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No More Mortgages – Ever…

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Fannie Mae Changes

I’ve recently been pontificating on the effects that the current real estate market will have in the future. I feel at times, that we’re so wrapped in survival mode, that we haven’t taken the time to see what may happen in the future. To that end, I was trying to look at the effects of Fannie Mae’s recent change (May 31, 2008) to provide underwriting guidelines for applicants who have past foreclosures and shortsales on their credit reports. According to the new guidelines, people who have suffered a foreclosure will be ineligible for a loan, for a period of five years and those who have sold as a Short Sale will be denied for a period of one year.

Left with Questions

I certainly feel that the time frames for loan denial are reasonable. However, I’ve heard many arguments that a significant cause of the current housing crisis is the fact that many people who shouldn’t have had loans, received them anyway. I’ve heard a few agents say that people who have had foreclosures, or even went through a short sale, shouldn’t be given any mortgages at all. I’m surprised at this mentality from practitioners. I know that many of us have sat with desperate clients who have done everything possible and just couldn’t sell today, at yesterday’s prices. I know that I have talked to many agents who feel helpless while meeting with clients who have been hit with really hard economic times, medical issues or other devastation.

Play it Out

Let’s say that we add the people before this market who have had foreclosures to those 30 percent or so that are going through it now. Now, let’s say that we follow the mentality of some practitioners in this regards. We’ve now started to alienate a large number of potential buyers, who may be able to overcome their immediate life issues and find themselves in a better position six years down the line. Many of these folks will also be turned down as renters if they have foreclosures on their credit histories. So, where exactly are they and their families suppose to live?

Watch What You Say

For those who are vocal on blogs and other searchable medians, what does this say to their current clients who may be struggling? I suppose some level of benevolence would be expected from a profession that is suppose to act as if they were walking in their client’s shoes. Understanding of the unfortunate position of some people is a necessary aspect of working with clients.

If those in this industry can’t find compassion and a heart for the consumer, than who can?

Matthew Rathbun is a Virginia Licensed Broker and Director of Professional Development for Coldwell Banker Elite, in Fredericksburg Virginia. He has opened and managed real estate firms, as well as coached and mentored agents and Brokers. As a Residential REALTOR®, Matthew was a high volume agent and past REALTOR® Rookie of the Year & Virginia Association Instructor of the Year. You can follow him on Twitter as "MattRathbun" and on Facebook. Matthew's blog is TheAgentTrainer.com.

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14 Comments

14 Comments

  1. Paula Henry

    June 23, 2008 at 8:50 pm

    Matthew – This is a serious topic affecting way too many people who just hit upon a hard times. What do you say to the people here in the Midwest, who because of floods and lack of insurance, walk away from their homes and let the bank have them back. Or, the client who tried to work through a divorce, but the house didn’t sell and there wasn’t enough money?

    Sorry – you can not buy another home – heck, we won’t even rent to you.

    Sure, there are plenty of people who didn’t read the fine print or sincerely believed they could refinance out of their current loan, except the market changed. Some just made bad choices. Certainly, there were many who should not have been given a loan – but they were buying their piece of the American Dream. they had hopes and dreams, which have been shattered.

    There are even a percentage who obtained property unethically through liar loans and deceit. I have not seen this to be the case for the majority here in Indiana. At least not the people who call me.

    I have seen many cases which break my heart and all I can say is:

    Except for the Grace of God…………

  2. Matthew Rathbun

    June 23, 2008 at 9:01 pm

    Paula,

    I think the few people who potentially set out to deceive or “play” the market are so minimal that it doesn’t justify punishing everyone.

    Many people (including some agents) didn’t read the fine print that even some attorneys can’t easily decipher. I think that there should be some restrictions to give one time to get their life back on track and learn to control their finances, but not a blanket life long scarlet letter….

  3. Ken Smith

    June 23, 2008 at 9:23 pm

    Ignorant people say some really stupid things.

  4. Shailesh Ghimire

    June 23, 2008 at 9:31 pm

    I haven’t heard anyone say that mortgages should be denied, but then again that doesn’t mean it hasn’t been said. You raise a great question here. I too agree those limitations are really reasonable, but the five year limit is too high in my opinion. They should reduce it to four years.

    The key factor regardless of the time limit is credit management post-foreclosure and post-short sale. Underwriters will be very interested in seeing how the applicant has managed their finances after such a dramatic financial collapse.

    As far as the whole mess, I think Fannie Mae and others need to put tight reigns on income verification and holding the DTI limit with no exceptions. That will pretty much ensure that the borrower is able to afford the mortgage. I haven’t looked at the numbers recently, but a lot of the foreclosures are occurring due to those stated income loans. Which allowed ANYONE to over extend themselves. I think if you go back to properly documenting income and holding to a tight DTI then I don’t see any problem in giving mortgages to those who have reasonable credit even after a foreclosure or short sale.

  5. Michelle DeRepentigny

    June 23, 2008 at 10:02 pm

    What disturbs me about the 5 year and 1 year guideline/rule is that I am seeing such a flood of short sales that are not being processed in an efficient, timely manner. So many are trying to short sale and failing, then going into foreclosure. Why is this fair, either make it 5 years for all who default in any way, or 1 year. Education is going to be the key to keep people out of this situation and unfortunately many consumers are still not going to receive that.

  6. Matt Wilkins

    June 23, 2008 at 10:42 pm

    This also brings up the point that too many homeowners do not take the intiial steps of trying to work the lender on a solution and skip straight to trying to short sale property (many times listing it beofre submitting the required paperwork). Many people have been able to work with lenders and obtain short/long term solutions that are a win-win. The ones that throw up their hands should be the ones that take the brunt of the credit damage.

    I belive that the numbers of months that the person canot buy for should be based on the on their credit situation beofer the short sale or foreclosure. Many clients have good credit but have to dispose of their home in some manner due to job transfer or needing more space. It is not completely thier fault that the home is worth significantly less than wht they paid for it. Yes they should not get off scott free but they should also not be punished to the fullest extent.

  7. Thomas Johnson

    June 24, 2008 at 12:12 am

    This is fluid. As soon as there has been adequate recapitalization of the lenders, they will be back. This process may take years, however. Let’s hope that FHA continues to be funded by the politicians. Time will be need to clear the excess inventory of houses.

  8. GP

    June 24, 2008 at 1:54 am

    Who exactly is going to buy all these foreclosures??? Not homeowners attempting to downsize after being forced out of their home. Not investors looking to rent to those unable to buy…

    With Freddie Mac now limiting investors from owning more than 4 properties before they’re limited to portfolio loans, it seems like Washington doesn’t want ANYONE to own homes but the lenders?!

    And of course, the numerous foreclosure scam laws that have been pressed into place are a mess of legal confusion, which has scared off most ethical investors who had been acting respectably and buying houses before the courthouse steps… (I asked three attorneys in my state about a confusing part of the new FC law, and got three different answers!)

    There is so many knee-jerk reactions and hasty policies being made in government halls all over the country these days, my sense is that a good many of these actions are bound to make the situation worse, before it gets better. At some point, preventing supply and demand from acting only delays the inevitable pain…

  9. Anne

    June 24, 2008 at 7:14 am

    What a great post. As a REALTOR and an investor I’m seeing the same things. I am currently working with several clients who had the misfortune of purchasing at the peak of the market and then having a “life crisis”, ie divorce, job loss, health issue and finding themselves unable to afford their homes. Often these are people who took a part time second job and cut back to try to protect their credit. I believe a short sale is most often the answer, and if they recover financially they should be able to buy in the future. I don’t think a year is too long to wait, and in fact most people will take longer to become financially stable again. However, that being said, I do think that people who lied about their income and just plain over extended themselves buying “stuff” with their equity lines shouldn’t necessarily be given carte blanche to do it again down the road. I have tenants, and when I do a credit screen I look beyond the foreclosure to see how thay managed their other debt.

  10. Danilo Bogdanovic

    June 24, 2008 at 12:47 pm

    My parents told me two things once upon a time…

    “The only person you have to blame for your mistakes is yourself.”

    and

    “Don’t sign anything before you’ve read it and understand it fully”

  11. Melina Tomson

    June 24, 2008 at 2:20 pm

    I think there is a difference between people that have a life event occur and people that just overspent themselves. You can’t help a flood, medical problems, job loss, etc. In the past year, I have only seen one true “hardship” and it really was sad for the family. I would have loved for the lender to recapitalize their loan for them and offer a period of forebearance. It would have been the right thing to do.

    The rest were people whose eyeballs were bigger than their wallets. I just don’t have a lot of sympathy for people that don’t know how to live within a budget. Sorry, I don’t.

    I like the idea of the stagger because there would be some incentive to try and negotiate the sale for a seller vs. sticking their head in the sand. The problem, as someone else posted, is that trying to negotiate a short sale is so painful for all parties involved.

    What I hope comes out of this mess is 1) a return to common sense budgeting, and 2) better trained agents and mortgage brokers that can help buyers understand some of that fine print. The fact is that this is what we do day in and day out. People really do rely on us for guidance, and I know I am work hard with my buyers to understand the budgetary constraints of a home purchase.

  12. Robert D. Ashby

    June 24, 2008 at 9:17 pm

    Did we forget about all of the investors speculating, floppping, etc.? I think the guidelines should be similar to those involving bankruptcy. If you have been in a foreclosure within the last 4 years, your out unless you can justify it with documented viable reasons (divorce, job loss, etc.) Don’t punish the ones that fell on hard times and lost their home that way, but come down hard on the ones who deserve wrath.

    I know investors probably hate for those comments, but taking a whole picture view of their financial and investment plans would keep them from being in that situation in the first place. Investing is not for amatuers unless you are willing to take a “spanking” and are seeking porper advice.

  13. Matthew Rathbun

    June 26, 2008 at 6:28 am

    Robert,

    I didn’t forget about the investors, but I don’t think people who have received orders to move, had medical or life issues, etc… should suffer because some investors weren’t very good at it.

    Perhaps a different set of rules for primary residence versus investment and second homes?

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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Economic News

Gas prices are down, so are gas taxes about to go up?

Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.

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Gas taxes and your bottom line

Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.

Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.

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Supporters and opponents are polar opposites

Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.

Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.

While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.

The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.

Is a gas tax politically plausible?

Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”

Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”

Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.

Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.

“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”

Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.

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