Friday, February 27, 2009

A Report From The Frontlines - Part 3

In the time it's taken me to post the complete "report from the frontlines" trilogy, President Obama has succeeded in getting Congress to approve a stimulus plan to keep us from entering a Mad Max future. Personally, I hate that this "bailout" is necessary, and there is a part of me that thinks "bring on Thunderdome Tina Turner" just on principle, as a severe act of fairness for those of us who did not live so beyond our means. But, I agree with President Obama (damn, that still feels so good to say) that extraordinary measures need to be taken to pull our economy out of the downward spiral that it's in - and, currently, the practical solutions me is winning the battle with righteous Thunderdome me.

So, here are some of my ideas on how we, and our government, should proceed...

1. As I mentioned in the last installment of this oh-so-compelling three part series, the banks need to immediately put a halt to the waves of short sales that are propelling the real estate markets downward. Homeowners need to have just two the mortgage or have your property foreclosed upon.

2. The federal government should force all banks to modify each and every homeowner's primary residence mortgage to 30-year fixed 4% rate product. This is the only fair solution that will stop the waves of distressed properties entering the market due to re-setting ridiculously adjustable interest rates, as well as provide a benefit to the majority of people who are continuing to fulfill their mortgage obligations. A 4% interest rate would also bring buyers back in to the market, helping to further stabilize prices and banking systems.

3. There needs to be regulatory legislation that requires a minimum percentage of down payment for any real estate purchase - possibly 10%, which would help prevent another housing bubble, and still keep home ownership within reach to a significant portion of the population.

4. Instead of pouring money into the sinking financial systems, we need to pour money into job creation through infrastructure investment. There is a lot of this idea in the stimulus plan, but I'd like to see it go further than it does. Americans need to see some real, tangible results from the biggest spending package that our nation's history. I'd like to see the billions of dollars invested in putting Americans to work building wind and solar farms, massive public transportation systems, and new schools. The factories of the Detroit automakers that don't survive because of decades of bad business decisions could be used to build a new America and a better world.

5. End marijuana prohibition now. Listen, I'm not a stoner. I don't like pot, and haven't smoked out in more than a decade. But, it's just absurd that tobacco and alcohol, both of which are extremely addictive, dangerous and harmful, are available at the grocery store, while we spend billions of dollars per year investigating, intercepting, arresting and housing people who buy and sell a prohibited plant. We would immediately save an estimated $7.7 billion in prohibition enforcement, and we would gain about $6.2 billion in annual tax revenue.

6. Bring the troops in Iraq home now. The War on Iraq was lost the day we realized that there were no weapons of mass destruction. We invaded on the premise that Saddam Hussein had terrible biological and chemical weapons pointed at the United States and our goal was to dismantle the weapons and the sinister government behind them. And, now, almost six years after the initial invasion, and the announcement that there actually were no WMDs, we're still there. We don't know why we're there. We don't have any goals, other than to bring democracy to the Iraqi people - who, for the most part, just want us to get the fuck out of their homeland. Let's bring home 100,000 of our young men and women who are currently patrolling the streets and deserts of Iraq. Let's get them back home and into the economy, and cut out nearly a billion dollars of spending per month.

7. In the near future, in order to stimulate a new economic model, I would support eliminating income taxes and the IRS, and switching to a consumption tax. Trust me, it kills me to agree with Mike Huckabee on anything. But, the truth is that our current system of taxing income has become so complicated that it's become more of an art than a science, and it seems like no one really knows how much income tax they're really supposed to pay. Tim Geithner, the person in charge of the economic rescue of our nation, couldn't even figure out how much he was supposed to pay! A broad sales tax of, let say 30%, would be fair in its even distribution, logical in its eas of implementation, and smart in its promotion of savings and less use of limited resources.

8. Universal health care. I can't imagine how anyone could possibly not support a national system of high standard health care available to all Americans. Medical bills are the number one cause of personal bankruptcy in the United States.

If I ruled the world, these would be some of my solutions to the mess that we're in. I think Obama's plan is a good one, and I'm hopeful that we are nearing the bottom of the spiral.

What are your thoughts?

Tuesday, February 17, 2009

A Report From The Frontlines - Part 2

The vast majority of homeowners, who are flooding the market with their short sale listings and sticking their lenders (most of which YOU now own) with hundred thousand dollar losses, could pay their mortgage if they felt they had to. But, because the Joneses down the street were able to get rid of their mortgage by short selling at a $75,000 loss to the bank , and they aren't facing any long-term consequences, well, now the Smiths want to do the same. And so do the Riveras and the Wongs and the McNeelys.

The safeguards that are in place to prevent "just anyone" from being approved by the bank for a short sale are failing miserably, and the result is that everyone thinks that they can just walk away from their mortgage obligation and just have a hit on their credit report for a couple of years. A candidate for a short sale is supposed to prove to the bank that they are completely bankrupt. The package that I am responsible for putting together and sending to the bank must contain the following as proof of insolvency:

1. A hardship letter - this is a one-page letter written by the homeowner explaining to the bank why they can't pay their mortgage.

2. Income tax returns from the past two years. -

3. Copies of all bank account statements from the past two months.

4. A financial worksheet showing all of the monthly sources of income and expenses.

I have a pretty good feeling that a lot of people are being about as honest with the financial information that they give me for the short sale request package as they were with the financial information they gave to the mortgage broker when they got their $550,000 loan. And, I can assure you that the banks are not checking to see if there are other bank accounts that weren't included, or if the information on the financial worksheet is accurate.

I come home each night, and I hear CNN hosts ranting about how poor, upstanding, hard-working, Main Street Americans are being forced out of their homes by big, evil, Wall Street tycoons. And, while Wall Street is ultimately responsible for creating loan "products" for people that couldn't afford them, and while there are a lot of people who really cannot fulfill their mortgage obligations because of lost jobs or resetting interest rates, there are also an awful lot of people who just don't want to keep paying. Media personalities, like Lou Dobbs, present, night after night, stories of poor people who got hoodwinked by the faceless Wall Street elite into signing those mortgage papers and now can't pay. And, I am certain that a lot of people really didn't understand what they were signing, and there were a lot of people preyed upon by predatory lenders. But, because of these heartbreaking stories of single mothers losing their suburban McMansions to foreclosure, too many people think that the right thing to do is to take revenge on those sinister mortgage lending banks by short selling.

The first solution that needs to be implemented: banks need to completely stop doing short sales (except in the case of the death of a spouse or a domestic partner). They need to simply foreclose on properties where the owners have stopped making payments. I guarantee that bank losses, in the long run, would be less if homeowners had only the options of paying the mortgage, or having a foreclosure destroy their credit for years and years to come.

Cutting out the option of short sale would also save a lot of people from "inadvertant foreclosure." What I see happening now, is that a lot of people who want to get out from under decide to list their property as a short sale, thinking that it will be as easy as it was for the Smiths down the street. But, months pass and still no buyer. Finally, after 8 months of marketing (and not paying the mortgage, or condo fees, or property taxes - but still going out to eat every night) they get an offer that's $100,000 below what they owe. Their realtor puts together the short sale request package and sends it to the bank. But, it takes 4 to 5 months to be processed by the bank's short sale department, and in that time the foreclosure department sets a date for the foreclosure sale. And, now these people, who could have paid their mortgage, but opted for a short sale, ended up with a foreclosure and will likely never be able to buy property again.

I have a few more observations and ideas regarding this mess...(to be continued)

Tuesday, February 10, 2009

A Report From The Frontlines - Part One

I have steered fairly clear of bringing my worklife back home to the Lair. Generally, I like to blog at work, not blog about work. But, alas, the time has come to share some observations from the frontlines of the economic meltdown.

I work as a transaction coordinator for one of the top-producing real estate teams in Florida. Basically, I do all of the behind-the-scenes work, all of the research and paperwork, and all of the detail necessary work - which allows the agents on my team to focus on selling real estate. It's a lot of work, a lot of stress, and it's definitely not my life's dream. But, for the moment it pays the bills, and well, I'm pretty good at it. And, of course, there's the benefit of having a ringside seat for the Great Depression 2.0.

I started working in real estate at the height of the market - January 2005. I didn't know a thing about real estate, but I quickly learned the industry lingo - "no doc interest only loan", "not contingent upon appraisal" and "preconstruction flip." From 2002 to 2005 the market in many Miami zip codes rose nearly 200% in value thanks to "creative financing" and the new "investor" class. I watched as nurses and construction workers and waiters bought condos for $400,000 and I wondered "how the fuck can everyone afford to buy at these prices?" Well, in October 2005, the market turned, nearly overnight, and like a big game of musical chairs, a lot of those in the "investor class" suddenly couldn't sell and got stuck without a chair.

Our market has plummeted by nearly half since the height, and now I specialize in processing and negotiating short sales. A short sale occurs when a property owner sells her / his property for less than what he / she owes on the mortgage(s), thereby sticking the bank with the difference. It's my job to put together a convincing package for the bank to convince them that it's better to take, for example, a $100,000 hit than to foreclose on the property and lose even more through attorney's fees and further market depreciation. For the seller, a short sale is a much, much better option in that it only damages the seller's credit score for 2 to 3 years - as opposed to a foreclosure which obliterates the credit score for 8 years, and the seller will always have to disclose to any future mortgage lender that he / she has had a foreclosure in the past.

Unfortunately, what is occuring is a tidal wave of short sales, each one costing the banks tens of thousands, and often hundreds of thousands of dollars. And, each successful short sale brings down the value of the whole neighborhood - which causes more homeowners to become "upside down" - meaning that they now owe more than the property is worth. Then, everyone in the neighborhood wants to "get out" and short sell their property. It's a downward spiral fueled by fear and anxiety.

Just as the "safeguards" failed on the way up, the rules that are in place that regulate who can be approved for a short sale are failing on the way down. What do I mean? Well, here's what you won't hear from Lou Dobbs, or any of the other populist media personalities. (to be continued).