After last week’s Federal Housing Administration’s announcement amending its policy so that first-time home buyers may now fund their home purchases with the $8,000 tax credit I immediately began receiving “Alert” and “Breaking News” emails from various lenders touting the news. One lender however provided more details surrounding how this new policy will actually work. I thought I’d pass it along to the readers of the blog.
[Note: by request, I am not posting this lender’s name.]
For first time home buyers, the last couple of weeks have been filled with confusing information regarding the 8,000.00 tax credit. Last Thursday, FHA announced a change in policy that allowed lenders to explore the possibility of creating short term bridge loans based on the anticipated tax credit. The key here is that the lenders have to be willing and able to create these bridge loans. It is still unclear as to how this is going to play out as there has been no announcement from any lender indicating that this type of financing is going to be available. If the procedures are finalized, FHA has put a cap on the fees that the lender can charge for this "2nd loan" at 2.5% of the anticipated credit. In the case of an 8,000.00 credit this means that the fees charged cannot exceed 200.00 so the borrower would net 7,800.00 as a tax credit.
Secondly, and more importantly, the tax credit cannot be used to replace the required 3.5% down payment but rather can be used to put more money down on the house, pay discount point to lower the interest rate, or can be used to cover closing costs. Since our market conditions currently support closing costs to generally be paid for by the seller it makes the uses of this program rather restrictive. In the case of needing assistance for a down payment the NV first time home buyers program maybe a better alternative with the rate now down to 6.2% compared to the open market rate on an FHA which has increased to 5.5% over the past week.
Martin
NV First mortgage money at 6.2% and FHA at 5.5%. Hmmm.
It looks like Smarten’s sub-5% mortgage money for conventional borrowers is fading away. Perhaps never to return. That damn bond market with a mind all of its own. Of course, I suppose Mr. Bernanke’s Fed could announce that it is going to go into the market and buy another $100 trillion of treasury instruments, or whatever, to keep artificially supressing rates.
DoughNut
Am I the only person who thinks that these 3.5% down, “use your $8000 first time tax credit as a bridge loan” buyers of today are the NODs of next January?
At the rate the market is declining in the neighborhoods where these 3.5% down buyers are purchasing, that 3.5% “equity” is going to be gone by Thanksgiving Day at the latest. Perhaps by Labor Day.
Raymond
Dough what you say may very well be accurate. But if not for these first time marginal buyers being propped up by govt. intervention for the purpose of buying all the REOs, there would be essentially no market. There would be a few specuvestors buying the REOs, but not much else.
Sorry, the 3 people who are in escrow at Montreux does not make a market.
Take away these 3.5% downers, and the NAR and the RSAR would have no spin to hand out to the “reporters” in the media.
Phil
Why doesn’t the government just buy our houses for us? Just print more money!
What a mess!
Let the market sort itself out.
3niner
This is all part of the government trying to stop the price correction. In Japan’s bubble, most of the price correction occurred within 2-3 years, but the rest of it drug out for 8-10 years, while the government tried to stop it from happening.
I fear that we are following the same path. The government can’t create nonexistent value, but they can try various gimmicks, which will have the effect of stretching out the necessary period of adjustment.
CommercialLender
3niner,
Yup, yup and yup. Housing will be flat to down for in my book a full decade because of:
1) government meddling as you describe, including this whole sad socialist experiment,
2) banks/lenders won’t soon forget this mess, it’ll take them 10 years to begin offering crazy loans with shoddy underwriting again (en masse enough to move the needle on value)
3) baby boomers are retiring every day in ever greater numbers and the echo boom is only now ~25 years old or so. Baby boomers won’t buy many 2nd or investment homes and echo boomers are not making the cash they need to pay the prices the baby boomers require. A relatively higher income, more liquid owner class is being replaced by a relatively lower paid, less liquid buyer class.
4) taxes are going up, disposable cash down, there’s years worth of job creation ahead of us before we stabilize again at ‘full employment’, so this will take years to turn back around,
5) years and years of inventory must be cleared first and its just not moving that fast even in the better markets.
BanteringBear
I agree with a lot of your points, CommercialLender, but in regards to the “sad socialist experiment”, what was even sadder, IMO, was the complete lack of oversight, and actual encouragement by the PTB, which led to the current situation we face. It’s criminal what has been allowed to transpire to bring us to where we are. We’ve got a situation where individuals were making upwards of $150 million per year, doing nothing but destroying the country and it’s financial system. It’s absolutely disgusting. These people should be incarcerated and stripped of their wealth at the very least. I’d opt for a lot more than that.
Reno Ignoramus
In the first 3 days of this month, there have 74 trustee’s deeds recorded.
All of last month there were 210.
I believe we may be moving into the Summer Trustee’s Deed Extravaganza.
Too early to tell yet, but if this pace holds for the entire month, well, holy sh!t.
Perhaps the banks are thawing out some of the zombie foreclosures that have gone to the NOS stage and were then put on hold.
Also, 114 NODs in the first 3 days of the month.
FutureRenoHomebuyer
RI,
Could the sudden surge in TDs and NOSs at the beginning of June be a result of the recently passed bill that you mentioned in the “stats” thread?
Is there a grace period before that law takes effect? Are the lenders forced to make concessions as directed by the mediator? Or, do they just have to show up to the mediation meeting?
Regardless, it seems it’s just another way that govt appears to be trying to interfere with the markets and prevent the market from finally finding its equilibrium — which is the only way these price declines will be finally halted.
CommercialLender
BB,
I agree on your point on regulation and deregulation as it happened in housing/lending. Just as Obama’s white house is screwing up things by changing the rules mid stream (TARP, PPIP, et.al.) so did the prior administration (truly congress, but the same party) screwed things up by changing the rules to allow greater financial engineering. It all boils down to greed be it of money, votes, or power.
But just as it took a decade or so to create then pop the bubble, so it will take a decade or so to decimate then build back up our great capitalist system (and with it jobs and money to bolster housing values).
billddrummer
To RI,
Just for fun, I looked on the Repossession link at the assessor’s website for trustee’s recordings, and found one that’s particularly troubling.
In 2005, R & B Callamont acquired nearly 400 acres of land adjacent to St. James’s Village, financed by a deed of trust from Keybank. The deed went into default on 3/11/08, recorded 3/14/08. On 8/23/08, a Notice of Sale was executed, recorded 8/29/08, indicating a 9/17/08 sale date.
Now here’s where it gets interesting. The Trustee’s deed was recorded showing the sale date of 9/24/08. But the deed wasn’t recorded until 4/28/09.
I wonder how many other properties are in the same position–a sale has taken place, but the trustee’s deed has yet to appear in the recorded records.
I tend to think there are a lot more ‘limbo properties’ out there than anyone would like to admit.
Reno Ignoramus
Some of the newer readers on the blog may not understand this comment, but for BB and Smarten I have to call attention to MLS # 90002830.
4271 Dant Blvd. Showed up as “extended” on the MLS today and apparently has fallen out of escrow as a short sale.
New asking price: $ 625,000.
Looks like the multi-million dollar palace has taken quite a hit in “value”.
Could it be the hostile pessimists were right?
Raymond
The County Assessor has the total taxable value of that Dant house at $778K. It has almost $12K in unpaid taxes and is on the market for $625K with no offers. Multiply this scenario by a few thousand houses and we can understand why Washoe County is so screwed.
BanteringBear
“4271 Dant Blvd. Showed up as “extended” on the MLS today and apparently has fallen out of escrow as a short sale.”
It looks like Allen “I’m a good fisherman” Murray is finished. He didn’t listen to us two years ago, and now he’s most certainly heading into foreclosure. These short sales hardly ever work. He let foolish pride, greed, and his distorted view of the housing market cloud his better judgment, and for that he’ll pay. $12k in unpaid taxes? Is this guy even making the mortgage payments?
Martin
Ohhh, this Dant short sale is just down the street from the house that Coach Fox is trying to sell. I’m sure Coach Fox isn’t going to be pleased to see the neighbor house on Dant now listed way below his on a per sq. ft. basis.
Have you all noticed what all these overpriced houses in the SW have in common?
None of them are selling. None of them have an offer.
Raymond
What Martin says is not hyperbole. He is spot on. There are 90 houses listed over $500K in SW Reno. 2 are showing “pending short sale” which is basically garbage since about 25% of short sales ever go to close. So how many of the 90 houses have a “real offer”?
2.
2 out of 90 is 0.2% of the listings.
The market over $500K in all of Reno is moribund. Dead. as. a. doornail.
SkrapGuy
I regard it as entirely appropriate that the over $500K market is dead as a doornail. That is one half of a million dollars. That is about 10 times the median household income here in Reno.
It is a testament to the bubble mentality that still some people regard one half of a million dollars as a reasonable amount of money to spend on a house. For somebody making $175,000 a year, it may be reasonable. But until we no longer see working couples with a combined income of $65,000 thinking they can buy a one half of a million dollar house, we will not be done with the bubble.
The high end of the market is toast. As has been said here before, there simply are not enough cardiologists to buy all those houses.
BanteringBear
By looking at the current listings clogging up the mls, one would never know that prices have fallen 50% in Reno. Seriously, what sort of fantasy world are REALTORS living in to come up with those listing prices? There are no comps to support them. It appears denial and delusion still rule the day, as the used house salespeople continue to market homes at 2005 prices.
billddrummer
To Skrap & BB,
That’s something I posted about some time ago. How many realtors are throwing marketing $$$ at these McMansions and seeing no results? No showings, no offers, no sales.
I submit that the realty community in this area is still Kool-aid intoxicated (present company excepted, of course).
(Before I posted this, I spelled it Kook-aid intoxicated. Perhaps that’s a better way to put it.)
billddrummer
And to Skrapguy,
If you recall, I posted six months ago that the median household income in Reno was between $51,000-$56,000, depending on whose statistics you believed.
Now, it’s ludicrous to assume that houses priced above (waaay above) what the median income will support here would sell at anything greater than ‘one-off’ rates.
Since exotic mortgage products have disappeared, no longer can the median income household buy a higher than median priced home.
As you said quite well, there aren’t enough cardiologists (or architects, high-end lawyers or successful business owners) to absorb these ridiculously priced houses.
(As an aside, when I attempted to make a living in the mortgage business, I got an application from a UNR professor who had 4 car payments and 10 credit cards, all with balances higher than $15,000. But his credit was considered ‘excellent,’ because he was making the payments on everything. He couldn’t qualify for the home he wanted in Somersett because of his DTI and because he had no financial reserves. He cussed at me and got the loan somewhere else. I’d bet a dollar he’s in foreclosure now.)
CommercialLender
BillD,
No doubt an economics professor.
****
Your story highlights one of the many things wrong with the boom-n-bust: those who use credit somehow are viewed as better creditors than those who don’t. The converse of your story is sadly true that to have low or no debt you’d have a tough time obtaining the best credit terms. While that would be true in some cases (18 yr old applying for the first time would be a risky creditor), it makes no distinction for others who choose not to carry debt. Heaven forbit you ever pay off and close an account or worse yet buy things, gulp, all cash.
billddrummer
To CL,
I don’t remember what he taught, but that wouldn’t surprise me a bit.
I pay cash for everything except for my automobile, and also have a fair number of collections I’m servicing from the time when I mistakenly confused ‘earned income’ with ‘borrowed income.’
Thankfully, at the tender age of 56, I’ve (finally) learned my lesson about that one.
Now, I don’t even have a bank account. And while it’s mildly inconvenient for renting a car, for example, it’s less aggravating than having to worry about whether someone has dipped into my account and stripped it bare.
Now, all I have to worry about is which streets to walk down at night.
CommercialLender
BillD,
Whoa, wait a minute. Taking personal responsibility? Admitting mistakes and then moving on to fix them? Not blaming others for your problems? Living independantly without nursing from the government? Not overleveraging your finances? Paying off creditors?
That’s just crazy talk.
billddrummer
I’ve been called crazy many times, mostly by my girlfriend and my teenage daughters.
I’m used to it.
And when I’m free of the debt burdens, I’ll be able to truly enjoy whatever income I earn.
King Solomon said it best: “The rich rule over the poor, and the borrower is servant (slave) to the lender.” Proverbs 22:7.
I see my journey as a quest to free myself from slavery.
And I just discovered that I’m $8,000 underwater on my car. So I’ll be hanging onto it for awhile.
billddrummer
Dumb and dumber.
Apparently, the ‘monetization’ of the tax credit has been endorsed by FHA, and is going national:
http://seekingalpha.com/article/141389-fha-watch-new-ways-to-put-people-in-homes-they-can-t-afford#comment-540625
New defaults coming soon in the FHA portfolio backed by Fannie and Freddie!
Sully
I like the comment in the last paragraph:
It’s simply remarkable to me that we’re addressing a bubble caused by people buying homes they couldn’t afford by… wait for it… THINKING UP NEW WAYS TO PUT PEOPLE IN HOMES THEY CANNOT AFFORD!
🙂
billddrummer
To Sully,
You gotta love that one. Now, if these people happen to get cash from closing, what are the odds that they’ll spend the cash on something nice for the new place, like a flat panel TV, new furniture, or that massive 10 burner barbecue grill?
FENFEN
IS THE $15,000 TAX CREDIT FOR THE NEW HOME BUYERS FRO 2010 PROPOSAL REALY IN THE MAKING?