Even If you are not a flipper, when something is still $100K or so overpriced, that $15K does not mean squat in the big picture.

It should be getting clearer to people that those contracts they sign are a very bad deal. If banks want to continue to do business they need to address the mess they made.

Blaming the consumer seems to be the scape goat.

In my opinion as we go forward it will all be about consumer perception. The bank should be figuring how to fix the loans they have out standing.

Rather than setting higher standards for future loans they need to get past loans to perform.

This post is about the tax credit impact on consumer confidence to make a purchase. I don’t see how a third party interference is giving the scope of help that is needed right now,

But with banks not being able to determine the value of their assets, they don’t know how much money they can lend. They don’t want to be the next WAMU, so they’re conservative on the lending. In my example, if they get $60,000,000.00 back, they know that’s worth $60,000,000.00, and presumably they won’t make the same mistake again with where they put any of that money that is retained and not loaned out.

Buyer confidence is another matter entirely.

Again you’re talking about propping up the Financial Markets. People can refinance all day long. There is no guarantee of future performance unless the borrower has confidence.

“At a minimum there are either income or equity issues with such debt, because otherwise it would have been refinanced and you’d have $100,000,000.00 in cash.”

Alright let’s get to it. Your $100,000,000.00 starts making a return out of the gate. You want more. You want things to be the way they were before. You want the borrower to pay you. The loan is on an over priced asset. Then you have the problem that there are a bunch of very bad loans out there that were written by the bank.

People are feeling stupid for signing these bogus loans. The people don’t like you, They feel ripped off.

You can talk big numbers or how smart an investor you are, but the game has changed dramatically. I don’t see where your cash can go. I don’t see a return unless something is addressed with the end user.

I think people are getting smarter.

Something has to give and it should be the people who wrote these loans.

Besides, for the market to move again there needs to be lots of new buyers entering the market. Considering the numbers of foreclosures, layoffs, and excess housing supply, and the fact that many entry level first time buyers don’t even have that much tax liability so cannot take advantage of this credit, this whole thing turns into a big nothing, or a tax credit for the rich introduced by a republican senator.

The problem is the government doesn’t want us to be responsible. (It doesn’t want to be responsible either.) We are fighting upstream. The existing structure is biased toward risk-taking and assumption of debt.

Paul Grignon’s movie Money As Debt explains it better than anything else I’ve seen. When the people or the government take on debt it creates wealth – by bringing it from the future to the present.

The velocity of new debt therefore adds to growth. When that velocity stops or reverses direction, then wealth is reduced.

Consider – when you take out a loan, both parties get present-day value. You get cash, and the lender gets a promise of an annuity. The promised annuity has a “present value” that is greater than the money he lent. This is demonstrable, given that banks sold those annuities as mortgage-backed securities for a profit.

I know it doesn’t seem possible for a loan to create present-day value for both parties, and it should be zero-sum. But it’s not. The loan actually creates present day wealth and it is not zero-sum.

This is a great system as long as everyone believes in the future promise. When that belief falters then:

1) the present-day value of the annuity sinks
2) the ability to create new debt disappears
3) the net velocity of debt reverses direction

…all destroying wealth. The government doesn’t like that and actively resists it, and will punish you for working in the opposite direction. The government also doesn’t like all this negative talk since it destroys confidence in future-payments on annuities, which hurts their present-day value.

Anti-savings is baked into the system, and that’s why I equate this to a revolution.

The problem is the latter group probably doesn’t have much equity, and I think it would probably be tough to do a short sale and then get credit to buy in the short term (e.g. 2-3 years).

The former group (high income, low end house) will actually benefit twice, on both their sale and their purchase. I call many government first time home buyer programs second time buyer programs, because it really benefits the sellers of a starter home. This 15k rebate is probably a first, second, third, fourth, etc. time home buyers program.

Earlier posters commented on this as creating a false bottom or just slowing the decline. This is not necessarily a bad thing.

Slowing the decline means less homeonwers will be underwater and those that are underwater will be less in negative territory. The market will still find its bottom eventually after the tax rebate expires, but this added time before hitting the bottom can have some significant benefits:
Homeowners who aren’t underwater have more incentive to continue paying their mortgage and will gradually build up equity. Meaning that they have more skin in the game –> Less walkaways.

I don’t want to get into the discussion about ethics of walking out on a mortgage when underwater, but for the system as a whole walkaways are bad (increased costs for everyone) so if this tax incentive can keep the homeowners that are close to being underwater making their payments then it make the system healthier.

RE: size of the incentive. It’s small enough that it won’t spur lots of new building but it may help absorb a small ammount of the excess inventory.

RE: “increse in home churn” (i.e. people just moving from one place to another). This isn’t necessarily a bad thing. In recent years the credit was so loose that people got into properties that were inappropriate for their income. You have a lot of high earners living in properties that are below what they should be living in based on their income because of the bubble in prices and you have low earners living in places that are higher end than they should be living in because of the creative credit options. Now that credit is being applied more appropriately according to ability to pay, it is a good thing to increase churn to help get people balanced into properies that fit their income. Additionally it will get some people into new mortgages with appropriate ammount of down payment which will further decrease the risk of forclosure down the road.

Right, but I could just put that money into a Rith IRA once I get my full credit, thus never paying taxes on that money.

Great thought, but do they care? They want spending, not saving. So perhaps they see that as an acceptable trade off.

Also, the 401k has benefits to money being inside, so it’s not entirely the initial contribution benefit.

What it does is this. Let’s say at the beginning of 2008 you held $100,000,000.00 of mortgage backed securities from 2006. Reduce interest rates to under 5% and suddenly you probably only hold $60,000,000.00 of mortgage backed securities, because the others have refinanced and paid you off. Streamline refinancing, loosen lending restrictions on those with over four houses, etc., and pretty soon you only hold $40,000,000.00 of mortgage backed securities.

At the beginning of 2008 you didn’t know how much of the $100,000,000.00 was bad. It could have been all of it, half of it, none of it. By the time you get down to $40,000,000.00, not only do you have $60,000,000.00. but you also have a pretty good idea that a good portion of the $40,000,000.00 is at risk. At a minimum there are either income or equity issues with such debt, because otherwise it would have been refinanced and you’d have $100,000,000.00 in cash.

BTW, this assumes most the new loans are held by government entities or at least not entities in trouble.

Congress should revisit the Garn Act, but the Act also reads “Permits” and “May” enforce the due on sale clause.

Today the incentive for taking back more properties seems very low.

The Stimulus Bill should address contracts already written and in place. There are millions of them. I don’t see that “churning” loans, replacing old loans with new ones, is going to get the job done.

As the mukoh guy keeps pointing out the discount on Notes is pretty steep. I don’t track it myself, but if he says so it seems about right to me.

There is a limit also on how much cash can be invested in Notes. The real qustion is if Notes are that solid of an investment right now.

It makes sense to me that investors may want to rewrite a Note with a home owner for a higher return than selling for cheap.

- I think it would have a stimulative affect on the economy as a whole. Home sales would increase during the 1-year duration of the policy — and let’s face it, regardless of what you think about home prices, the low volume of sales and inability of people to move is a damper on the economy. Later, when people get the resulting tax refund, there’s a decent chance they will spend it on their home which would also be stimulative.

- For non-homeowners/renters it would be a hedge against future losses from price decline, but not so large a hedge to make people act irrationally. There’s no way I’d be persuaded by a $15K tax credit if I thought the value of my home would fall another $60K. A $15K tax credit is similar to the seller’s costs of unloading a $250,000 home — so it wouldn’t encourage people to move who don’t otherwise want to move.

A year from now if I thought Seattle price declines were about done (a huge “if”), I would certainly try to buy in time to get the tax credit. Also, it’s possible the tax credit could get extended to a later time when the risk of purchasing a declining asset would be lower.

I can’t imagine the $15K tax credit reversing the fall in prices that needs to run its course, unlike the 4% interest rates which were shot down by the Senate last week — 4% interest rates would have been a policy disaster.

While it’s no “solution” to the housing situation, the $15K tax credit has merit as a stimulus. I’m surprised these points haven’t come up.

OK you take the note. Now what? It’s not performing and you are selling in a down market.

A wrap around is pretty common in many markets. As the holder of the Note I would want the income, no matter who pays.

The point is you are buying the Note at a discount. You can also structure the sale of the property under a discounted contract.

Here’s my prediction as things go forward. Your renter will lose a job and not be able to pay rent. They end up out on the street with States cutting welfare. Neighborhoods will change, and people will cram together in housing units.

In my opinion we are moving past what home owners will do, they are walking away. Next we are going to be dealing with what renters will do.

A desperate renter will be looking for money where ever they can.

Yes i know how Notes work, it’s different from what I believe is good business.

The people who are getting bailed out, or their mortgages knocked way down, or doing short sales, etc are mostly living in nicer bigger houses than I am, and driving nicer cars. Remind me again what I am getting by being responsible … ? Don’t say it is anything like a “good feeling of satisfaction” because I am feeling like a chump right now.

It’s pretty accurate except the part at the end where he indicates some hope the banks will become more responsive as a result of this.

Clearly anything that stimulates house purchasing will have a negative effect on the rental market. I just think it’s rather difficult to determine how significant that effect will be. We can’t even figure out how many more housing units will be sold because of the credit, so how could be determine the effect on the rental market?

Assuming they limit it to bankruptcy court, you’d need to file a Chapter 13 and live under their rules for at least three years, so I don’t think it’s going to be a popular option for people without other issues. Also, for most credit, they determine the date of a chapter 13 as being the end, rather than the beginning, so count on many years of messed up credit.

Finally, owner-occupied residential mortgages are the only debt that the bankruptcy court can’t “cramdown” except in Chapter 11 where they can. This is not as big of a deal as the banks make it.

People who know and learn and take advantage are always ahead, yet the over consuming public even using all the straws in the pile is always behind the curve.

Don’t hope for riots, too much guns out there, can get ugly.

It will be a gift for a few, who like you may not need them but are smart enough to manipulate the system to their benefit. Overall, they will be a disaster. And the social unrest that grows out of such a program will become the real issue. Riot, baby, riot.

Let’s look over the entire situation, long-term. The vacant home situation that was formerly owner-occupied will not help the renters to owner-occupied ratio.

Step 1. Owner moves out to rental unit. This reduces the percentage of owner-occupied units.
Step 2. Home is sold to someone who will occupy the home.

At this point we are even.

I doubt there are many vacant rentals being sold to someone who will also occupy the home.

Overall owner occupied percentages have been falling.

http://www.census.gov/hhes/www/housing/hvs/hvs.html

Got popcorn? The show is about to begin!

RE: mukoh @ 33 -

Yes the owner would become a renter if they are in distress and living in their home. But if the vacant house is on the market because they bought first and are already in another home. then the person buying the vacant home very well could be leaving a rental situation.

Last year I was calling for the GARN act to be repealed. Most the hard hit states (CA, AZ, FL) have laws similar to Washington, and repealing the act would prevent foreclosures on houses that are not that upside down. For ones really upside down, and in distress, a short sale is the only hope.

“What I’m saying is this will make it more likely someone will buy their house, rather than it being foreclosed. It won’t help the distressed homeowner get a new loan. That will take the passage of time. ”

So the relationship of renters to owner occupied units will go which direction? Since the current homeowner cannot get a new loan, he will become a renter.

I was talking about a wrap around. go ask your;

my realtor who is a long veteran of builders, developers, investors and banks field, no retail transactions ever.

It was done in other down markets when there were no assumable loans except VA. It was coming back last year when the market prices started going down and there was no reason to “bail out” a home owner from a declining asset.

Now it looks as though, depending on what the amortization schedule may be and what you believe the future value of money will be, it may work in a buyer’s favor. Of course get legal advice.

You’re an amateur investor. Ask your buddy.

What I’m saying is this will make it more likely someone will buy their house, rather than it being foreclosed. It won’t help the distressed homeowner get a new loan. That will take the passage of time.

David, are you nuts? Where did you get your RE license? You can’t take over notes unless there is a clause for assumption of loan. Go read some notes in the county records. In most assumable notes, which there were probably only 5-10% in good ole days the lender still has to approve the assuming party.

So my friends lets all sit back together and watch how it pans out. This will run its course and we will all learn together that the next decade is one for the history books!

All you have to do today is pick a house, any house, and look at the financing package in place. If it works for you then take over the contract. Set up an escrow account and make the mortgage payments through that. Pay the taxes separately with your own check.

OK, I said that, but you should seek legal advice because the lender has the right to accelerate the Note, but in my opinion the lender would be happy to be paid at all. As always, pay the mortgage off as quickly as possible or makes sense with the amortization schedule and the value of future money.

The problem is churning more mortgage paper through the system.

As you know I could ramble on, but what the government wants is new Financial Instruments to bolster confidence in the Financial Market.

New mortgages, no matter how solid, or because they are solid, will prolong the decline of pricing, which has to happen.

We still need financing to buy a house….and that’s still not available.

We are going to be Japan of the 90s. The only way for capitalism to work is to allow capitalism to work. All this crap is pure fluff. I feel terrible for my daughters generation. If you think we have it bad, wait until you see the s*it-show they inherit.

I’ll be happily practicing bankruptcy law, and renting a house for the next several years. These articial fixes of the economy will only prolong the pain.

Yea, well, I have a friend who followed Brinker’s advice to purchase a home just before the peak. Brinker now says that no one could have predicted the current situation…

I was watching yesterday’s labor data hearing and one senator was asking for some document on how “dollar depreciation” (later he added word “dollar appreciation” with a pause) will help the economy. I felt like something is going on there.. There might be a plan to artificially depreciate US dollar.

With this stimulus, housing rebates and lowering existing mortgage (like free money??)… Without any doubt, I think, they are wiping out savers. These morons are trying to spread our wealth (by depreciating the dollar). Folks, we need to get out of dollar before it’s too late.

“Also, who is going to determine owner occupancy and what will happen if the homeowner immediately turns it into a rental?”

Are you suggesting that we can’t trust people ? That people might actually lie inorder to get a tax credit?

As for the question of good/bad, I suppose that entirely depends on your view of taking ~$40 Billion of taxpayer money and handing it out to Realtors, home builders, and banks, while elongating the downturn. I’d guess you’d get more “bad” votes than “good” votes if you pitched it that way (which we’ll call “accurately and transparently) to the American voters; fortunately for the NAR, home builders, and banks, they have more lobbying power with our comprehensively corrupt Congress, so their vote is the only one which apparently matters.

If you are just out of college, I can pretty much garauntee you that nowhere you buy is going to be long term. Its infeasible at that point in your life. Maybe if you were 40+ I would agree its possible to find a house you _might_ have a 20 year horizon in, but when you are 22/23? I doubt it.