The real estate blog.

Yesterday I talked about the difficulty loan limit increases in the stimulus package would have in keeping mortgage rates low. Today I’d like to talk about the heart of the package; the checks.

From all the talk from the media, it sounded like we would be getting free money. We all know there’s no such thing as free money. I figured the money for the checks in the $170 billion package would come from higher taxes at a future date or from cutting spending somewhere else.

When Congress passed the package last Friday, the real details of the plan came out. These checks are the government wasting resources by cutting a check and handing us a cash advance of our own money…from next year’s returns.

I never had much faith in the “rebates” as I never got my $300 in 2001. But this year’s rebate is a big, steaming pile of Mr. Hankey. CNN reported Friday -
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With the problems across the country in subprime lending that have spread to conforming lending, it’s no wonder FHA loans have become more and more appealing. Trouble is, few people are taking advantage of the programs being offered, including FHA Secure that allows homeowners who are behind on payments due to ARM resets to refinance.

Last week FHA started sending out letters to hundreds of thousands of American homeowners letting them know about the available programs.

Letters are being sent to homeowners who have already faced or are experiencing the first reset of their adjustable rate mortgages, Jackson said, and live within geographic locations that are currently subject to FHA loan limits nationwide.

FHA loan limits are expected to increase when President Bush signs the stimulus package into law tomorrow.
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It’s wait and see time for both the American economy and the housing market. Today President Bush signed the stimulus package into law though many of the big provisions concerning housing won’t take place until the summer.

Yesterday it was announced the nation’s largest loan servicers were freezing foreclosures for 30 days so possible workouts could take place. This includes shifting both interest rates and loan balances lower. What’s new about this shift in attitude is the policy is not just for subprime loans. All delinquent borrowers can be helped.

The Fed has already lowered rates significantly and FHASecure is available to help troubled subprime borrowers. What can be done has been done. Now we wait and see.

Struggling and even not so struggling homeowners
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Yesterday we were talking about the potential effects of the stimulus package and the other measures taken by the Fed and lenders to ease the housing crisis. Today let’s talk about how this could affect Utah’s real estate market and how you can position yourself to take advantage.

First of all, Utah’s real estate market has slowed down quite a bit, but prices are remaining high. Certain areas like Northern Utah County have a glut of new homes on the market and prices have come down there, but overall owners selling houses are resistant to lowering prices.

KSL reported Monday - Market analysts say home prices are still high, and few people are buying.

Bingham says fewer than 3,000 homes went on sale in December of 2006, and more than 1,200 sold. Compare that to December of 2007, where nearly 7,000 homes went on the market, and less than 800 sold.
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One of the unknowns about the stimulus package is whether the newly raised conforming loan limit would have the desired effect of allowing homeowners in higher cost real estate markets to refinance or purchase using lower priced conforming interest rates.

We got the answer today; NO! Well, it’s part of the answer anyway.

The Securities Industry and Financial Markets Association, a banking industry group, said those larger loans above the former limit of $417,000 will not be allowed on a widely used trading market, known as the “To Be Announced” market, which permits investors to buy and sell mortgage-backed securities before the loan pools are put together.

You may recall the implications and explanations of this were discussed previously. Essentially the SIFMA
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A common question I see on message boards and blogs concerns saving versus paying off debt. This is of particular importance when the savings is being used as a down payment on a home purchase.

With low returns on savings and high borrowing costs it would seem on its face to be an easy question to answer - pay off the debt. But with uncertain economic times, it feels safer and therefore smarter to keep a stockpile of cash.

Let’s take a look at it from a mortgage perspective. I put together the following scenario that really hammers home the importance of debt reduction in comparison to down payments. The loan scenario is an FHA loan purchase with 3% down. The borrowers have a lot of consumer debt together and have enough extra money to pay off a car costing them $300 per month.
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A new “bailout” plan was proposed for the subprime crisis today by Senator Chris Dodd. Unlike the “stimulus” package, the new plan really is a bailout.

Senator Chris Dodd, the committee chair, said he is working to create a Home Ownership Preservation Corporation, which would purchase mortgage securities that are backed by at-risk, subprime loans from lenders and investors.

This corporation would give these lenders and investors a better price for the securities than they would get if the properties backing them were put through foreclosure.

Additionally the loans on these properties would be restructured so that borrowers could afford the new payments and remain in their homes.At first glance, I thought this plan was too much of a bailout. In combination with the stimulus package, it would be wasteful.
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See the guy in this photo? Don’t do business with him under any circumstances! This is Bradley Kitchen, alleged mastermind behind the Provo Riverbottoms mortgage fraud scam.

What is he doing while waiting for his March court appearance? Trying to scam more money.

I just received a phone call from a source close to Kitchen saying he is still using real estate to scam people. The source claimed his investment group just foreclosed on a property Kitchen owned and held title to. The day after the foreclosure, Kitchen tried to persuade the investor group to turn title over to his 80 year old father-in-law and another person so they could take out a reverse mortgage to repay the loan. Of course, the investor group’s financial interest would have to be placed in second position…
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To truly gain a perspective of what it’s like out in the marketplace, besides making my own observations, I like to read a lot of what other people write.

Over the years, one of my favorite economic writers has to be Jim Jubak. He’s one of those people who is very realistic, yet still maintains an optimistic spirit. He cautiously explains activities while other writers call for doom and gloom.

So I was a bit troubled with his latest article suggesting the U.S. economy could very well turn out like 90’s Japan’s which took a decade to even begin showing signs of recovery. This has been an argument the housing bears have presented over and over again.

Japan’s problems Jubak explains began -

Japan’s crisis, like the recent one
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Listen to the people in this video that appeared on 60 Minutes last week and you’ll hear some of the rationale behind the unbelievable behavior that’s attracting mainstream media attention. Homeowners are walking away from loans they can pay so they don’t lose any more money. Some are taking everything inside the house with them including copper pipes, plumbing, wiring, appliances, sinks…everything. An empty, worthless shell is what the lender gets to foreclose on.

At the other end of this reckless behavior are homeowners literally burning down their homes. MSN reports -

In Woodland Park, Colo., a homeowner was accused of burning his home
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