Controversy over principal reductions continue
Some lawmakers and economists advocate for the limping real estate market to find its own bottom naturally so that a recovery is not dependent upon the government’s intervention, while supporters of principal reductions for mortgage borrowers say it is not a measure to falsely prop up the market, rather is a means of stopping the hemorrhaging.
This contentious issue has been accelerated by the $25 billion mortgage settlement between 49 attorneys general, the federal government and the five largest mortgage servicers, Bank of America struck a separate deal, offering principal reductions averaging over $100,000. Other servicers and agencies are experimenting with the same.
Despite the Federal Housing Finance Agency (FHFA) which regulates Fannie Mae and Freddie Mac asserting in a statement that pincipal reductions at Fannie and Freddie would cost taxpayers another $100 billion, the Obama administration also announced recently that it would offer incentives to Fannie and Freddie to reduce principal on loans which previously was only offered to private entities and banks.
It was reported that Fannie and Freddie proclaim not only is principal reductions the savior to homeowners, but to the very existence of Fannie and Freddie. The claim is that loan forgiveness would theoretically keep hundreds of thousands of homeowners in their homes and would save Fannie and Freddie money, thus saving taxpayers over $150 billion, as the FHFA is the federal conservator to the two mortgage giants and Americans are therefore responsible for future losses until Fannie and Freddie are privatized, which the government has said is the ultimate plan of the agency.
The beating drum on the topic
On C-SPAN today, Shaun Donovan, the United States Secretary of Housing and Urban Development, which operates under the FHFA was asked about principal reductions. When asked why Fannie and Freddie should be forced to do write-downs, Donovan said, “This isn’t about force. This is about making the right decision for homeowners and for the taxpayer.”
Donovan points to a growing consensus that for homeowners that are “deeply underwater” where there is “really no light at the end of the tunnel,” homeowners realize that even after years of paying their mortgage, they can never regain the equity they lost in their home, and “families will give up at some point. We think the data shows that.”
The core argument for Donovan is that what is good for homeowners is good for the taxpayer and asserts that the changes made in recent months make a “compelling” argument for principal reductions.
During the interview, Donovan was asked if the 75 percent of deeply underwater borrowers with Fannie and Freddie backed loans are actually paying will continue doing so if delinquent borrowers are offered debt reductions, to which Donovan responded, “The vast majority of homeowners don’t operate that way. They know that their home is where they’re going to raise their kids. They’re part of a community there.”
“The home is much more than an investment,” Donovan added. “And so we really know this from studies we’ve done, that the vast majority of folks, these families, aren’t going to just put all of that at risk to default on purpose on their homes.”
“We shouldn’t punish the vast majority of folks”
Donovan notes that what we are “really talking about” is what he calls a “small group of folks,”maybe demographically single folks who aren’t giving up those same things, who see that there may be from defaulting that you know they could move across the street or other things. So there is a small group.”
“But we shouldn’t punish the vast majority of folks where strategic default isn’t really a risk, just to fix what may be really a risk with a small percentage,” Donovan said.
Architecting a solution
Donovan says this is not a difficult problem to design around. ” Take the mortgage-servicing settlement that we recently reached. In that case what we’re doing is putting in place protections so that we avoid some of the risks of strategic default. For example, in that case many of the servicers are simply going to set a date at which you’re eligible based on delinquency and what that means is there’s nothing you can do. You can’t make yourself eligible. You can’t start to default on your mortgage and all of a sudden start to get a windfall from that by getting a principal reduction.”
Noting that he believes the vast majority of homeowners are not at risk for strategic default, the agency can and will design around those risks.
Donovan and DeMarco
Edward DeMarco, the acting director of the FHFA, recently said that the agency is evaluating the Treasury Department’s proposal to HAMP regarding principal forgiveness and says he “expect[s] a decision this month.”
Earlier this year, DeMarco noted that there are additional costs of a principle reduction program and would require the agency to borrow even more money to train servicers for the program and pay for the required technology to run the program, reiterating that forbearance is a less expensive option.
While HUD (Donovan) and the FHFA (DeMarco) do not have a consensus, Donovan said of DeMarco, “whatever his personal feelings are, he is dedicated to making sure that he follows the law and what the conservator is required to do. And we believe based on the analysis that we’ve done that the evidence is that principal write-downs should happen in cases where it’s not only good for the homeowner but also good for the taxpayer.”
Boomers retirement may be the true reason behind the labor shortage
(ECONOMY) Millennials and Gen Z were quick to be blamed for the labor shortage, citing lazy work ethic- the cause could actually be Boomers retirement.
In July, we reported on the Great Resignation. With record numbers of resignations, there’s a huge labor shortage in the United States. Although there were many speculations about the reasons why, from “lazy” millennials to the number of deaths from Covid. Just recently, CNN reported that in November another 3.6 million Americans left the labor force. It’s been suggested that the younger generations don’t want to work but retiring Boomers might be the bigger culprit.
Why Boomers are leaving the labor force
CNN Business reports that 90% of the Americans who left the workplace were over 55 years old. It’s now being suggested that many of the people who have left the labor force since the beginning of the pandemic were older Americans, not Millennials or Gen Z, as we originally thought. Here are the reasons why:
- Boomers are more concerned about catching COVID-19 than their younger counterparts, so they aren’t returning to work. Boomers are less willing to risk their health.
- The robust real estate market has benefitted Boomers, who have more equity in their homes. Boomers have more options on the table than just returning to work.
- Employers aren’t creating or posting jobs that lure people out of retirement or those near retirement age.
As Boomers retire, how does this impact the overall labor economy?
According to CNN Business, there are signs that the labor shortage is abating. Employers are starting to see record number of applicants to most posted jobs. FedEx, for example, just got 111,000 applications in one week, the highest it has ever recorded. The U.S. Bureau of Labor Statistics projects that the pandemic-induced increase in retirement is only temporary. People who retired due to the risk of the pandemic will return to work as new strategies emerge to reduce the risk to their health. With new varients popping up, we will have to keep an eye on how the trend ultimately plays out.
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?
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…
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.
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.
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.
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.
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