodeling Sentiment Reports indicate three times more homeowners than two years ago say that the economy is affecting their remodeling plans greatly, and 82 percent report that the cost of the remodel is a major concern.

The report is inline with research from Harvard University’s Joint Center for Housing Studies, which says, in most parts of the country, home prices are falling, discouraging discretionary home improvement spending and diminishing the amount of equity owners have in their homes.

“Earlier this decade, the ability to borrow against equity created by rising home prices fueled remodeling activity, as well as broader consumer spending,” says Nicolas P. Retsinas, director of the Harvard Joint Center for Housing Studies.

“Now that prices have softened, owners cannot finance home improvement projects as easily. Even those with equity find credit harder to obtain due to tighter standards,” Retsinas added.

The good news is that homeowners who choose to remodel their homes could find this is a good time to get the work done.

With new home construction at low levels, more materials and labor are available for remodeling than several years ago, resulting in shorter project schedules and often lower project costs.

Planning now to get in a contractor’s pipeline of work orders for the spring could also give a homeowner a negotiating edge.

What’s more, in a market with declining home values, home improvements are a good way to protect the value of your home and position it as a good value when it’s time to sell.

The Sentiment Report also found homeowners are:

• Excited about remodeling – 52 percent

• Dreading remodeling – 12 percent

• Planning to hire a general contractor – 65 percent

Homeowners’ remodeling plans include:

• Kitchen remodel – 52 percent

• Bathroom addition – 55 percent

• Bathroom remodel – 45 percent

• Addition of one or more bedrooms or den – 35 percent

• Enlarge or add a garage – 19 percent

• Finish a basement – 13 percent

Harvard’s Joint Center also suggests the best home improvements can help save money and the planet because they are “green.”

If we are going to meet the nation’s energy goals, we have to continuously search for ways to improve the residential built environment. The report demonstrates that maximizing energy-efficiency in existing housing may be one of our greatest challenges, but also one of our greatest opportunities given that homes account for almost a quarter of energy consumption in our economy,” says Mohsen Mostafavi, dean of the Harvard Graduate School of Design, where attention to green design is a growing focus in the classrooms and studios.

“Consumer demand for sustainable design is on the rise,” Mostafavi added.

B. Perkins

Washington continues to wrestle with one of the thorniest issues of both the housing boom and the housing downturn: What’s a piece of real estate really worth, and who says so?

At a House financial services subcommittee hearing last week, appraisers complained that pervasive attempts to interfere with their work — by loan officers, Realtors, builders and others –distorted home valuations in some areas during the boom years.

They asked Congress to pass reform legislation that would create federal rules banning pressure on appraisers and increasing penalties on anyone who interferes in a property valuation.

But at the same hearing, the president of the National Association of Home Builders took appraisers to task for being a major part of current problems in pricing unsold inventories of houses.

Joe Robson said appraisers in 2008 and 2009 “have often used sales of homes in foreclosure or other distressed property sales as comparables for new homes without making the appropriate value adjustments.”

Failure to make those adjustments, he said, depresses the true value of newly constructed houses, worsens the downward spiral in new home sales, and unfairly devalues entire neighborhoods.

Meanwhile controversial new rules governing appraisals are scheduled to take effect May 1 for all loans originated for sale to Fannie Mae and Freddie Mac, unless a federal lawsuit filed in U.S. District Court in Washington blocks them.

The suit by the National Association of Mortgage Brokers challenges Fannie’s and Freddie’s “Home Valuation Code of Conduct” because it bans mortgage brokers from any involvement in the selection or hiring of appraisers.

The association, which represents 20,000 brokers around the country, wants the court to throw out the new code, charging that it would “directly reduce the ability of mortgage brokers to provide consumers with an efficient and cost-effective means of (shopping) for a mortgage.”

In a conversation with Realty Times, mortgage broker association president Marc Savitz said absent an injunction, after May 1 home buyers and refinancers may need to pay for appraisals from every mortgage company or bank they shop. Under current rules, by contrast, a broker can obtain one appraisal at the consumer’s expense and use it to shop multiple wholesale lenders for quotes.

The suit also asks the court to declare the entire process followed by Fannie and Freddie in devising the code illegal. Both companies and their federal regulator have declined to comment on the suit, but note that they routinely issue guidelines to lenders on all underwriting and appraisal procedures, and the code is no different.

K. Harney

Plenty of people are concerned about the cost of bailing out Main Street – the people who stand to lose their homes in the midst of the current financial crisis. Many feel that it’s not the job of the federal government to bail out homeowners who cannot afford their monthly mortgage payments. After all, those people took out risky loans. They are the ones who signed the loan documents. They are the irresponsible borrowers running this country into the ground.

For a moment, let’s ignore the question of who’s at fault. There’s plenty of blame to go around. For now, let’s consider what it costs when homeowners are allowed to lose their homes to foreclosure and who ends up with the bill.

According to a report by the Joint Economic Committee of Congress, the average foreclosure cost amount to about $151,000, with several parties picking up the tab:

Homeowner: $7,000

Lender: $50,000

Local government: $19,000

Impact on neighboring home values: $75,000

Estimated total cost of one foreclosure: $151,000

This doesn’t even account for other potential costs, including the cost of lost productivity, a reduction in a family’s purchase power, lost federal income taxes, and the emotional and psychological costs of losing a home and losing friends and neighbors.

Although neighboring home values usually take the biggest hit as a group, the lender stands to lose the most as an individual party. The Mortgage Bankers Association (MBA) released a policy report in May, 2008, in which it supports the fact that lenders are often the biggest losers in foreclosure: “While losses can vary widely, several independent studies find them to be generally quite significant: over $50,000 per foreclosed home or as much as 30 to 60 percent of the outstanding loan balance.”

Multiply these losses by the estimated 250,000 homeowners who are likely to lose their homes to foreclosure every three months, and we’re looking at over $120 billion in losses annually.

Now, bailing out Main Street doesn’t seem like such a costly proposition. In fact, not bailing out Main Street could be the most costly option of all.

R. Roberts

Small-scale real estate investors got a pleasant surprise last week when Fannie Mae and Freddie Mac said they’d refinance potentially thousands of mortgages on rental and second homes as part of the Obama administration’s massive housing relief effort.

The White House had announced last month that its refinancing effort would be for owner-occupied principal residences whose loans are either owned or have been guaranteed by Fannie or Freddie in mortgage-backed securities.

But when the two companies sent details of their upcoming programs to lenders last week, investor loans and mortgages on second homes WERE included among those eligible for refinancings.

A Freddie Mac spokesman, Brad German, explained that investors loans were included because refinancings can “help reduce renter evictions by putting landlords in a (more affordable) refi that improves their chance of success.”

That’s excellent news for some investors, but it won’t help out everybody.

Here’s a quick overview of who’s eligible and how to apply:

First, your investment property or second home loan must be owned or guaranteed by either Fannie or Freddie. Ask your loan servicer. Or you can go to websites set up by the companies to speed the process – Fannie Mae or FreddieMac.

If your mortgage is in some other institution’s portfolio … or in a private mortgage security, this program isn’t for you.

Next, make a rough estimate of your current loan to value ratio on the property. If your mortgage balance does not exceed your property value by more than five percent, you’re eligible.

Say you bought a rental duplex a few years back for $500,000 with a first mortgage of $400,000 at seven and a half percent that was acquired by Fannie Mae. You’d love to refinance that to today’s much lower rates in the fives or sixes to increase your cash flow.

Because of local property value declines, say your duplex is now worth about the amount of your loan balance. That precludes you from refinancing from most sources, but under Fannie’s special program, you’ll be eligible … PROVIDED your loan balance does not exceed the property value by five percent.

There’s another hoop to jump through: Your payment history on the mortgage needs to be just about flawless — no thirty day late payments during the past 12 months — or you won’t get a refi.

Two additional, positive details to be aware of: Your credit score WON’T be a problem because Fannie and Freddie have agreed to waive their usual minimums, and you WON’T have to pay for new mortgage insurance.

K. Harney