Questions continue to hover over the foreclosure relief scene like low lying clouds. Of course, we've all heard the objections of those dutifully making their payments on time. Why should the responsible assist the irresponsible, is how the argument goes. In lofty philosophical arenas, the debate will likely rage for months to come, perhaps years.
But, on a more mundane level, I have been reading that foreclosure relief measures recently enacted may not achieve great results for very basic reasons. For starters, statistics indicate that as much as one-third of residential properties are not owner-occupied. As such, these properties are not eligible for refinancing or for mortgage modification under current relief measures.
Further, it is believed that many who will take advantage of refinance or modification will fall into default again, anyway.
Finally, there is nothing to coax lenders into participating in relief programs. If enough lenders take a pass, avenues for borrowers will be limited and many foreclosures will not be averted. Even lenders willing to participate may find difficulties in trying to restructure loans that have been sold in bundles on the secondary market.
While it is good news that something is being done and plans are being crafted to fix troubled mortgages, I wish that all the well-intentioned energy of lawmakers could be directed more toward outcomes and results rather than smithing sweeping, altruistic platitudes.
Monday, February 23, 2009
Friday, January 30, 2009
Is it a home or just a house?
Just this morning (January 30, 2009), Reuters reported that sales of newly-built homes plunged to the lowest level since these statistics were first recorded. I was not surprised by the substance of this announcement. After all, we are confronted daily with indicators of the ever-deepening economic crisis. What surprised me was that statistics only go back to 1963. I suppose I assumed that such an important measure would date much further back than a mere 46 years ago.
That brought to my mind the recollection that my parents purchased their first home just one year before. It was a newly-constructed home that they bought. I guess they were included in those very early reports. It was located in a modest suburb and had a "garden" apartment to help with the mortgage payment. They had realized their piece of the American dream just seven years after arriving in the United States with family in tow.
In the same article, Reuters suggests that housing is "the root of the worst financial crisis in more than 70 years." If you have read any of my postings, you know that I could not agree more.
Having provided a backdrop, I now ask you to consider the advise of "personal finance guru", Chris Farrell, who, also just today, instructs us that now is a good to to look for housing, but not necessarily to buy. No telling how much lower prices will go is his rationale.
In other words, treat home ownership as portfolio management. It's easy: buy low, sell high (somehow, I seldom get that right). So, folks that are taking Mr. Farrell's advise are out there waiting to buy. They are waiting for prices to hit bottom so that they can make a killing in real estate.
What ever happened to the notion of house as home? We used to buy residences for shelter and to raise our families. Our homes should be reflections of who we are and extensions of our dreams and aspirations. The home is a cocoon where a family is safe and secure, is nourished, nurtured and allowed to grow. When did we begin to regard it merely as investment strategy?
I know that in 1962 my parents did not fret over whether the timing was right nor were they concerned about how fast their new home's value would rise. They were just anxious to provide a home and start realizing the rich return offered by many years of happy memories.
I agree with Reuters assessment that housing is at the root of our current economic woes. But, perhaps, it is so for more profound reasons than we think. It may be worth considering that, if we stop feeding the notion that housing is our sure-fire ticket to easy street and get back to the bedrock principle that, above all else, a house is a home, then the true recovery can begin.
That brought to my mind the recollection that my parents purchased their first home just one year before. It was a newly-constructed home that they bought. I guess they were included in those very early reports. It was located in a modest suburb and had a "garden" apartment to help with the mortgage payment. They had realized their piece of the American dream just seven years after arriving in the United States with family in tow.
In the same article, Reuters suggests that housing is "the root of the worst financial crisis in more than 70 years." If you have read any of my postings, you know that I could not agree more.
Having provided a backdrop, I now ask you to consider the advise of "personal finance guru", Chris Farrell, who, also just today, instructs us that now is a good to to look for housing, but not necessarily to buy. No telling how much lower prices will go is his rationale.
In other words, treat home ownership as portfolio management. It's easy: buy low, sell high (somehow, I seldom get that right). So, folks that are taking Mr. Farrell's advise are out there waiting to buy. They are waiting for prices to hit bottom so that they can make a killing in real estate.
What ever happened to the notion of house as home? We used to buy residences for shelter and to raise our families. Our homes should be reflections of who we are and extensions of our dreams and aspirations. The home is a cocoon where a family is safe and secure, is nourished, nurtured and allowed to grow. When did we begin to regard it merely as investment strategy?
I know that in 1962 my parents did not fret over whether the timing was right nor were they concerned about how fast their new home's value would rise. They were just anxious to provide a home and start realizing the rich return offered by many years of happy memories.
I agree with Reuters assessment that housing is at the root of our current economic woes. But, perhaps, it is so for more profound reasons than we think. It may be worth considering that, if we stop feeding the notion that housing is our sure-fire ticket to easy street and get back to the bedrock principle that, above all else, a house is a home, then the true recovery can begin.
Thursday, January 15, 2009
U.S. Congressman Proposes Bill for Government Refinances
Although I've never been to Merced, California, the pictures on the city's website depict a very inviting scene. White stucco buildings framed by palm trees and all set against a sky of brilliant azure. They evoke notions of the California us icy and snow-laden Midwesterners yearn for and dream of. But when you study the homepage more carefully, you'll be struck by a very sobering link captioned "I want to ... avoid foreclosure". The reason for this is that Merced, California, has one of the highest foreclosure rates in the country.
Merced is located within the U.S. Congressional district represented by Representative Dennis Cardoza. Earlier this month, Mr. Cardoza proposed a bill in the U.S. House of Representative suggesting a plan very much like the one suggested by Professors Hubbard and Mayer of the Columbia Business School; and that I have written about in this blog on October 8, 2008 and November 17, 2008. Mr. Cardoza, in support of his proposal, states, "You cannot fix the economy unless you fix the foreclosure crisis." He contends that the core of the current economic crisis is the "ravaged housing market" The following link will take you to the full story published in the Merced Sun-Star on January 8, 2009: http://www.mercedsunstar.com/167/story/628022.html
I could not agree with you more, Rep. Cardoza. The fact that housing alone supported a floundering economy a few short years ago further buttresses the argument that the ailing housing sector is exacerbating the ills in the larger economy. I hope this bill has legs and makes it through Congress. If not, I hope it at least has impact on where we should focus attention in creating solutions.
I am with you all the way, Congressman Cardoza. I wish I could vote for you, but, sadly, I am here in Chicago; shivering.
Merced is located within the U.S. Congressional district represented by Representative Dennis Cardoza. Earlier this month, Mr. Cardoza proposed a bill in the U.S. House of Representative suggesting a plan very much like the one suggested by Professors Hubbard and Mayer of the Columbia Business School; and that I have written about in this blog on October 8, 2008 and November 17, 2008. Mr. Cardoza, in support of his proposal, states, "You cannot fix the economy unless you fix the foreclosure crisis." He contends that the core of the current economic crisis is the "ravaged housing market" The following link will take you to the full story published in the Merced Sun-Star on January 8, 2009: http://www.mercedsunstar.com/167/story/628022.html
I could not agree with you more, Rep. Cardoza. The fact that housing alone supported a floundering economy a few short years ago further buttresses the argument that the ailing housing sector is exacerbating the ills in the larger economy. I hope this bill has legs and makes it through Congress. If not, I hope it at least has impact on where we should focus attention in creating solutions.
I am with you all the way, Congressman Cardoza. I wish I could vote for you, but, sadly, I am here in Chicago; shivering.
Monday, November 17, 2008
After fumbling around with TARP (Troubled Asset Relief Program) for too long, attention is finally returning to the fundamental weakness creating and sustaining our current economic woes, mortgages that people cannot afford on homes of insufficient value to provide adequate collateral for those mortgages. The plan that everyone is looking at now is one proposed by FDIC Chairperson, Sheila Bair, to modify non-GSE mortgages that are past due already or projected to become delinquent by the end of 2009. The basics of the proposal call for the government to cover servicing expenses and to share losses if the modified loans subsequently default anyway.
While efforts to address a core vulnerability of the economy must be applauded, this plan like so many others strike me as just another typical bureaucratic response. After all, the goal of any bureaucrat is job security. This is a splendid plan to keep all those operatives in the Treasury Department and FDIC busy for years. There are eligibility requirements to review, tests to be applied, reviews to be conducted, rules to be drafted, standards to be applied, reviewed, revised and then re-applied, re-reviewed, revised again, ... etc., etc., etc.
Why are we not talking about a plan like the one suggested by Drs. Hubbard and Mayer of Columbia Business School as summarized in the October 2d Wall Street Journal (I wrote about it in this blog on October 8)? The elegant simplicity of that plan obviously makes it unworthy of examination. I guess that since the Hubbard and Mayer plan does not involve an army of eager government operatives to administer it can't work. I fear that, despite good intentions, we are on the wrong path again.
While efforts to address a core vulnerability of the economy must be applauded, this plan like so many others strike me as just another typical bureaucratic response. After all, the goal of any bureaucrat is job security. This is a splendid plan to keep all those operatives in the Treasury Department and FDIC busy for years. There are eligibility requirements to review, tests to be applied, reviews to be conducted, rules to be drafted, standards to be applied, reviewed, revised and then re-applied, re-reviewed, revised again, ... etc., etc., etc.
Why are we not talking about a plan like the one suggested by Drs. Hubbard and Mayer of Columbia Business School as summarized in the October 2d Wall Street Journal (I wrote about it in this blog on October 8)? The elegant simplicity of that plan obviously makes it unworthy of examination. I guess that since the Hubbard and Mayer plan does not involve an army of eager government operatives to administer it can't work. I fear that, despite good intentions, we are on the wrong path again.
Tuesday, October 14, 2008
So, you don't think title insurance is important.
For decades title insurance was the quiet, back-room side of the real estate industry. It was far from the glow of the spotlight enjoyed by other segments of the business. But, lately, greater attention is being directed our way; and much of that has to do with the writings and work of Hernando de Soto. No, not the 16th century Spaniard who, with Francisco Pizarro, witnessed the conquest of Peru; but, a contemporary de Soto who is wielding even more profound influence on that country than the conquistadors of old. In fact, this modern de Soto's has left his mark on many other countries, as well; from Central and South America to Africa and as far away as the Philippines. Our de Soto is a Peruvian economist and author of the international best-seller, The Mystery of Capital - Why Capitalism Triumphs in the West and Fails Everywhere Else.
Now, what does this have to do with title insurance? Simple. Professor de Soto teaches us that it is the very lack of formal property rights in many parts of the world that is the true source of poverty. Since 1979, de Soto has been studying the complicated and convoluted structures in many countries that present overwhelming obstacles to those seeking to establish ownership of property. He found that these hurdles force the majority of the poor to live and work outside of the established legal system. They build informal structures, arrangements, and understandings recognized generally by their own communities, but of no consequence to any beyond their narrow borders. The gravity of this reality is astounding when you consider that, unless you can firmly prove ownership of any property, you are unable to sell it at a profit, or, more importantly, leverage it to acquire more property, thereby building wealth.
Western legal mechanisms allow owners of property to clearly evidence their titles. This is so deeply entrenched in our economic psyche that we are not always conscious of this crucial aspect of our success. In fact, de Soto thinks that we take our system so much for granted that we have actually lost all awareness of its existence.
Now, when you couple our tradition of establishing enforceable property rights with a written guarantee of protection, you have a very powerful weapon in the arsenal of a vibrant economy.
Title insurance provides the guarantee of protection of property rights. Because of title insurance, real estate titles can be leveraged with greater fluidity and universal acceptance. This allows owners to employ their holdings to acquire more assets, achieve greater goals, and build wealth. When considered in this light, title insurance is at the very foundation of our success as a developed nation and economy. I daresay that we should no longer be thought of as the behind-the-scene player on the real estate stage; but, rather, as the star of the show.
To learn more about de Soto, you may check out the article I wrote in December of 2006 for Metro Chicago Real Estate Magazine and which is posted on the Prairie Title website. You may also want to visit www.alta.org to read a more extensive piece written for the September/October 2008 issue of Title News.
Now, what does this have to do with title insurance? Simple. Professor de Soto teaches us that it is the very lack of formal property rights in many parts of the world that is the true source of poverty. Since 1979, de Soto has been studying the complicated and convoluted structures in many countries that present overwhelming obstacles to those seeking to establish ownership of property. He found that these hurdles force the majority of the poor to live and work outside of the established legal system. They build informal structures, arrangements, and understandings recognized generally by their own communities, but of no consequence to any beyond their narrow borders. The gravity of this reality is astounding when you consider that, unless you can firmly prove ownership of any property, you are unable to sell it at a profit, or, more importantly, leverage it to acquire more property, thereby building wealth.
Western legal mechanisms allow owners of property to clearly evidence their titles. This is so deeply entrenched in our economic psyche that we are not always conscious of this crucial aspect of our success. In fact, de Soto thinks that we take our system so much for granted that we have actually lost all awareness of its existence.
Now, when you couple our tradition of establishing enforceable property rights with a written guarantee of protection, you have a very powerful weapon in the arsenal of a vibrant economy.
Title insurance provides the guarantee of protection of property rights. Because of title insurance, real estate titles can be leveraged with greater fluidity and universal acceptance. This allows owners to employ their holdings to acquire more assets, achieve greater goals, and build wealth. When considered in this light, title insurance is at the very foundation of our success as a developed nation and economy. I daresay that we should no longer be thought of as the behind-the-scene player on the real estate stage; but, rather, as the star of the show.
To learn more about de Soto, you may check out the article I wrote in December of 2006 for Metro Chicago Real Estate Magazine and which is posted on the Prairie Title website. You may also want to visit www.alta.org to read a more extensive piece written for the September/October 2008 issue of Title News.
Wednesday, October 8, 2008
New Proposal Aimed At Housing Crisis
On September 29 the U. S. House of Representatives rejected a plan proposed by the President and Secretary of Treasury designed to free up frozen credit and stabilize panicking financial markets. The plan is now known as the Emergency Economic Stabilization Act of 2008, or EESA, a somewhat euphemistic moniker for the now unpopular and politically dangerous notion of financial bailout.
Immediately thereafter, the stock market plunged by about 750 points.
This seemed to signal a mistake had occurred. Legislators, spooked by what seemed a violent reaction, went back to the drafting table. This time the Senate, knowing how to get bills passed or make sausage (take your pick), loaded up what started out as a 3-page proposal with an additional 448 pages of “pork.”
The stock market in the meantime attempted a modest recovery. Was this a sign we are back on the right track?
On Friday, October 3, the fattened and sweetened Senate version was easily digested by the House and was signed into law by the President within hours of its passage.
The next trading day (Monday, October 6) saw overseas markets tanking and the NYSE lose 8% of value to bring the Dow Jones Industrial Average to its lowest level in over 4-years.
Does this signal that we are not on the right track after all? Perhaps the markets’ reactions tell us that we may only be attacking one aspect of a failing system (or the markets just don’t have as much an appetite for pork as Congress does).
Two noted economists from prestigious Columbia Business School strongly suggest that the place where we should begin to address the vicious downward cycle in financial markets is housing. The cycle started with falling housing values which caused losses in securities backed by housing units. Those losses reduced bank capital. Tightening of credit markets ensued, which caused housing values to fall still further.
In an October 2, 2008 piece written for the Wall Street Journal. professors R. Glen Hubbard and Chris Mayer have articulated a bold yet simple plan to underpin the slide in housing values. Allow homeowners to refinance mortgages on their primary residence into 30-year fixed rate mortgages at 5.25%. For those with property worth less than the outstanding balance of their mortgage, the government could “write-down” the amount owed in exchange for an equity position in the property. This would allow the taxpayers to recover the subsidies and even profit from them when the housing market rebounds. Hubbard and Mayer contend that this program is clearly feasible and may be implemented immediately and at little cost due to the fact that the US government now controls about 90% of the mortgage market.
Now, before jumping to any conclusion and painting these guys as just another two wacky, wild-eyed socialists from academia, note that Dr. Hubbard was Chairman of the Council of Economic Advisors under President George W. Bush.
This may be a plan worth pursuing. I wonder if anyone in Congress has the energy or drive to engage in studying this proposal. Or are they just too groggy from all that pork? What do you think?
Immediately thereafter, the stock market plunged by about 750 points.
This seemed to signal a mistake had occurred. Legislators, spooked by what seemed a violent reaction, went back to the drafting table. This time the Senate, knowing how to get bills passed or make sausage (take your pick), loaded up what started out as a 3-page proposal with an additional 448 pages of “pork.”
The stock market in the meantime attempted a modest recovery. Was this a sign we are back on the right track?
On Friday, October 3, the fattened and sweetened Senate version was easily digested by the House and was signed into law by the President within hours of its passage.
The next trading day (Monday, October 6) saw overseas markets tanking and the NYSE lose 8% of value to bring the Dow Jones Industrial Average to its lowest level in over 4-years.
Does this signal that we are not on the right track after all? Perhaps the markets’ reactions tell us that we may only be attacking one aspect of a failing system (or the markets just don’t have as much an appetite for pork as Congress does).
Two noted economists from prestigious Columbia Business School strongly suggest that the place where we should begin to address the vicious downward cycle in financial markets is housing. The cycle started with falling housing values which caused losses in securities backed by housing units. Those losses reduced bank capital. Tightening of credit markets ensued, which caused housing values to fall still further.
In an October 2, 2008 piece written for the Wall Street Journal. professors R. Glen Hubbard and Chris Mayer have articulated a bold yet simple plan to underpin the slide in housing values. Allow homeowners to refinance mortgages on their primary residence into 30-year fixed rate mortgages at 5.25%. For those with property worth less than the outstanding balance of their mortgage, the government could “write-down” the amount owed in exchange for an equity position in the property. This would allow the taxpayers to recover the subsidies and even profit from them when the housing market rebounds. Hubbard and Mayer contend that this program is clearly feasible and may be implemented immediately and at little cost due to the fact that the US government now controls about 90% of the mortgage market.
Now, before jumping to any conclusion and painting these guys as just another two wacky, wild-eyed socialists from academia, note that Dr. Hubbard was Chairman of the Council of Economic Advisors under President George W. Bush.
This may be a plan worth pursuing. I wonder if anyone in Congress has the energy or drive to engage in studying this proposal. Or are they just too groggy from all that pork? What do you think?
Tuesday, July 15, 2008
Anti-predatory lending database
Since July 1, real estate transactions in Cook County have been subjected to a little added bureaucracy thanks to the Illinois General assembly. On that date, the predatory lending database program commenced. This new law (which is actually an older law redux) requires a certificate to be attached to every mortgage presented for recording. The certificate must either state that the mortgage is in compliance with the program or that it is exempt from the program. Without either an exemption certificate or a compliance certificate, the mortgage is not recordable.
The stated purpose of this program is to reduce instances of predatory lending through increased awareness by borrowers of loan terms. Perhaps this explains why the law was added to the Residential Real Property Disclosure Act and not the Mortgage Act or the Residential Mortgage License Act.
As stated, a mortgage must have a certificate attached to be recordable. Whether the exemption certificate is appropriate or whether the compliance certificate is required depends on when the application was taken, who originated the loan, the type of loan, and the type of property. The following factors would permit the use of a certificate of exemption:
- The application was taken prior to July 1, 2008.
- The loan was originated by an exempt entity. An exempt entity is one that is not required to be licensed under the Residential Mortgage License Act.
- Commercial, vacant, or mixed use property.
- Property containing more than 4 residential dwelling units.
- Investment property (non-owner occupied).
- Government property.
- The loan is a reverse mortgage; or a home equity line of credit not made with a new first mortgage.
All other mortgages will require a certificate of compliance.
So far, there has been little or no experience with the production of compliance certificates simply because of the recent inception date for the program. The closers at Prairie Title report that the process of generating exemption certificates is quite straight forward; and has not been time-consuming. Of course, as more compliance certificates are required, the database will certainly become increasingly burdened. This may result in significantly more time needed to complete closings. Data requirements for compliance certificates are far more extensive.
Because of the increased duties and potential liability imposed on settlement agents, many are charging additional fees or increasing their closing fee for Cook County transaction. Although this may be justified, Prairie Title has decided against assessing any extra costs upon the parties to the transaction at this time. We believe that to fairly determine the impact on our processes and procedures, we need the experience of working under this new program for a while. It is our hope that the database will work so flawlessly and efficiently that no additional charges will ever be necessary. Nonetheless, by working with the program for a while, we will be confident that our fees will be appropriately reflective of the burdens and responsibilities imposed upon us by this new law.
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