Check Out our First Video Blog & Special Guest Speaker

http://www.youtube.com/watch?v=j9roOe-XhY8

If a home loses value and is in fact owned by the bank (as are all homes with an outstanding mortgage loan so let’s just call the borrowers “home-occupiers”) shouldn’t the bank also share in the loss? It certainly seems so to me. Otherwise, what you have is a sharing between bank and home-occupier when the going is good and the home-occupier is left alone when the going gets tough. What I mean is since the banks were gauging their profits from mortgage loans on a “bubble” shouldn’t they now adjust to the reality? In other words, adjust the value of the homes to what today’s market dictates is their value. The plans of loan modifications that you’ll be hearing a lot about simply won’t work in many cases for many reasons. One reason is that some homes have plummeted 50% or more in value. They are likely to never again see the value they paid. Why would the home-occupier throw good money after bad? Example - a person buys a home for $400,000 in some area that has no intrinsic value (Las Vegas, outside Phoenix, etc) and it is now worth $190,000. The chances are great that the home will never see a value of $400,000 again. Why would a person pay for a $400,000 home when the most it might ever be worth is $300,000? It makes no sense at all. Not only do we have to find ways to keep people in their homes but we need to find ways that make people WANT to remain. It’s obvious that any attempts to stem the tide of foreclosures are not working. Now the idea of reducing the loan amount may sound extreme but it is, in fact, happening right now. Follow this: a borrower lives in a $500,000 house and owes $450,000. The person defaults and the bank forecloses on the property. The bank spends $10 -$20,000 or more on the foreclosure process and in making repairs necessary to put the house on the market. The property is worth $400,000 in today’s market and the bank prices it that way. The home sells for $390,000, netting the bank approximately $350,000 after a lot of work and grief. (Sales price $390,000 less 5% commission of $19,500 less the $20,000 cost of foreclosure.) What sense is this making? Wouldn’t it make sense to cut to the chase and reduce the value to $390,000 for the current borrower and let them stay in the property?

The magnitude of the crisis continues to grow and the scattershot approach by the government, truly in a crisis mode, needs to be reigned in because it seems only to exacerbate the problems. Banks need to get a clue, stop hurting themselves and all those they foreclose on and deal with the problem in a new, creative, constructive way. Let’s hope at some point in the near future they see the light.

Today Ben Bernanke tossed ideas for how to fix the housing and mortgage markets to the senate once again. Several ideas put forth have some merit because they are focused on helping homeowners stay in their homes, avoiding foreclosure. Below is a breakdown of the main ideas:

• The government could change the current FHA Hope Now program (which to date has been a complete failure) to lower the interest rates, up front mortgage insurance (MI) premiums, and ongoing MI premiums. Currently interest rates for these loans are high… pushing the combined rates to 8%, an unaffordable level for most homeowners.

• The government could buy delinquent and “at risk” mortgages and us government funds to subsidize the rates, effectively lowering the final rates for homeowners to 4.5% or so on a 30 year fixed rate mortgage.

• Costs for modifying loans could be shared, providing an incentive for servicers to streamline the modification process (like Indy Mac). The proposed amount is $1000 from the government to the servicer for each loan modified.

The Treasury is already buying MBS from Freddie and Fannie,
but may increase these purchases to push rates lower. The Fed already announced last week that it will loan $600 billion to Fannie and Freddie. While all of these measures could help, the bottom line is that data suggests that when home equity evaporates foreclosures increase… and right now foreclosure rates are pushing 20%. Unless government sponsored modifications also write down mortgage balances, no one can qualify for these loans anyway. This is one reason the current FHA programs are a failure.

Meanwhile, the big three auto makers are again addressing
congress and begging for $35 billion in loans. I have a better idea for how to save the economy! Since the US Census Bureau cites the number of US citizens, over the age of 18, as 227,719,424 in 2007… why not simply take some of the 200 billion or so not yet handed as gifts to lenders by Paulson and simply divide it up and send each citizen a check for $100,000 or so? THAT’S what I call STIMULUS! Seems like that would solve a lot of problems. Anyone want to start a petition on this one?

The suspicion of conspiracy, at whatever level, is starting to make the rounds. Many people are convinced that the recent bailouts and other highly irregular government interventions are in fact grand larceny by our largest corporations with the blessing of the American government. Although that might sound cynical at first it starts to sound more plausible the more you hear of the ignored warnings, the rushed-through bailouts, the built-in lack of accountability for the massive amounts of money involved and the record-setting corporate profits and CEO compensations made at the very same time their business practices were tanking our economy.“  If you just step back and look at the facts it can look pretty scary and not just financially.I’ve been baffled since talk of the $700 billion bailout started. I know I’m just a real estate broker with no economic expertise, but wouldn’t it have made more sense to have the world’s best economists study the situation and propose a solution based on their expertise rather than leaving the solutions to politicians? If you recall we were threatened with economic collapse if the bailout wasn’t approved immediately - no time to think about it! Well, it was passed and as we all know it made no difference to the collapse of our economy. That’s correct, our economy collapsed. There is no other way to look at it. We are now trying to revive or re-construct it. It is now obvious that the band-aids being applied are not working on the gaping wound we’ve created.

Thank goodness we’re starting to hear the right discussions about stemming the tide of foreclosures. “ Let’s hope with the focus of the incoming administration we’ll see some serious programs directed at the homeowners and not the corporations as it has been during this housing crisis.

CitiBank is being saved by a $300+ billion infusion of cash, and this bolstered investor confidence Monday, causing shares to move higher across financials and other industry sectors. More than $300 billion of CitiBank’s toxic debt will be backstopped by government guarantees against loss. Another $20 billion will also be given to the struggling bank, adding to the $25 billion they’ve already received. Will this translate to more available credit to homeowners? After last week’s Senate hearings during which Henry Paulson and Ben Bernanke were grilled over use of bailout funds thus far, we hope that CitiBank will break the pattern and use the money appropriately to help homeowners stay in their homes and avoid foreclosure.

Fannie Mae and Freddie Mac announced a freeze on foreclosures through January 9th, 2009. While we applaud this move, it simply pushed off the inevitable for too many families. But since Obama has indicated that he may place a freeze on foreclosures once he takes office, it may be only a matter of weeks in January before Fannie and Freddie’s freeze is extended, possibly into the spring. This makes sense if lenders will also be pressured to modify mortgages, waive pre-payment penalties, and restructure missed payments to keep people in their homes affordably once the freeze has ended.

Existing home sales in California last month moved higher from September sales numbers. Although San Francisco and western Bay Area counties continued to fare better than areas inland and other parts of the US, prices are still in decline. This is understandable and will continue until mortgage lending is freed up once again and foreclosures reduced. But the 4.9% increase from September ‘08, and 63.7% increase in California sales volume from October 2007, are good signs signalling strong foreclosure property sales. This is an important trend to watch. Once inventory numbers shrink to lower levels prices will likely stabilize and then (finally!) rise again.

What’s in store for you? Obama is speaking as I write this, announcing his selections for Treasury Secretary and other important members of his economic team. Obama doesn’t minimize the seriousness of our economic issues… but his selections for these positions clearly emphasizes his intent to place middle class concerns front and center in his policies. Given his plans to convert our economy to one that is growing and healthy again the future may be brighter than it looks right now… something we can all be thankful for.