Homeowners Relief or Lenders Relief?
As we all should know by now, on July 30th, 2008 the President signed into law the Housing and Economic Recovery Act or H.R. 3221, otherwise known as the housing stimulus bill. Since my last post mentioning the Homeowners Relief Act and how this would help (if any) Las Vegas homeowners, I pulled up some research and key parts of the bill now that authorities have had time to digest what it actually means.

Instead of rehashing and copying key points, you can read the summary of the 600+ page bill from the National Association of Realtors® by clicking HERE.

I was doing some research on various REALTOR networking sites to see if there was any commentary concerning key provisions that would really help homeowners that have had a hardship and need to get out of their homes… but owe more then it’s worth and have to do a short sale. Medical bills, loss of job, the increases in the cost of living, etc.. and there appears to be no real relief that would encourage lenders to be more receptive in accepting a loss.

Keep in mind, I’m specifically mentioning people who cannot stay in the home and not homeowners who want to stay and attempt the:

FHA foreclosure rescue – development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.

FHA Foreclosure Rescue Chart

Make sure you click on the above link to understand what it actually means and Key requirements:

• Must be a primary residence and the owners cannot have any interest in other real estate such as an investment property, vacation home, etc..
  50% of the appreciation gained from the refinance is shared, no seconds for five years, etc. that must be met for 90% of the loan to be insured by the FHA.

Homeowners can start applying for this beginning 10/01/2008 until 9/30/2011 and $300 Billion has been earmarked for the program. From my understanding, lenders do not have to participate in this program if they don’t want to. I’ll have to do some more research on this and really dig it up to see if lenders who have provided a mortgage for the home for $400,000, have to accept a loss in allowing the new loan insured by the government for $180,000. (90% of the present value… let’s say $180,000.. for a home that is currently appraised for $200,000.)

From my understanding… they don’t. It appears no different then a lender having to accept a short sale. In other words, if you have a $400,000 loan on a home that is worth $200,000 today, the current lender does not have to accept a loss in order for the new loan to take place. I could be wrong and please correct me in the comments section below if I am. For some reason, I can’t find anything that brings this very important situation up.

Other key provisions of the bill have to do with raising the loan limits which IMO, is an attempt to keep prices where they are by allowing larger loan limits. By doing this, more people will be able to qualify for higher loans and lenders will be more receptive in issuing loans that are insured by the government. (In other words, the government will get to eat the costs if the borrower defaults.)

For First Time Home Buyers:

To encourage home ownership, a new tax credit is being made available for first time home buyers to get them out of those apartments and into owning a home. (Make sure you read the fine print – it’s more like a loan.)

Homebuyer Tax Credit

Now, this one is quite interesting and I’VE already SEEN people posting that it is an automatic $7,500 tax credit for first time homebuyers. Read the Tax Credit Chart — it is 10% of the purchase of the home up to $7,500.  

Other then that, I personally don’t see anything too exciting about the bill. I can certainly see why lenders could get excited about it with more loans and higher limits that are going to be insured by the government… which will possibly spur more buying of all the inventory that is available out there but I’m not too sure if this is going to have any effect on current homeowners that have found themselves in the unfortunate situation of owing more then their home is worth – except for the possibility that when more people buy, home values stabilize. But for Las Vegas, we certainly have no shortage of vacant homes that need to be filled right now…….. and Las Vegas home values have already tumbled significantly from their highs in 2006.

As you can probably tell, I don’t like to spin things to create the sense of urgency that you need to call me now. Trust me, I certainly understand the value of doing this but I’d prefer to attract clients that have a good grasp and understanding of what they are getting into… instead of finding out after the fact. Our business relies on long term relationships and the wonderful opportunities all of the referrals this creates — from supplying the right information in the first place.

In other words, I’m not screaming that you have to buy Las Vegas real estate right now because this bill is going to raise Las Vegas home prices.

I like to see both sides of the story so I hopped on over to SeekingAlpha.com where I really like the in-depth analysis of financial happenings and came across this editorial opinion that you can read by clicking HERE. I don’t agree with some of the harshness of the article but there are some great quotes by financial analysts who really understand what all of this means:

“Some critics say the legislation goes too far in propping up Fannie Mae and Freddie Mac and shielding lenders.”The new law will actually encourage lenders to be even more reckless,” argues Peter Schiff of Euro Pacific Capital. “The government is telling lenders not to worry about the loans they make, because if borrowers do not repay, the government will.”

For the record, Peter Schiff forecasted the housing bubble long ago – due to reckless lending standards now catching all of the headlines you may be have read about.

“$4 billion grant to states to buy foreclosed properties. States will be allowed to buy and rehabilitate foreclosed properties. The funding had been opposed by the White House, which said it would benefit lenders, property vultures and not homeowners. I agree as these rehabilitated people will be sold to astute property investors for a substantial discount and not to people that really need the housing. The “states” are basically playing “flip that house”.

I can certainly see why the National Association of Realtors® did not mention this in their summary.

“Apart from a short term slowing of the current housing market crisis and credit crunch, the bill will only delay the inevitable downward spiral. Unfortunately the American and global economy is heading into a recession, not out of one. So the housing bill, like the stimulus checks, will only have a temporary affect. The government again is trying to spend us out of an economic crisis, which is unlikely to work and will only add to our national debt and the continued devaluation of the US dollar.”

OUCH! That’s pretty harsh but when you really understand how home values got to the point they did, you understand that attempting to keep the values where they are through government spending is not healthy for the overall economy.

Now… I’m certainly no Attorney, Accountant, Tax Advisor or licensed as a Financial Advisor so my opinions are simply that – opinions that relate to actual real estate and I’ve supplied relevant links so you can form your own opinions. While these links are certainly deemed reliable, they are not guaranteed. In other words, don’t base your decisions on other people’s certainty without analyzing the facts yourself or consulting a specialist such as an Attorney, Accountant, Tax Advisor or a Financial Advisor if you don’t understand what all of this means and how it effects you. (In other words, Make sure you get the facts from reliable sources.) You can read the entire 694 bill here –> H.R. 3221.

And of course, you can always contact me or learn more about Las Vegas Real Estate with the information supplied below. I also ALWAYS encourage other opinions in the comments so please feel free to add comments by clicking here.

(And unlike some other Las Vegas Real Estate agents with blogs, I do not delete the comments — just as long as they are not blatant self promotion or spamming techniques.)

Paul Francis, CRS
Las Vegas Real Estate website
www.LasVegasRealEstate4u.com
702.592.3058