Derivative…Toxic Asset…How about Common Sense

 

This is my only understanding of a Toxic Asset.

     When I was a younger man, we would purchase toxic assets and spread them across the newly turned soil in our garden. If all went well, by summer’s end we had tomatoes, peppers, parsley, etc. Fertilizer was a toxic asset. If it was used correctly, it aided the effort of growing a garden.

Time has passed. Now fertilizer has become a component of weapons of mass destruction and toxic assets have become a fancy label on financial balance sheets. The recovery of the housing industry is tied to resolving the issue of toxic assets.

 

2009 version of a toxic asset is tied to this weapon of mass economic destruction!

     I don’t possess to have the higher education that would allow me to explain, much less understand, derivatives. I don’t pretend to know the ins and outs of bundling. Those terms and phrases are beyond most Americans.

     I do know that people in towns from east to west understand empty houses. I do know that neighborhoods from north to south understand empty houses. I know that people in every corner of the United States understand the impact of empty houses. It would seem to me, that the cure of the problem exits on lots of Main Streets and not many Wall Streets.

This should not be the primer for any Stimulus Plan in the housing market.

     I have an idea. What if the Federal Government actually set out to fix a price on the “toxic assets”? It can be easily done. Sell the houses! Rather than some obtuse partnership with assorted well heeled investors, why not sell the houses and put the brakes on the declining markets? Don’t be fooled by for sales signs that exist today. The market is under a stranglehold regarding credit and lending. The FHA and Fannie and Freddie and Morty can all proclaim that they are pouring money into the economy. It is not reaching the street.

     Guidelines for lending that appear relaxed are quietly made more stringent behind the scenes by the use of internal guidelines at lenders called “overlays”. The easy explanation of the overlay is that published guidelines may state a borrower needs a 680 credit score but the lender has an overlay that says they need a score of 720. Money is frozen.

     It is a damn shell game.

     If you want to get the housing market jump started, how about trying this on for size.

1. Attach a credit to every home that has been foreclosed on equal to 3.5% of the purchase price (when sold).
2. Direct that the credit is only viable when used in conjunction with a FHA loan to purchase the property.
3. Direct that the credit can be redeemed by the lender that makes the FHA loan on the property in lieu of the required 3.5% down payment needed on the FHA loan.
4. Direct that the buyer of the property sign a lien to the Federal Government for the 3.5% credit to be paid back when the home is sold.
5. Direct that in order to participate in the program the home must be a primary residence and can not be sold for 5 years.

     Voila, prices for the homes that prop up the toxic assets are set when a sale is made. Loans can begin to be made and those qualified to borrow but are lacking the sufficient down payment can purchase these homes. Neighborhoods will begin to have neighbors again. New homeowners will stimulate all the ancillary services and the economy will begin to grow.

     The other factor causing problems are all the loans that are in between bad and toast. There are programs to deal with part of the problem. The final solution will have to remove the cloud that hangs over “short sales.”  This is another area that now features snake oil salesman and bill collectors gone wild.

This is not the man you want resolving your housing dilemma.

     Again, there are steps that need to be taken.

1. If you are a homeowner and wish to avoid tax consequences on the amount of money forgiven on the transaction, you will be required to assign a limited power of attorney (limited to the sale of the home) to the holder of your first trust.
2. The holder of the first trust will have to negotiate a listing with a licensed broker.
3. The holder of the first trust will be required to complete the sale in good faith.
4. The holder of all trusts will be allotted a portion of the sale proceeds equal to the percentage of the outstanding debt. (If the loan in default was a 80-15-5, the proceeds of the sale will be distributed 80%-15%-5%)
5. The Federal Government will ameliorate the loss using a formula of 40% of the loss will be reimbursed to the lien holders using the same percentage of exposure displayed in item 4.
6. The cost of sale will be paid out of the proceeds of the sale before any monies are distributed to the lien holders.
7. Standard costs of sale will be reduced by 20% in an effort to ensure that the cost of the program is fairly shared.
8. Any  third party vendor (Mortgage Company, Mortgage Broker, Appraisor, Realtor, Title Company, Title Insurance Company, Real Estate Attorney, Bank, etc.) that refuses to take part in the program shall be prohibited from partaking in any other real estate transaction involving FHA, HUD, Fannie Mae or Freddie Mac or any other Federal Government entity.

     There you have it. No magic. No shifting shell game. This is just common sense.

Can I just call it my “two cents worth” on the topic?

If you want the housing market to move, you need to address the housing market. If you would like to read about some other solutions….click HERE and check out Realty.com

 

So, you want to buy a “short sale”

 

 

                                                        

 

Interest rates are falling ( should I add the oft misquoted term “to historical lows”) and you have decided that now is the time to buy. Maybe, the news that home prices have dropped considerably has spurred you to action. It could just be that, regardless of what is going on in the world, your personal situation has brought you to this decision.

If you go looking for information on the internet, you have probably seen hundreds of homes for sale at prices that seem to good to be true. Let me be the first to tell you, if something appears to be to good to be true, it probably isn’t what it appears to be.

You just might be the next person that calls me or sends me an email announcing your intent. You might be the next person that shares “I want to buy a short sale”.

So you want to buy a “short sale”?

 

I don’t blame you. If I were operating on the limited information that is available, I might want to buy one myself. As a matter of fact, if they were such a great deal, I might wonder why they ever become available to the public at all. If they were such a great deal, I would expect those smooth talking real estate agents would snatch them up as soon as they could. I would expect that those investors that always seem to make money when folks are really down, would be buying them as fast as they could get the deal done.

Hmmmm. There sure seems to be a lot of them out there. If you ask some agents, they will swear that they are being sold quickly. I have even heard some title companies bragging that they closed one a day during 2008. For all the talk that is being shared, there sure seems to be a lot of them on the market.

At the risk of being told I am all wet, I will preface the rest of this note with the statement…..the following is my understanding of the short sale process in my market and does not reflect the experience of others in this or other markets. Fair enough? 

As most of you that might be reading this are aware, many homeowners owe more for their home than their home might bring in today’s market. Many homeowners took advantage of increasing values and borrowed money in the past few years against the value of their home at that time. Values have gone down. Some of these folks borrowed money that was offered via exotic loan programs. Some of these people used exotic loans to make the initial purchase. Yes, the world has turned upside down.

What is a short sale?

In very basic terms, a short sale is the process in which a home owner sells their property and the proceeds of the sale are less than the amount necessary to clear all the liens on the home. In days gone by, a short sale was usually accompanied by a check from the home owner to cover the shortfall. Times have changed. The importance of fulfilling responsibility has taken a back seat to a new mentality of “it’s not fair” or “it’s not my fault” or the old standby “everyone else is doing it, so it must be o.k.”. Let me be clear, there have always been cases where situations prevented a home owner from bringing money to the table. In our current market, it seems the reasons have been expanded to allow for bad judgement in the beginning.

Now, if a home owner falls behind in payments and determines that they can not or will not pay the mortgage anymore, they face a few choices. They can move out. They can strip the home of anything that is salvagable and move out. They can contact their lender and ask if they can return the keys. They can just mail the keys to the lender, or they can call a real estate agent and see if the home can be sold.

If they speak with the lender, the lender may advise them to attempt a short sale before returning the keys. The lender may send them a short sale package. This package will give the lender a clear picture of the home owners financial situation and “hardship”. The home owner will share this package with the real estate agent. The real estate agent will have permission to speak with the lender. The agent will make sure the package is complete and will have it ready to submit once an offer is made on the home.

Understand, there is a huge difference between advising a home owner of what information will be required and approving the sale of the home. The lender (s) only have one figure and that is the amount that is owed to them. If there is more than one lender, they each have to approve the final sale figure.

The home owner sets the asking price.

Most of the time, the home owner will discuss the asking price with the real estate agent. The agent will do a market analysis and offer that information. Often, that figure is significantly lower than what is owed on the home. The lender does not approve nor disapprove the asking price. It is just a “best guess”. The agent has to hope that the price is low enough to attract an offer and high enough to satisfy the lender.

No one knows if the price is right until an offer is submitted and reviewed by the lender (s).

There is no guarantee that the offer will be reviewed quickly. One problem occurs when the home owner vanishes. This can happen. People down on their luck, often disappear. The offer can not go to the lender until it is signed by the home owner. Once the offer is signed, it is sent, along with the package to the lender. At that point, the buyer has to wait. At any time, before the offer is approved by the lender, the buyer can declare the offer is void by sending that notification in writing to the home owner (via the agent).

Each lender has it’s own process for dealing with short sales. None that I am aware of have hired additional staff to deal with short sales. Many have cut back the number of employees and the work load on the remaining employees has increased. The lender (s) will attempt to determine if the price offered is the best they can get for the property. The lender (s) will attempt to measure the benefit of selling via a short sale or just taking the property and selling as-is. (If the owner has vanished, this is the likely outcome). Lenders are under a great deal of pressure from all sides. They are dealing with current loans, delinquent loans, property that has been foreclosed, current foreclusure proceedings and re-working loans for people that qualify for that. There is a lot going on at a lender. In the middle of the process, the lender may be sold or taken over or just file bankruptcy. It is a precarious world out there for lenders today.

Your short sale offer is just a small piece of a multi-faceted financial institutions transactions.

So, if you don’t need to move right away and you aren’t terribly concerned about the accuracy of the price of the home you want to buy and you aren’t worried about the various things that could go wrong at any time during the process (can anyone say interest rate change) …………buying a “short sale” may be right for you.

Before you jump into the fray, it might be best to sit down and go over your situation. It might make a lot of sense for you to share what you want and when you want it. It may behoove you to slow down just a bit, and meet with a real estate agent and go over the home buying process. If you are in the Maryland suburbs of Washington, D.C. or in our Nations Capital itself, I would welcome the chance to sit with you and go over the market and your situation and see what is the best way for you to proceed in buying a home.

I can be reached at 301-537-4377 or you can drop me an email at  macarthurgroup@gmail.com

 

Slow market…No market…..Not much happening….Or is it

What me worry ?  This is the guy making all the key decisions about the “bail out” and TARP. He is saving the day. Of course, you wouldn’t know it if you were thinking about buying a home now. One day money will be used to buy up bad debt and the next it will be used to bolster faltering credit cards and then it will be used to offer 4.5% loans to new home buyers and oops, now we need to use it to save the auto industry.

Face it…………..America is going to hell in a handbasket.

And people wonder why Bush and his croonies can’t wait to get out of town?  In one sense, it is rather sad that it took a small group of evil, selfish people to topple our financial system and that was the straw that broke the white only string for Presidents. Am I the only one that sees the parallel with the forties and fifties. The rich filled their pockets, bought in excess and had the “colored” take out the trash. Oh, I could go way back, the rich white folk bought the land, built the house on the hill and had the “colored” pick the cotton. The folks in power have milked the system for all it’s worth, set regulations that can not be changed to assist croonies and they are packing and leaving a real mess for the “colored guy” to fix.

The joke is on them. This is not your grandfather’s “colored guy”.

This is a true leader. This is the guy that will put the train back on the tracks. This is the guy that will speak to the decent side of America. Things will change. You see, it truly is all about attitude. It is about accountability. It is about the way we see ourselves and the way others see us. There is nothing wrong with a  capitalist economic system that is regulated. Regulation will counter act stupidity and greed. Regulation levels the playing field for all of us. There is nothing wrong with profit. Of  course, all profit should be transparent. Profit represents the reward for risk and effort. Profit should not be capped or restricted. Sound regulation will guarantee that profit is earned fairly. 

Obama will put the fate of the future in the hands of people that understand what it will take to correct our path and return to our country to the place our fore fathers planned. We will not be hated in the boardrooms or the bedrooms. We will not be hated in the inner cities nor will we be hated abroad. We will not isolate small countries any longer. Cubans will be able to reconnect with family members. It will be a different world.

Oh, about you buying a house now…………only if you need to and have the down payment. If you have learned nothing else in the last five years you should have learned your grandfather was right about one thing…..”there is no such thing as a free lunch”. The days of buying real estate with no money down and becoming rich are over. If you still buy into that crap on  late nite t.v., you will only lose your money.

Save, plan…………….wait. Make sure you know where you are going and what you plan to be long before you buy a home. It is a place to live. If you are looking to invest………..well, you might want to hold off until the market hits about 7500, the talk to a broker.

Just take heart….there is a lot happening and it is all good for America.