Are They Still Clueless? – A time for Real Ideas to Move Forward.

December 5, 2008

By Brian Short, CMC, CRMS, GMA


Once again, as our elected officials are reviewing the automakers’ plans for $34 Billion of bail-out loans they have found themselves consumed with only the symptoms of the the real issue at the core of our current economic disaster – the FREEZING OF THE CREDIT FOR THE  HOUSING INDUSTRY!
clueless-excuseOur current recession, having officially begun in the last quarter of 2007, is NOT because the auto industry is not selling enough cars to keep their bills paid.  The reason for the worst downturn in the US economy in over 40 years is NOT because the retail sector (except for WalMart) is still not seeing any “black” even after “Black Friday”.    The reason retailers are still seeing “RED” , even after “Black Friday” is simple – – the FREEZING OF THE CREDIT FOR THE  HOUSING INDUSTRY!

The explanation for the unprecedented downturn in manufacturing, the highest jump in unemployment in 40 years and the seeming irreversible plunge in consumer confidence is the FREEZING OF THE CREDIT FOR THE HOUSING INDUSTRY!

For our politicians and bureaucrats to continue spending time working on clueless1symptoms of the REAL PROBLEM will only accentuate the depth of this crisis and delay the turn around.  What needs the attention of the Treasury Secretary, Federal Reserve Chairman, Senate Banking Committee and the House Financial Services Committee is what will stimulate the housing industry – plain and simple!

The $700 Billion promised by the Treasury Secretary to be used for troubled assets and unsellable mortgage backed securities must be used for its original purposes and not to prop-up other sectors of the economy whose recent record breaking losses are only a symptom of FROZEN CREDIT FOR THE HOUSING INDUSTRY!  The housing industry has been in a free-fall for nearly 2 years!  Before any recovery plan will be successful, Congress must require that the Treasury and Federal Reserve not divert that money to other needs until the credit for the housing industry is freed up and thawed out.

Here is our plan to get the housing industry off of “dead center” and get the entire US economy flowing with cash.

home-repairs1. Open FHA Loans to investors and 2nd home buyers.  Use  the FHA 203 (K) loan (See Dec 1, 2008 article on this site.) to rehabilitate distressed and foreclosed properties and open up the use of the traditional FHA 203(B) Loan for those who can afford and need to buy a second home.  We must move the current homes on the market to those who could quickly buy up the inventory and possibly make some money on speculating on the front end of a housing recovery.

This move alone, will bring millions of buyers back into the housing market.  Distressed properties do not qualify for Fannie or Freddie loans if they have damage to walls, floors, windows or doors.  Speculators and investors will breathe new life into those houses which need repair before they can be sold in today’s market.  These investors and speculators  have the cash, experience and knowledge to buy up (and repair if necessary) the current glut of houses and make them rental houses, second homes and ideal marketable properties.

Empty pockets2. Revive the seller-assisted Down Payment Assistance Programs for home buyers who have no down payment money to put toward a home purchase.  This will put first-time home buyers back into the market even if they have no cash for down payment purposes.  Prior to the October 1, 2008 shut down of these programs by HUD, many in our industry were using the Down Payment Assistance Programs (DPA’s) for as many as 80% of their closed purchase loans.

Those who want to move but still have homes to sell will not be able to be added to the mix of potential home buyers until we can help them find buyers for their properties.  The re-introduction of the DPA’s will bring those first-time home buyers (or those who sold their houses and made nothing on the sale of their home because of depreciating home values) back into the market who have been sidelined since October1.

BUS300203. Provide tax incentives for  those who buy houses.  We must urge Congress to consider giving a tax credit for any down payment or closing cost money used in the purchase of a house.  Homeowners already receive their credit for mortgage interest paid during a year, but that must be expanded to include any monthly payment paid toward principle or mortgage insurance and down payment, closing costs, and repairs made to a distressed or outdated property bought and repaired or updated to be resold or made into a rental.

How can those who are willing to be part of the solution be rewarded for stepping up to the plate and taking some big swings in order to help get the housing industry flowing with buyers, sellers and builders again?  Give them as many tax incentives as possible to bring them and keep them in the housing market buying and selling and repairing.

Real troubled times require real ideas to deal with the real problem – REAL QUICK!


A Formula for Recovery – Including Investors

December 1, 2008

By Brian Short, CMC, CRMS, GMA

California HomesIt was announced at the end of last week that the National Association of Realtors was asking the Department of Housing and Urban Development (HUD) to re-open the FHA 203(K) loan program to investors as a part of the formula for helping reverse the continued downward spiral of the US housing market. 

The FHA 203(K) loan is a government insured rehabilitation loan I have used to help home owners, either buy and rehab a home they plan to live in or to rehab the home they current live in.  Either way, it works much like a construction loan with up to 5 draws for major projects to improve the condition of a distressed or out-dated property.

The borrower would be required to qualify for the final loan amount including the costs of the buffalo-vacant-housesimprovements and the money is only released after the work is completed and inspected to meet whatever codes or requirements necessary.  The borrower is required to front the money for the repairs or use a contractor who will agree to be paid in stages as work progresses.

Improvements can be made from a long list of “qualified improvements” including updating kitchens, bathrooms, HVAC, electrical or plumbing systems, roof, windows, flooring, siding and even adding square footage by adding a master bedroom or bathroom.

One of the beauties of this loan is that the current mortgage must be rolled into the final loan so the borrower is left with only one final “all-inclusive” mortgage at a great FHA fixed rate. 

Names BreesHowever, in the late 90’s there were investors who were involved with some fraudulent deals with builders, appraisers and title companies who abused this program and HUD cut off all non-owner-occupants from using the FHA 203(K) loan.  This decision shut down a lot of investor rehab activity until the sub-prime market began to pick it back up about 5-6 years ago.  Two years ago, most of the non-owner-occupant rehab activity came to a crashing halt, once again, as the sub-prime programs evaporated and now, some neighborhoods are riddled with empty homes which have been vacant for several months and are in need of repair or normal improvements to ever get them sold.

Over the past 2 years appraisal standards have increased, property values have decreased and vacancy rates have increased.  All of this leads to the need of investors to be enticed back into the market with favorable loan programs to reward their willingness to take on part of the risk of getting the housing market back out of the ditch.

NAR has called for a three year window for investors to be allowed back into the FHA 203(K) loan sold_houseprograms.  I would echo their call but not put a 2 or 3 year limit in place at this point.  Let’s take this one year at a time and call for Congress to immediately allow the non-owner occupant to qualify for the FHA 203(K) loan without further penalty and renew this provision again for another year at the end of 2009, 2010 and 2011 if necessary until we see normal numbers come back for the housing market.  This plan is much better than a government bail-out plan and rewards those who are willing to take on risk with the rewards of profit to be made on investor houses they have repaired and updated to get off the market.

Guaranteed Retirement???? By Whom???

November 26, 2008

 By Brian Short, CMC, CRMS, GMA

private_jetThere still seems to  be much discussion about what should be done to or for the “Big Three” US Auto Makers (affectionately referred to in some circles as “The 3 Little Pigs”) who arrived in Washington, DC earlier this month stepping off their private corporate jets with a tin cup in their hands.  My private conversations with friends and family members have reflected some of the uncertainty and complexity of the thoughts and comments being circulated in the media and among our elected politicians who are admittedly “over their heads” on this one!  (I told one friend a few weeks ago, “Suit me up and put me in.  At least I understand the mortgage industry!”  Not a bad place to start for those who are trying to figure out this current mess!)

Many of the comments I have been hearing vacilate between one or two of the following positions:gmassembly-300x300

“They’re too big to let fail!  Nearly 25% of all jobs in the US are in some way related to the US auto industry!”

“Let them go under! The unionized US auto worker is costing almost twice as much at those who work for Japanese, German or Korean auto companies.  This is the only way to bring the UAW back to the negotiating table to restructure and reorganize.”

“The US government made this mess by over-regulating our auto industry when the foreign companies could continue to use their standard practices and make better cars, cheaper.”  They are blaming the increased government regulation for the collapse of the US auto industry as many of us have suggested when looking at the current condition of the US mortgage industry. (This seems like a reoccurring theme.)

The comment I overheard recently which really caught my attention was one where she said, “But what about those retired UAW workers who were PROMISED their retirement?  If we let the US auto companies fail all of those retired folks will lose their retirement!”

financial-advisorThey were “PROMISED” retirement pay?  Someone guaranteed them a certain level of pay during the rest of their days on this earth, just because they put in their “30 years”?  This guarantee was made with no respect as to the condition or continued viability of a company which has not yet successfully made it into the 21st Century in terms of what the consumers are demanding and what current levels of domestic fuel types can propel?  

Who made these promises?  What gave them the right to do so?  They are still cranking out under preforming, overpriced, inefficient machines causing us to remain attached at the breasts of foreign governments lactating their crude oil and holding us hostage to their tyrant policies directed at crippling our government, the balance of trade and our standard of living. 

They “PROMISED” them retirement?  What was guaranteed?  What is it that my buddy with Edward Jones always says?…..” Past Performance does not guarantee future results.”  Whose retirement is guaranteed?  My parents have surely seen their retirement account balance dwindle over the past several months – The Dow-Jones has fallen16% since the Presidential election!  They will likely never see their accounts recover fully to what they were prior to this most recent downturn.  My retirement is not guaranteed – assuming I EVER retire!

Retirement benefits can never be ethically “guaranteed” to anyone!  Just as your financial planner is stocks_downrequired to say – your money will only last as long as the companies or governments in which you have bought an interest by securing stocks or bonds – or funds made up of those stocks or bonds – successfully operate.  If they fail, your interest (stock, bond or fund) will also fail.  That’s life in the REAL WORLD! 

Why should the American taxpayer be assumed to be on the hook for unethical promises or guarantees made by those doling out the UAW retirement funds when they, most likely, contributed to the failure of the US auto companies and their employee’s retirement funds?  Who is going to bail me out if my retirement fund fails? Or my parents if their retirement fund fails?  Do they deserve “full retirement” even though their companies where they they had an interest performed poorly or possibly failed?  Of course not!

dec-of-independenceRetirement is NOT GUARANTEED!  Neither is equity in ones home.  We’ve certainly seen that lie ruin a few million people this year!   Our founding fathers wrote that we were guaranteed “life, liberty and the pursuit of happiness” because those “inalienable rights were endowed by our Creator.”  Some have argued that this list of “inalienable rights” should be expanded to “include freedom of speech and expression, freedom of religion and conscience, freedom of assembly, and the right to equal protection before the law.”

Those who have been persuaded to expand this list even farther to include: minimum mage, government health care, guaranteed retirement, home ownership, never-decreasing home equity, a job you love, a spouse who always loves you, kids who never disobey, and a boss who always puts the care of his employees ahead his own bottom-line will surely bring this country and our free-market economy to its knees. 

Life is full of risk.  Some lose and some win – even on a level playing field.  What we’ve been rightly runningpromised is the opportunity to get back up, dust off our knees and start running AGAIN!  Being pushed down once, twice or hundreds of times doesn’t mean that we’ve lost.  We lose only if we remain on our butts and never get back up. 

You mean we can keep running?  Now, that’s a pretty sweet guarantee!