Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

157 responses to “Obama “Can’t Wait” to Screw with the Market Even More”

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  1. doug

    RE: David Losh @ 80

    You know, calling people who waited out the bubble ‘bottom-feeders’ is pretty arrogant. That’s just about everyone in my generation (born in the 80′s) and younger.

    The term bottom feeder’s doesn’t originate from people that buy at the right time in a market. It’s for things that eat animal waste.

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  2. Kary L. Krismer

    RE: doug @ 100 – I think you’re misunderstanding what he’s saying. The term bottom feeder isn’t used in the context of when they buy, but what they buy and how they buy.

    So for example, someone who buys in the 2011 Street of Dreams neighborhood wouldn’t be a bottom feeder.

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  3. David Losh

    RE: doug @ 101

    Bottom Feeder is a Real Estate term, like slum lord. There is no top, or bottom to the Real Estate market. There are good deals, and bad.

    The Real Estate community no longer likes the term “deal.” That term doesn’t go along with the new Real Estate agent professionalism.

    What I’m saying, and what people should pay attention to is that foreclosure isn’t an answer any more. We are well past any rate of absorbtion for foreclosures.

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  4. Kary L. Krismer

    I don’t think you can talk knowledgeably about foreclosure properties without being familiar with them. They are largely different from other properties. Many/most of these properties are extremely neglected prior to foreclosure, and many of them remain that way when sold to their ultimate new owner (e.g. not a flipper). Depending on the type of loan the buyer uses, some extreme conditions might be corrected (e.g. FHA) or nothing might be corrected (e.g. Homepath). What’s most disturbing is the new owner may not have any better talents or abilities to repair and maintain the house than the old owner, but admittedly these properties can be great opportunities for those who enjoy working on their own homes and have the ability to do so.

    What I’m saying is it would be nice if all these foreclosures ended up in better condition at the end of the process, but that doesn’t always happen. And when they are fixed up, much of what is done is just cosmetic, and sometimes even that is done poorly (e.g. exterior painting done without proper preparation).

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  5. softwarengineer

    RE: NESeattleSeller @ 89

    When Social Security Goes Broke [it already has, i.e., Medicaid/Medicare working right]

    America will cease to function. Its that simple.

    When upper middle class in Seattle don’t get an extra few $100 in their pay check to consume is a complete joke compared to wiping out entltlements’ i.e., $1000 per month contributed to the health of the economy, let alone preventing America’s imminent bankruptcy.

    Savvy investors predict with FUTURE rationale and many get rich that way, so throw the same old same bubble trap philosophy history charts in the dumpster where it ALL belongs….it triggerred the current depression and we all know it too.

    Automatic butcher axing will do it to us all anyway and this bill doesn’t have a “blue moon” chance of passing….most Dem/Reps know it too.

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  6. Ira Sacharoff

    By David Losh @ 103:

    RE: doug @ 101

    Bottom Feeder is a Real Estate term, like slum lord. There is no top, or bottom to the Real Estate market. There are good deals, and bad.

    The Real Estate community no longer likes the term “deal.” That term doesn’t go along with the new Real Estate agent professionalism.

    What I’m saying, and what people should pay attention to is that foreclosure isn’t an answer any more. We are well past any rate of absorbtion for foreclosures.

    Very True David. We’re no longer “agents”, we’re brokers. There are no more “deals”, after all, we’re professional, so maybe we’re “opportunity brokers?”, and speaking of bottom feeding, the latest MLS memo now forbids brokers showing a house from displaying their fangs during the showing.

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  7. David Losh

    RE: Ira Sacharoff @ 106

    Brokers, I meant to say Brokers.

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  8. Dirty Renter

    RE: The Desponder @ 33 -
    Blah blah blah…you can twist every proposal to say it’s ‘for the bankers’.
    The Fed lowers interest rates in an effort to stimulate the economy….it’s for the bankers.
    The President proposes programs to keep people in their houses…it’s for the bankers.
    Barney Frank passes gas…it’s for the bankers.

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  9. Kary L. Krismer

    RE: David Losh @ 107 – I still use the agent/broker distinction because the new terminology would require you to use a longer term (broker and designated broker). Too cumbersome.

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  10. David Losh

    RE: Kary L. Krismer @ 4

    Until 2008 we worked on bank owned properties, or pre foreclosure. The last one we did was for Bank of America on a trash out call back. They wanted us to bid it even though there was a big ass lock on the garage door. It was a new lock so I bid it way up. They also wanted the place winterized.

    Sure enough the garage was full of the garbage that was taken out of the house. The house itself wasn’t bad but we winterized, cleaned, and painted a couple of walls.

    We submitted our bill to a third party provider who contracted with us. It was Omega Property something or other in South Carolina. They didn’t pay. The property went up for sale and got an offer for $100K less than what had been loaned. I submitted our bill to escrow.

    Omega Property something or other had packed up during the night with funds from a half dozen banks and declared bankruptcy. Bank of America payed us directly to get our bill out of escrow.

    Thousands of contractors have lost money since 2008 in a variety of bank owned property scams. From what I’ve been told it’s an absolute circus.

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  11. Kary L. Krismer

    RE: David Losh @ 110 – I’m not talking about the cleanup, but instead the general condition.

    For example, were the gutter drains plugged up for so many seasons in a row that the siding has been damaged to the point of needing replacement? Is the floor around the toilet rotted out? Do rodents have continuing access to the attic and crawl space? Is the gas furnace or water heater well over 20 years old?

    I mentioned this before but I saw one REO that had both recalled LP siding and Pabco roofing. It also had all of its carpeting removed. I suspect the plumbing, electrical and insulation were okay, but other than that it needed a complete rehab.

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  12. tomtom

    By David Lush @ 110:

    It was a new lock so I bid it way up.

    I submitted our bill to escrow.

    Bank of America payed us directly to get our bill out of escrow.

    Thousands of contractors have lost money since 2008 in a variety of bank owned property scams. From what I’ve been told it’s an absolute circus.

    There definitely was a scam here.

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  13. No Name Guy

    I suggest everyone mosey on over to CHS at Of Two Minds and read his latest:

    http://www.oftwominds.com/blogoct11/healthy-housing-market10-11.html

    Oh, and this refi proposal IS in fact a bail out of the banks. Everyone does realize that BoA, JP Morgan, et al are in fact insolvent. If they marked their mtg portfolios to market it would wipe out their capital (and so would marking their Greek, Italian, Spanish, French, etc bond holding, but that’s a different issue).

    This refi plan is no different that what Japan did – keep the zombies “alive”. Look what’s it gotten them. Nothing. Sheese people……grow the heck up. You’re all somewhere in the denial, anger and bargaining stage.

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  14. No Name Guy

    By Dirty Renter @ 108:

    RE: The Desponder @ 33 -
    Blah blah blah…you can twist every proposal to say it’s ‘for the bankers’.
    The Fed lowers interest rates in an effort to stimulate the economy….it’s for the bankers.
    The President proposes programs to keep people in their houses…it’s for the bankers.
    Barney Frank passes gas…it’s for the bankers.

    And yest there Dirty – the lowered rates ARE a bail out of the banks. Get free money (~0.1% or less on savings) from depositors and put the “excess reserves” on deposit at the Fed for a higher rate. A stealth tax on savers.

    Get the Fed Government to take toxic mortgages off the banks balance sheets (via this refi where Fannie or Freddie are the bag holders) – a stealth bail out of the banks. If they were forced to mark them to market, JPM, BoA and the rest are insolvent.

    As far as that fool Frank – well, I’m sure if he farted again the Bankers would get a laugh out of it, so yes, that would be for the bankers. Now, where’s my extra can of re fried beans I can send him. :-)

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  15. Kary L. Krismer

    I read Tim’s update above. If this site had been around in the early 1980s and I’d read and followed Tim’s advice I would have let my condo go into foreclosure. Values had gone down. Interest rates had gone down but I couldn’t refinance. Condo developers were going into bankruptcy and units were being auctioned.

    But if I’d reacted to the then current conditions, even today when financing a house I’d have to answer that I had let a house go into foreclosure. But beyond that, I would have missed out on over a 100% return when I sold. Money I still have in the bank today.

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  16. Jason Anderson

    Here is a thought – that may not be well thought out yet.

    One of the principal problems with the housing market is the number of people trapped in unsustainable mortgages in overencumbered houses they cannot afford. The solutions proposed thus far are (1) various modification schemes, and (2) foreclosures.

    The problems with foreclosures is the stigma associated with the foreclosure and the uncertainty about renting with a foreclosure on the record. Instead of encouraging principal write downs that will never happen, an alternate policy might be to forbid reporting the tender of a house as a negative on the credit report and providing a voucher for $6000 towards first and last months rent.

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  17. Dirty Renter

    RE: No Name Guy @ 14
    No Name…You missed my post about mark to market a year or two ago. Of course, it is just my opinion. Mark to market accounting for banks was implemented in November of 2007. It was ceased in March of 2009 by FASB, due to pressure of the Congress. So what, a new 14 month rule is put into abeyance. BFD.
    First of all, M2M is a horribly pro-cyclical accounting method, much like the FASB, FDIC & SEC rules to minimize loan-loss reserves. Total BS. I think we all know now that it is smart for banks for to incease loan losses in good times, no?
    Secondly, M2M is a short-term non-cash accounting entry, which is used as a collateral measure, not a cash flow. Banking safety is all about cash flow, not collateral, a secondary method of repayment.
    Thirdly, banks HAVE been using M2M accounting for decades….for assets which they plan on selling within 12 months. Fair enough, I think.

    M@M accounting for banks is like appraising your house every April 15th, which you do not plan to sell, marking it to market, and then using then putting the gains or losses on your income taxes. Silly, no?
    That said, every nation’s banking system is under water, during every recession, and if one wants to destroy it with M2M accounting, so be it….even though it is cash-flow profitable.

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  18. Dirty Renter

    RE: No Name Guy @ 13
    Sorry No Name…but the Feds begged BAC, JPM, WFC to take on the toxic waste of CFC, WAMU. WB respectively…..and so you now think they’ll reinstate M2M and bankrupt them.
    Honestly, do you think that’s right?
    BAC stopped making subprime mortgages in 2001…but were silly enough to buy CFC.
    You want to decimate JPMorgan and Wells for being conservative banks who were strong enough to swallow the toxic assets of WAMU & Wachovia(Golden West(pik a pay thieves) & World Savings), at the request of the FEDS?
    I’ve been wondering for years….what exactly are the qualifications of Smith, Denninger, Shedlock and the rest of the mob? I know Mish is a civil engineer…and boy, was he ever wrong on his loud calls that commercial lending was going to bankrupt the system. C&I has been the savior of the lending business. He kept talking about his banker friend from California giving him the inside scoop. I have a friend who says he has a candy-cr*pping unicorn, that counts to 10.

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  19. S-Crow

    RE: Kary L. Krismer @ 115 – Superb comment Kary. If my folks sold their Capitol Hill property (22nd & 23rd & Prospect/Highland Drive) during the difficult times of late 70′s & early 80′s when out of work for a long period….they would not have enjoyed the gain realized. The funny thing is that their lifestyle is still almost sickeningly frugal and currently own property outright.

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  20. Jon

    RE: The Desponder @ 75

    These are people paying their mortgage payment… not sure it applies.

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  21. Blurtman

    Obama reads text that has been written by others. Does anone really think he has somehow been transformed, with no training or experience, into an expert on real estate or financial matters?

    Here is Tim Geitner, speaking through Obama, about the EU bail out deal:

    “There’s no doubt that it’s progress. And so the key now is to make sure that there’s strong follow up, strong execution of the plans that have been put forward.”

    “But I was very pleased to see that the leaders of Europe recognise that it is both in Europe’s interests and the world’s interest that this situation is stabilised. And I think they made significant progress over the last week. And the key now is just to make sure that it drives forward in an effective way.”

    “The message that they are going to deal with this in a serious way has calmed markets all around the world.”

    Welcome to the new Soviet Union, comrades.

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  22. patient

    I’m a democrat and voted for Obama but I think Romney just got my 2012 vote. I can’t stand this insane meddling in the housing market and banks. Stop it already.

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  23. Kary L. Krismer

    By Blurtman @ 121:

    Obama reads text that has been written by others. Does anone really think he has somehow been transformed, with no training or experience, into an expert on real estate or financial matters?.

    I’ve often said it matters more who is around the President. Both GWB and BO made bad choices initially (e.g. Rumsfeld and Emanuel).

    I wonder which has had more turnover the past two years? The White House or the Seahawks?

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  24. David Losh

    RE: Kary L. Krismer @ 111RE: tomtom @ 112

    We also did rot work, and mildew. At one time banks would go through an entire process that is no longer cost effective. One of the big issues was lawn care in developments. Banks used to try to keep places looking presentable. As Ray points out there are now entire developments that just sit, and rot.

    How many foreclosures are there? How many banks have asset management departments up, and running to handle the work load?

    As an example we worked on three town homes yesterday, all bank repos, by a local bank, and all three, even though owned by the same person, were in different stages of disrepair.

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  25. Jon

    By patient @ 22:

    I’m a democrat and voted for Obama but I think Romney just got my 2012 vote. I can’t stand this insane meddling in the housing market and banks. Stop it already.

    Romney can’t beat Cain!

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  26. patient

    “Romney can’t beat Cain”

    When people start to realize that 9-9-9 is an upside down progressive tax he’ll be dead in the water. Lower income people spend close to 100% of their income, making their tax burden close to 18%. The more you earn, the more you save and re-invest gradually lowering your tax. The ultra high earners will be closer to a 9% tax. This can’t possibly fly with the majority.

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  27. Ira Sacharoff

    RE: Kary L. Krismer @ 123
    The Seahawks got a new quarterback. It remains to be seen whether the White House will.

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  28. Jon
  29. No Name Guy

    RE: Dirty Renter @ 118

    So you make my point, in regards that the Feds were begging various entities to take over insolvent ones, and drag themselves down into the dung pile. The point is the FEDS INTERFERED and spread the garbage onto a whole lot more entities. Instead of only the insolvent and their owners and bond holders being wiped out, now the rot has been spread far wider.

    Now, they want to do it all over again, only shifting the cost onto the taxpayers (even more so). Talk about moral hazard on ‘roids. Let the equity and bond holders of these insolvent banks (and so called owners of their underwater homes) get wiped out by foreclosure and bankruptcy. Wipe the stinking pile of bad debt off the books (on both sides) and start with a clean slate.

    It has to end somewhere there DR. Now is as good as a time as any, although not getting here would have been far better. Cut the losses. The money wasted is a sunk cost. The only evaluation is looking forward: What needs to be spent from today on to get what gain? If Cost going forward > Gain the result is let it go regardless of what has been spent or done in the past.

    Enough with the fat, idiotic fingers of federal officials who know jack getting in the way. This is yet another ill thought out interference (like the ones you pointed out DR, like GM and Chrysler, like Solarianda,, etc ad nauseum – want to get international? Ireland bailing out their banks, Germany bailing out their banks via Greece – all of it to enrich the few at the expense of the many). Let it alone for crying out loud – enough cronyism.

    Let it fall down then salvage the pieces. Will it be pretty? Heck no. Then again, when has a disaster been pretty?

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  30. No Name Guy

    Kary and S Crow @ 115 and 119:

    Fine and dandy that in a couple of instances things worked out (I’m serious on this – I’d rather see success than failure).

    It sounds like the particulars of those situations and the individual circumstances were favorable for a wait it out strategy. Great that you / they took a chance with YOUR / THEIR OWN MONEY to do so.

    The (few) exceptions don’t invalidate the figures the Tim presents that for many it’s a fools errand to throw good money after bad, nor the argument that doing so with the Taxpayer money is idiotic public policy.

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  31. S-Crow

    RE: No Name Guy @ 130 – I understand you point, but also don’t forget that there is a huge subset of people (about 1/3 of property) that own their property free and clear and another huge subset that are gainfully employed, enjoy their home and community in which they reside and also are upside down and would like to refinance. People can argue that because their home is underwater they should just stop paying and others argue that they should stick it out and hope for values to return to where they have positive equity in LTV (which is also created by paying down debt load). I would add that it was pretty golly tough to stick it out when a parent of mine was unemployed for a very long time and home values were going no-where in that time period. The problem is that many people can afford their home, they just can’t afford the home plus the excessive debt load in addition to that (vacations, expensive depreciating cars etcc.). Trust me, I see it every day.

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  32. Jonness

    By Pollyanna @ 96:

    FWIW, we bought in ’05 and used HARP to refi at the beginning of this year. Sure, it would probably make the most financial sense to sell, rent & save money, then buy again in a few years, but home ownership is more than just numbers. We like our house, neighbors and location. This is the only house our kids have known. We plan to live here for the next 30+ years.

    We were able to go from a 5.5% 30 year to a 3.5% 15 year loan. We aren’t hurting for money…in fact, we’re in better financial shape now than we were when we bought and we actually have the cash to pay the house off if we choose to.

    I’m failing to see how we are deadbeats/losers, or how our refinancing was bad for the economy. We have other friends who are in the same position (minus the ability to pay the house off right now…), but exceeded the 125% LTV ratio for HARP. They would love to take advantage of the program.

    Of course your friends want to “take advantage” of a free government handout at other people’s expense. Who doesn’t? That’s the entire point in this country. Everybody wants a free government handout, but nobody wants to pay for it. If it weren’t true, the U.S. wouldn’t have an unsustainable debt problem and no realistic way to pay for impending entitlement programs.

    So let’s see how your friends like this plan. They get bailed out, but to pay for their bailout, they get their taxes raised, and I get mine lowered. Hmmm…something tells me they no longer want to “take advantage” of the handout because it’s no longer free, and I’m going to get a better deal than them. Go figure…

    Your friends signed a contract promising to pay a certain amount per month at a certain percent interest rate or they lose the house. What part about that are they forgetting?

    If only I had a giant “undo” button, and I could just hit it every time I don’t feel like taking to effort to make good decisions. Every time I get drunk or mentally lazy and screw up, I’ll hit the button, and your friends have to pay for it. Hmmm…now I know why your friends are so enticed by having me bail them out. It’s almost too good to be true.

    Could someone remind me of which crooked politician I need to vote for in order to get my free undo button? I really want the button, and I’ll vote for anybody in order to get it.

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  33. Jonness

    By Kary L. Krismer @ 15:

    I read Tim’s update above. If this site had been around in the early 1980s and I’d read and followed Tim’s advice I would have let my condo go into foreclosure. Values had gone down. Interest rates had gone down but I couldn’t refinance. Condo developers were going into bankruptcy and units were being auctioned.

    But if I’d reacted to the then current conditions, even today when financing a house I’d have to answer that I had let a house go into foreclosure. But beyond that, I would have missed out on over a 100% return when I sold. Money I still have in the bank today.

    Tim’s advice is to sell now, live frugally and buy in a few years when you can actually afford to make the payments. Thus, I have a really difficult time figuring out how you would have lost out on the entire 100% return if you had followed his advice. Furthermore, comparing the early 1980′s to now is apples and oranges. The 1980′s were highly inflationary. In the current environment, the rates are at record lows.

    So let’s test out Tim’s advice using using a different timespan. Let’s say in 2007, when you bought your house, you put 0% down. In 2008, it was clear you were horribly underwater. So you stopped making payments, saved 100% of your house payment, taxes, and insurance, lived frugally, and saved up $50K per year for 3 years. Oops, the bank foreclosed, so you saved for another 4 years and then bought a way more affordable home well within your means for cash or nearly for all cash. Now we wait out the 25 years or so you are giving in your 80′s example. IMO, following Tim’s advice pays WAY more than yours.

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  34. 2kt

    RE: scotsman @ 31

    The banking system simply can not take another 15% down leg in housing prices. It’s that simple. What Obama is trying to do is to slow down the process and allow the banks to write down the losses against current income. It may fail after all, but what is your solution?

    Bank of America will go under with another 15% down. Who will pay out the account holders, FDIC? It has only about $50 to $60 billion on hand. US Treasury? With what, Chinese loans?

    It really does not matter how you pay for it, upfront or on the backend. Let banks go and pay through FDIC/Feds/Chinese loans or try to slow the process and pay through various refi schemes.

    What he does has a chance, however small, what you and your like-minded kind offer is a guaranteed disaster in the next 2 years.

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  35. Kary L. Krismer

    By Jonness @ 33:

    By Kary L. Krismer @ 15:
    I read Tim’s update above. If this site had been around in the early 1980s and I’d read and followed Tim’s advice I would have let my condo go into foreclosure. Values had gone down. Interest rates had gone down but I couldn’t refinance. Condo developers were going into bankruptcy and units were being auctioned.

    But if I’d reacted to the then current conditions, even today when financing a house I’d have to answer that I had let a house go into foreclosure. But beyond that, I would have missed out on over a 100% return when I sold. Money I still have in the bank today.

    Tim’s advice is to sell now, live frugally and buy in a few years when you can actually afford to make the payments. Thus, I have a really difficult time figuring out how you would have lost out on the entire 100% return if you had followed his advice. Furthermore, comparing the early 1980′s to now is apples and oranges. The 1980′s were highly inflationary. In the current environment, the rates are at record lows.

    So let’s test out Tim’s advice using using a different timespan. Let’s say in 2007, when you bought your house, you put 0% down. In 2008, it was clear you were horribly underwater. So you stopped making payments, saved 100% of your house payment, taxes, and insurance, lived frugally, and saved up $50K per year for 3 years.

    As to the first example if I’d gone into foreclosure I wouldn’t have been able to buy again, and thus I would have lost out on the possible gain.

    As to the second example, there would be no way to save 100% of your house payment and taxes, unless you’re living on the street. Let’s deal with some real life examples.

    Also, as I recall, Tim put some significant money down. If his advise is so great, why did he put money down when he purchased his house? He should have just gone with a 3.5% FHA loan, and if the value goes down he would walk away. Why would he risk the money put down over 3.5%? It sounds like a few months ago he didn’t even believe his advice.

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  36. Scott Weitz

    Great post, Tim.

    You are absolutely right.

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  37. Kary L. Krismer

    One more point about this not being so much about the housing market.

    With the first time buyer credit the plan directly impacted demand for houses. Higher demand, higher house prices (than what it would have been without the plan).

    Here at best all they are doing is reducing supply, specifically the supply of REOs, and even that is questionable. Even after these refinances, these people would still need to do a short sale if they wanted to sell, so that is not changing. Since this plan is only available to those who are current on their loans, foreclosure is at best a long way off. Any impact on pricing would be more than 9 months down the road in Washington state. President Obama doesn’t have that long for something to take effect.

    So again, I really think this is more about increasing consumer spending. That impact could be only a month or two away for each family that takes advantage of this program.

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  38. David Losh

    What happens if you apply that $700 to the principal balance? What if you start to pay off your under water home? What are the savings if you just feed the principal in the over all amortization schedule?

    Foreclosures aren’t a solution for any one, not even the “investors” who are snapping up these great bargains. When the twitter feed post for today gets corrected I’ll make the comparisons between residential, and commercial.

    We are after all talking about building a Real Estate.

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  39. Jonness

    By Kary L. Krismer @ 135:

    As to the first example if I’d gone into foreclosure I wouldn’t have been able to buy again, and thus I would have lost out on the possible gain.

    That’s not true. You could have bought a home right away where the owner carried the contract. This would have limited your options, but you still could have gotten back in as soon as prices stabilized. Otherwise, you could have waited the necessary time it took to get qualified for a conventional loan again and gotten in at that point. Either way, there is no way you would have missed out on the full 100% gain.

    As far as I know, current waiting periods for going conventional are:

    * Buying After a Foreclosure: Minimum 5 years
    * Buying After a Foreclosure With Extenuating Circumstances: Minimum 3 years
    * Buying After After a Deed-in-Lieu of Foreclosure: Minimum 4 years
    * Buying After a Deed-in-Lieu of Foreclosure With Extenuating Circumstances: Minimum 2 years
    *Buying after short sale: 2 years

    As to the second example, there would be no way to save 100% of your house payment and taxes, unless you’re living on the street. Let’s deal with some real life examples.

    That’s not true. My neighbors have been living in their home for over 3 years without having paid a single penny on the mortgage, taxes, or insurance. They are saving 100% of their house payment after having learned the hard lesson of having spent the $300K they pulled in equity on their 0-down loan. When the bank finally takes the home, they will simply move in with their parents until they feel the housing market has stabilized and their credit score is improved, at which point, they will buy another house using a government-backed loan with a good mortgage rate.

    I think the biggest problem with Tim’s advice is the-live frugal and save as much money as possible-part (OK, maybe that’s my advice and not his). If people won’t live frugally, then they should forget about it. Bad behavior is only fully rewarded in our current environment if you learn your lesson and start living frugally.

    Also, as I recall, Tim put some significant money down. If his advise is so great, why did he put money down when he purchased his house? He should have just gone with a 3.5% FHA loan, and if the value goes down he would walk away. Why would he risk the money put down over 3.5%? It sounds like a few months ago he didn’t even believe his advice.

    He didn’t want to pay for mortgage insurance (built-in to FHA), so he put 20% down. But more-so he difference with Tim is, he is living WAY beneath his means and can rent the house as cash flow positive if he decides to move.

    But you do bring up a good point, there are different situations that require different choices. It’s not a one-size fits all. I think the bottom line is, if you don’t live frugally, you can’t save money. If you went wild during the bubble and withdrew all the equity in your house, you are better off stopping payments and learning how to live frugally so that you never repeat the same stupid mistakes again (my neighbors are a good example). OTOH, if you are not an impulsive spender, are only slightly underwater, and you tend to live within your means, sticking it out might be the better decision as long as you don’t mind being underwater for the next 5 years or so.

    It really matters how far underwater people are. If they are 25% underwater, it could take 15 years just to get even. If they are 50% underwater, it could take several decades to break even. If they are only 5% underwater, then they probably need to get a life and stop worrying about it for a while.

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  40. Jonness

    It’s important to understand what kind of economy we are in. We are not in a normal business cycle induced recession. In a high inflation environment like the 1980′s, it makes sense to tie up money in assets. In a debt-bubble induced financial recession that leads to asset price deflation, it does not make sense to continue to pump money into the depreciating asset class that caused the recession, unless you can truly afford to take the hit.

    Comparing the 1980′s recession to the current recession is worse than comparing apples to oranges. Kary believes it’s impossible to predict future prices because past performance is no guarantee of future results. Yet, he is attempting to use his past performance in one environment to extrapolate future results in a completely different environment. Despite this method being highly suspect, he does bring up a good point. You can get a sense of the most probable outcome if you actually compare apples to apples, such as the U.S. housing bubble vs the Japanese housing bubble. Despite differences in the two economies, the similarities in the housing sector have so far proven to have been a good guide to investors. OTOH, stocks have been a different story.

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  41. Ira Sacharoff

    RE: Jonness @ 139
    Interesting comments, Jonness. What if you’re employed,and easily making the mortgage payment, but the value of your house has fallen 40 or 50%? Should you walk just because the value of the house has gone down? What if rents for similar houses weren’t less expensive?

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  42. Ray Pepper

    RE: Ira Sacharoff @ 141

    40-50%? I’m “done” quicker then lutefisk on a plate in front of you. But, I must emphasize the worst and I mean WORST thing a homeowner could do in this situation is walk-away. Never- EVER leave your home unless you want to or are FORCED to via Sheriff.

    If the Sheriff has arrived you made errors in your EXIT STATEGY. DD is crucial with Trustee Sale dates. The banks are giving pretty darn good “deals” now for homes POST Trustee sale but the fact remains you need to be around (or relatives/tenants) inhabiting the house to see them. I would also emphasize that as of Late 2011 if you lose your home via Trustee Sale, and your desire was to stay, you again made errors with your DD and exit strategy,

    Furthermore, people fail to realize how much they are actually upside down. In this state you might as well tack another 10% onto the assumed amount due to the HIGH cost to sell with RE fees, excise, title, escrow, repair orders, etc..

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  43. MichaelB

    Tim, This is a good plan as well as a bad plan – in other words, it depends! In some cases it is a bad option for the homeowner. In other cases it will be a good option for the homeowner.
    So, it will be good for homeowners in a percentage of cases. Thus, it will have a positive impact. Obama cannot get support for congress, so he is doing what he can….

    By the way, the way you have presented that youtube video on your website smacks of racism – “Obama is going to pay for my gas and mortgage!!!” No wonder you moved to Everett – what a redneck!

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  44. David Losh

    RE: MichaelB @ 143

    I didn’t click that video before; good catch.

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  45. Jo-Pete

    RE: MichaelB @ 143 – Why is it racist to show an ignorant, selfish person cheering because Obama is giving her a handout? Are we not allowed to point out greed and selfishness in “minority” populations?

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  46. Mee

    At this point Obama will screw anything to get re-elected…..

    Remember he is the One but more like a skinny Zero to me.

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  47. whatsmyname

    By Jo-Pete @ 145:

    RE: MichaelB @ 143 – Why is it racist to show an ignorant, selfish person cheering because Obama is giving her a handout? Are we not allowed to point out greed and selfishness in “minority” populations?

    The thing is that she doesn’t say that Obama is going to pay her gas/mortgage – or that he will give her a handout. To interpret what she says as expecting a handout reflects a conscious or unconscious filter which neatly lines up with a common and easily recognizable prejudice. Nice hood, by the way.

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  48. MichaelB

    RE: Jo-Pete @ 145

    It’s totally unnecessary. The selection of this particular clip shows very poor judgement. Making a negative point about our president using a racist association. It’s tea party, birther racism.

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  49. David Losh

    RE: MichaelB @ 148

    You should see the rest of the clips on the page.

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  50. TeaKake

    I haven’t read all 100+ comments so I apologize if someone brought this up before.

    The big issue I have with this critique of Obama’s refinance plan is that the argument against paying for underwater homes (at lower interest rates) only works in states like Washington that have consumer protection laws. In many other states, if a person defaults or does a short sale (even if approved by the bank), that person is left responsible for the balance. Simply put, in many states you cannot walk away from your home. The remaining balance of your mortgage will follow you the rest of your life — they can put liens on any future property and, in some cases, garnish your wages.

    I agree with Tim that to refinance an underwater home in WASHINGTON might not make sense and so Obama’s plan wouldn’t be god for someone here but I think it’s short sighted to critique the national importance of this law.

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  51. Kary L. Krismer

    By Jonness @ 39:

    By Kary L. Krismer @ 135:

    As to the first example if I’d gone into foreclosure I wouldn’t have been able to buy again, and thus I would have lost out on the possible gain.

    That’s not true. You could have bought a home right away where the owner carried the contract.

    The Garn Act was passed in 1982 and basically ended almost all owner contract situations. That’s why today even with sellers that have a lot of equity, you don’t see a lot of owner financing. Given the low bank rates today you’d see a ton of that if it were safely available.

    As to some of your other points, I’m not sure what the buy after foreclosure rules were back then, but I doubt they were as generous as even today. Foreclosures weren’t taking three years back then, but I could have probably gotten 6-8 months of free rent, so I’ll give you that. I don’t buy the argument that avoiding PMI justifies putting 20% down if you think walking away is just a good option for everyone, but thank you for acknowledging that it’s a different situation for everyone. I’ve never said walking away isn’t a good option for some.

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  52. Kary L. Krismer

    By Jonness @ 40:

    Comparing the 1980′s recession to the current recession is worse than comparing apples to oranges. Kary believes it’s impossible to predict future prices because past performance is no guarantee of future results. Yet, he is attempting to use his past performance in one environment to extrapolate future results in a completely different environment.

    If you’re basing that on my comments regarding Tim’s suggestion to walk away, you’re reading too much into that. I’m not trying to predict that we’ll see the same type of inflation as in the past. I’ve never changed my position that we could either see significant inflation or deflation, and that it’s best to be balanced for either.

    All I’m saying is things seemed just as dire back then in the early 80s, so don’t just go making extreme decisions based on the fact that things seem bad now. This isn’t some new event that mankind has never gone through before. And despite some of the press hype, it’s not even all that bad.

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  53. Kary L. Krismer

    By MichaelB @ 43:

    Obama cannot get support for congress, so he is doing what he can..

    President Obama has not tried to get support from Congress. He proposes things he knows will not fly and then complains that they don’t get passed. Pure politics.

    I haven’t heard a lot of Republican complaints about this plan, but that might change in the next couple of hours when I watch the Sunday morning shows.

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  54. Kary L. Krismer

    RE: TeaKake @ 50 – You can be responsible for the remaining balance on your mortgage debt in Washington, especially in short sale situations and where you have more than one deed of trust.

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  55. David Losh

    RE: TeaKake @ 150

    Good point.

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  56. Kary L. Krismer

    By Kary L. Krismer @ 53:

    I haven’t heard a lot of Republican complaints about this plan, but that might change in the next couple of hours when I watch the Sunday morning shows.

    Well, it didn’t change. The only place this was even mentioned, that I saw, was in the first few minutes of Meet the Press, when it was grouped with 3 other things President Obama did by executive order. I don’t think it was even mentioned by name (as opposed to something general to help housing), and the only person talking about it was someone working on President Obama’s election.

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  57. Seattle Bubble • Top 10 Most-Commented Posts of 2011

    [...] 156 comments, 10/27: Obama "Can’t Wait" to Screw with the Market Even More [...]

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