Donovan Rypkema Takes Obama Administration to Task: Stimulus Spending vs. Save America’s Treasures

The many diverse projects scattered across the country might make the Save America’s Treasures program look like pork barrel spending by members of Congress.  Donovan Rypkema, the nation’s foremost authority on the economics of historic preservation has taken the Obama administration to task for killing the program without undertaking the most basic analysis of the program’s impact.  Historic preservation has been documented as creating jobs at roughly one-twentieth for every one created by the stimulus plan.  In this case the Obama administration, like so many of those now holding public office seems more concerned about political posture than facts and effective governance.

“Between 1999 and 2009, the Save America’s Treasures program allocated around $220 million dollars for the restoration of nearly 900 historic structures, many of them National Historic Landmarks. This investment by the SAT program generated in excess of $330 million from other sources. This work meant 16,012 jobs (a job being one full time equivalent job for one year…the same way they are counting jobs for the Stimulus Program). The cost per job created? $13,780.

This compares with the White House announcement that the Stimulus Package is creating one job for every $248,000. Whose program is helping the economy?

If there was such a thing as shame left in Washington the White House should be ashamed to be throwing away a program that creates 18 times as many jobs per expenditure than does their own Stimulus Plan; ashamed to be so inattentive they the couldn’t be troubled to do a couple of hours of work before they dumped a program; but mostly ashamed of kicking around a constituency group because they were deemed to be too weak and small to defend themselves.”

For a series of articles on this topic.

Federal Home Buyer Tax Credits End

To be eligible for the federal tax credits of  $8,000 for those who have not owned in the past 3 years or $6,500 for those who have owned for 5 years, a purchase contract must be in place by April 30 (except for those serving in the armed forces abroad who have additional time).  In Madison and Dane County, Wisconsin, the inventory most appealing to first time buyers is picked over, leaving the less attractive and over-priced properties behind.  Real estate agents have been working frantically to assist buyers in meeting the deadlines.  Now the crunch moves on the certified building inspectors.

The local Dane Count housing market will move into the next phase.  Life circumstances and economics will lead to new inventory coming on the market.  Confounding me as well as the experts, interest rates have risen only gradually after the Federal Reserve Board ended the purchase of Mortgage Backed Securities, holding interest rates artificially low.  Interest rates for those with excellent credit are expected to reach only 6% for a 30 year fixed loan by the end of 2010 and 7% in 2011, still low by historic standards.  Buyers who stood on the sidelines will find new opportunities with fewer competing buyers, new inventory, bargains in hundreds of distressed properties, and sellers who will be compelled to reduce their price.  Sellers will be able to sell to serious buyers, often those with considerable cash to put down and less dependent on ever changing federal loan policies and incentives.

Donovan Rypkema Defends Save America’s Treasures Program

Donovan Rypkema’s blog provides an extensive discussion of the Obama Administration’s cutting of the Save America’s Treasures program.  Few are as well qualified as Donovan Rypkema to defend the program on economic policy grounds.  Rypkema also summarizes other attacks on historic preservation around the country, motivated by political ideological posturing.

“And if the White House action were the only bad news we could attribute it to some idiot in OMB who deserves a trip to the woodshed. But in the legislature in Arizona a Republican State senator has introduced a bill to end property tax reductions for historic houses. In Indiana a Republican state legislator is angry because CVS was denied permission to demolish a historic church in her district so she is proposing to emasculate the Indianapolis Preservation Commission. In Missouri, Iowa and elsewhere reducing the effectiveness of state historic tax credits is high on legislative agendas. In Washington the state Main Street program is proposed to be zeroed out. A new city council in Poughkeepsie, New York repealed the historic preservation ordinance just passed by the previous council.”

Keller Williams Values by Mary Tennant

Dear Associates –   As we all know, in today’s real estate market, keeping a deal together until close can take extraordinary negotiating skills and patience. Short sales in particular present us with unique challenges and emotional situations with our buyers, sellers and mortgage partners. How we handle these challenges sends a message to the world about who we are and how we conduct business as real estate professionals and KW associates.   We have received phone calls and emails from several of you concerning pending short sales and KW’s working relationship with U.S. Bank. This morning, our executive team was on a conference call with the bank’s senior leadership and we want you to know that U.S. Bank is working with KW associates.   In fact, we were thrilled to hear the U.S. Bank team particularly call out Kaytee Gentry from Integrity First Realty in Mesa, Arizona as a KW associate they had the pleasure of working with recently. Our personal gratitude goes out to Kaytee for her leadership within our company!   At Keller Williams, we are all part of a large and connected family. We must also realize that in today’s world of blogs, online video and social networking, the things we say and do can create an impact that can go far beyond our original intent. At no time would we expect our agents to engage in inflammatory accusations, personal attacks or the dissemination of personal contact information of someone involved in a transaction. We consider it a mandate that we respect each and every person we do business with – from top-level executives to office staff to co-brokers.   At the core of the Keller Williams value system are the beliefs that we always search for the “win-win” and that “no transaction is worth our reputation” and we know how passionate you are about living these beliefs every day. Our team feels a deep gratitude for all you do and for exemplifying the Keller Williams culture in every transaction and every interaction.   Yours in culture,     Mary Tennant, President and COO Keller Williams Realty Inc.

This is an internal communication to Keller Williams Realty International Associates for the purpose of company communications. We are not sending emails to anyone who is not part of Keller Williams Realty International. If you feel we have sent this email to you in error, please email us at feedback@kw.com. Keller Williams Realty International 807 Las Cimas Parkway, Suite 200 Austin, Texas 78746

Chris McLaughlin says the current real estate market can make you rich

Today’ e-newsletter from Chris McLaughlin had some interesting insights into the longer-term direction of the real estate market.

“Six Reasons Short Sales Will Make You Rich” by Chris McLaughlin

1. Inflation – Past, Present & Future. The historic rate of inflation is roughly 3 percent but double digit inflation has taken place during periods of economic volatility and expansionary monetary practices such as those embraced by the current administration. Experts tend to believe we may encounter inflation in the 8 or even 10 percent rate within the next 3 to 5 years leading to high rates of nominal returns among all physical assets including real estate.

2. Demographic Demands – Immigration, escalating birth rates among minority populations and longer lifespan for elderly citizens all adds up to a rapidly expanding number of people seeking shelter and basic homes.

3. Declining Inventory – The media makes much ado about excess inventory but savvy short sale investors will also notice the simultaneous reporting of a ‘shortage’ of affordable housing. Can both situation be true?

Yes. While the absolute number of housing units available may currently exceed demand, the actual number of affordable and desirable units is much more restrictive. For example, pier construction, energy efficiency, zoning regulations and other mandates often result in a lack of affordability even if the primary mortgage is acceptable. As units become functionally obsolete, the demand for safe, convenient, inexpensive homes will grow.

4. Leverage – Real estate benefits the small investor via the use of leverage; few other investments have the advantage of leverage combined with physical assets and alternative sources of income; it’s a winning combination that provides maximum flexibility and minimal personal risk when properly structured.

5. Taxing Tribulations – Budget shortfalls and aggressive social support obligations are stressing federal and state budgets to the maximum. Earned income taxes, estate taxes and even a newly proposed VAT tax are likely to take a big bite out of average taxes for middle class Americans. Shifting from higher taxed earned income to lower taxed Capital Gains is a quick way to reduce the overall tax burden by 10 to 15 percent.

6. Short vs. Long Term Strategy. The age old adage to “buy and hold” stocks, bonds or even real estate for the long haul has come under increased scrutiny in the wake of fiscal irresponsibility, irregular reporting habits and unreliable regulatory agencies. The new trend is to take profits when they are available, maximize cash flow and focus on short term gains rather than the promise of long term appreciation. Short sales provide exceptional ROI without the long term risk.

What is the value of historic preservation tax credit eligibility?

Appraiser Vernon Martin asks an excellent question:

“I’m asked to estimate the “as is” value for an abandoned movie theater that just got conditional approval from the National Parks Service for “historic preservation certification”, which is the first step towards eventually gaining a historic preservation tax credit.

The document basically says that the proposed rehab would meet the Secretary of Interior’s guidelines for qualifying rehabilitation if certain conditions are met, and the conditions appear to be reasonable.

Is the market paying a premium for a “historic preservation certification” prior to the actual granting of a tax credit? Is there any market value to just having the conditional approval? The property owner insists that this conditional approval provides substantial value.”

Alternatives to Foreclosure: Update on HAFA, HAMP, Short Sales

 

Homestead Title of Madison provided the following

If you handle any aspects of short sales, you must know about HAFA.  For updates and information, see Homestead’s Blog, or read the following:

The Home Affordable Foreclosure Alternatives Program (known as HAFA) went into effect on April 5, 2010. HAFA allows owners to participate in a “short sale” with standardized procedures and expedited timelines. Short sales are traditionally the hardest and longest transactions to complete and involve dozens of hours of phone calls and paperwork and a very high level of expertise. HAFA, it is hoped, will streamline this process. It is important to note, however, that HAFA does not replace the traditional short sale. Rather, it is a stream-lined short sale process that applies to specific owners who have mortgages with specific, participating lenders.

HAFA Is Not For Everyone

HAFA is not a mandated program that all lenders must follow. Nor does it apply to all distressed home owners. HAFA only applies to lenders that voluntarily participate in the HAMP Mortgage Modification Program. The good news is that this includes most major, national lenders, such as: Citi, Bank of America, Wells Fargo, GMAC Mortgage, Chase, Litton, and many others. The bad news is that the program does not apply to Fannie Mae or Freddie Mac loans, which account for a huge percentage of home loans. Nor does it apply to most smaller, local lenders.

In addition, the program does not apply to the following:

• Loans originated after January 2009,
• Loans with a balance over $729,750,
• Property that is not the seller’s principal residence,
• Loans where the total monthly mortgage payment does not exceed 31% of the seller’s gross income.

In other words, HAFA may make a difference for some distressed home owners. But, it may not even apply for a large group of owners and their lenders. In that case, the traditional short sale process may still be a viable option.

How It Works

HAFA is a short sale program designed to work with the Federal home loan modification program called HAMP. The HAMP program is intended to allow distressed homeowners to stay in their homes by using mortgage modifications that lower their monthly payment. The Federal government recognized that many (if not most) homeowners either did not qualify for HAMP or could not even pay the lowered mortgage payment. HAFA is intended to offer these home owners an option to sell their home through a streamlined short sale process.
Traditional Short Sale

In a traditional short sale, the home owner needs to request a short sale from the lender. The process, in a nutshell, goes something like this:

1. Sellers and/or Realtor contact lender and initiate discussions about short sale.
2. Sellers collect reams of documents to prove to the lender that they cannot pay the mortgage.
3. The Realtor lists the property and tries to find a buyer, having no idea how much the lender will demand or what purchase price will be enough for a short sale.
4. Once a buyer has signed an offer to purchase, the seller submits a “short sale package” to the bank. The package contains all financial information and documentation showing the seller is unable to pay and the offer to purchase.
5. The bank often (usually) requests additional documents and follow up documents and it can take many efforts, phone calls and faxes to finally confirm that the bank has what it needs.
6. The Seller, Realtor, and perhaps attorney spend weeks or months negotiating with the bank over the terms of the short sale, including the purchase price, what closing costs and commissions will or will not be paid, how much money the seller might need to contribute at closing, and whether the bank will forgive the debt or demand a deficiency after closing.
7. The Bank finally approves the short sale based on the purchase price, offer to purchase, and any amendments that needed to be negotiated to get bank approval;
8. The sale finally closes.

This process can take months, and in some cases more than a year. Every lender has slightly different requirements and they each handle transactions differently. Most short sales require dozens upon dozens of long phone calls and an unbelievable level of persistence, patience, and hard work. And, Sellers and Realtors must repeat this process for every second mortgage. Up Until the moment of closing, the seller may not know if the lender will demand a deficiency. If the lender does demand a deficiency, the Seller will still owe the bank after closing.

HAFA Short Sale Process

HAFA is intended to streamline and standardize the procedures for short sales. The HAFA process goes something like this:

1. Seller applies for mortgage modification through HAMP program and is either denied or misses payments;
2. The lender must proactively notify the Seller about the option of a HAFA short sale (or the seller can ask);
3. The lender sends a Short Sale Agreement (SSA) and a blank document called a Request for Approval of Short Sale (RASS);
4. The Seller has 14 days to sign the SSA and return it to the lender along with the Realtor’s listing agreement and a title search showing any other mortgages or liens;
5. The Lender will inform the Seller (even before any buyer submits an offer) what it will take to get short sale approval – either a purchase price or the amount of proceeds needed
6. Once a buyer has signed an offer to purchase, the Seller and Realtor have 3 days to fill out and submit the Request for Approval of Short Sale (RASS) to the lender.
7. The lender has 10 days to accept or deny the RASS;
8. Upon acceptance of the RASS, the Seller proceeds to closing.

The fact that we were able to summarize both processes into 8 steps does not mean that HAFA will be just like an ordinary short sale. Step one will require the seller to submit much of the same documents as a traditional short sale. Indeed, a Mortgage Modification also requires financial disclosures and reams of documentation. But, once this step is done, the rest of the process is much smoother, much faster, and standardized.

Differences Between HAFA and Traditional Short Sales

HAFA improves the short sale process in a number of important ways. But it also comes with some trade-offs. The following chart highlights the differences between HAFA and traditional short sales:

Traditional Short Sale	HAFA
The home owner generally does not make mortgage payments up to the date of closing. They live “rent free” during the short sale process.	Under HAFA, the owner must make mortgage payments up to 31% of their income. Failure to pay the mortgage will disqualify the owner from participating in HAFA.
Lenders can demand a deficiency for the amount of the short-fall. In other words, the debt is not forgiven after closing.	First-Mortgage lenders must waive the deficiency and must negotiate with second-mortgage lenders to waive their deficiency as well.
The Seller could receive no funds at closing.	Sellers can receive “cash incentives” at closing for up to $3,000.
Lenders generally budget up to $3,000 to pay second mortgage holders.	Lenders are given a government incentive of up to $6,000 to pay to second mortgage holders.
The property could be sold by a Realtor or For Sale By Owner (FSBO)	Property must be listed with a Realtor.
Lenders can take as long as they wanted to approve or deny the short sale	HAFA imposes strict and short time-lines on participating lenders
Lenders will not begin to “negotiate” a short sale or even initiate the process until a buyer has signed an offer to purchase	Lenders must start the process at the time or even before the property is listed with a Realtor.
Lender does not give short sale approval until days before the closing.	Lender must approve the short sale, including the amount they will receive within 10 days of receiving the accepted offer.

These differences are important to understand. More importantly, it is critical to understand that HAFA
does not replace the traditional short sale. It is an additional tool that applies to certain lenders and certain home owners.

Homestead Title is always available to answer questions and help you with your short sale closings. Subscribe to our Blog for updates on Short Sales, HAFA, Title insurance and other interesting news.

We look forward to seeing you at the closing table!

HOMESTEAD TITLE