Originally Posted By EighthDwarf <<I believe you are misinformed. The Obama plan DOES NOT INCLUDE mortgage forgiveness.>> I'm not - anything but actually. What I'm talking about pre-dates Obama. The "Mortgage Debt Foregiveness Act of 2007" sponsored by Charlie Rangel and co-sponsored by others (such as Rahm Emanuel) allows up to $2 Million in tax-free mortgage debt foregiveness. I don't think it's a coincidence that distressed sales increased exponentially after this law was passed. And the Obama administration hs their share of blame because they failed to recognize that the way to support the real estate market is to eliminate the incentives to walking away from homes (such as the Act mentioned above). Instead, they proposed all of the things you mention, which don't address the real problem (in my opinion). The failure rate of distressed refinancing is astronomical for example. But the most tragic part of Obama's plan is that he is trying to keep homeowners (who had no business buying homes to begin with) in their homes. This is going to prolong the pain for all of us as these people will eventually succomb to market forces and get squeezed out of their homes, creating downward pressure on sales prices until they are cycled out of the market. The home ownership rate in the U.S. ballooned to unsustainable levels when the lending standards were relaxed years ago. Until we get back to historical norms, there will be downward pressure on home prices. Think of our housing market like the Titanic. Due to arrogance, incompetence, etc. it was allowed to strike an iceburg and is now taking on water very rapidly. You have 2 choices to address the problem: 1) turn on the bilge pumps and bail out the water as fast as you can and try to stay afloat long enough to reach NY, or 2) try and address the real problem and plug the hole. Obama has elected for option #1 hoping that we can bail out water faster than its coming in. If housing prices stabilize and start to rise, then his plan works. So far, no good. Option #2 is harder, but it is the only way to be guaranteed to stay afloat for the long term.
Originally Posted By RoadTrip I believe you are still mistaken. The Mortgage Forgiveness Act does not provide funds to write-off mortgages. It merely excludes any write-off a bank does as taxable income for the homeowner. <<The Mortgage Forgiveness Debt Relief Act and Debt Cancellation If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.>> Source: <a href="http://www.irs.gov/individuals/article/0,,id=179414,00.html" target="_blank">http://www.irs.gov/individuals...,00.html</a>
Originally Posted By ecdc Here's what I know: My wife and I bought our first home three years ago. At my work, my coworkers were telling me about building $350,000 homes in the new developments popping up around the Salt Lake Valley. I couldn't understand it at all; I worked with these people and I knew how much I made, and I knew they couldn't be making all that much more. There was no way I could afford a $350,000 home. So, feeling somewhat bad about myself and wondering why I could never get in on the "great deals" I was always hearing about, my wife and I bought a home in an established neighborhood for $170,000. It was what we could afford without hanging by the skin of our teeth, or my wife getting a full-time job to ensure we never saw each other. It was in a decent part of town that was safe, but certainly wasn't upscale. Well here we are three years later. A lot of the people I work with who were gloating about their great new homes and some fantastic deal are now either in foreclosure, or are part of that 1/3 of Americans who owe more than their home is worth. Two of them are going through divorces because they and their spouses work so much just to pay for their house that they never see each other. My home value's gone down a little bit, but I still have some respectable equity in it. I have that because I paid what my home was worth and it's in the heart of the Salt Lake Valley, not in some popular new development 50 minutes away. I know next-to-nothing about economics, so all I've got are my own anecdotal stories. But it seems like the housing drop is only righting what was very, very wrong for a long time. Housing and real estate became a way to make a quick buck, instead of just part of the American dream. Obviously it'll be a terrible impact for those Americans who owe more on their home than it's worth, but it seems like this is inevitable. Homes were not worth what they were being sold for, it's as simple as that. I don't see any other way to fix the problem.
Originally Posted By Kar2oonMan >>Think of our housing market like the Titanic.<< This is more all-or-nothing thinking. Why is it the Titanic? Why not make the analogy with just a large cruise ship whose outcome isn't pre-ordained and doomed? None of us, not a single person here, can predict for certain what will happen with the housing market. The economy has a funny way of making liars out of people. Predict what you want to for the housing market: doom and misery or sunshine and lollipops. One person sells their house, suddenly, there is no crisis. What we are is a ship in uncharted waters. We know we have sustained serious damage, but don't yet know how extensive it truly is, because much of the damage is below the surface, not yet revealed. We might get lucky and there is some island or perhaps a whole undiscovered continent just over the horizon, perhaps some warm economic breeze will billow the sails and get us on our way once again. The thing to do is to get to that continent, plunder and pillage the place and get filthy rich doing it. Who's with me!???
Originally Posted By hopemax I was going to suggest we make everyone who got into a stupid mortgage wear a bright green M; green signifying $$, I think it will make me feel better because I will know who to scowl and shake my fist at when I walk down the street. I have no idea how that will help stabilize the housing market though.
Originally Posted By RoadTrip Your experience matches what I've been saying. The real estate problem is localized... just because one city or part of a city is in terrible shape does not mean EVERYONE is in terrible shape. We bought in an older suburb of St. Paul that was developed primarily in the 50's - 70's. As with your experience, our home's value has held relatively steady. The percentage of people 'underwater' on their mortgages that I read was 20%. Still not good, but better than 1/3. What I found amazing is that a whopping 62% of underwater borrowers are from only 7 states: Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio. <<Chances are, if you know several homeowners, at least one of them owes more on her home than it's actually worth. This situation is commonly described as being underwater, because the home cannot be sold to pay off the mortgage. New results from a study composed by First American CoreLogic show that one in five homeowners were in this awful situation as of the end of 2008. Here's more: * The value of residential properties was $19.1 trillion at the end of 2008, versus $21.5 trillion at the close of 2007. * While the study included 43 states and Washington, D.C, it found that half the decline in overall home values occurred in California. * Arizona, California, Florida, Georgia, Michigan, Nevada and Ohio remained the most stressed states — those seven states alone are home to 62 percent of underwater borrowers.>> Source: <a href="http://www.savvysugar.com/2888720" target="_blank">http://www.savvysugar.com/2888720</a>
Originally Posted By RoadTrip <<One person sells their house, suddenly, there is no crisis.>> My perception of the market has NOTHING to do with the fact that I recently sold my house. I've been making posts for MONTHS saying that the housing crisis is localized and that just because one place is in terrible shape does not mean every place is. Every city is a collection of dozens of individual markets. The fact that there are a HUGE number of foreclosures in North Minneapolis (the lowest income area) has absolutely no impact on what I can sell my home for. A north Minneapolis home has never been in competition with a home where I live and never will be... regardless of the market. I would guess homes in North Minneapolis have lost 50% or more of their value in the past few years. That contributes to a Twin Cities area average price decline that is significantly over-stated for those in most areas. I certainly realize that some people are in very deep do-do when it comes to housing. But the situation does not impact EVERYONE like some here like to think.
Originally Posted By Kar2oonMan I know much of what you are trying to do is counter-balance some of the constant doom and gloomers, RoadTrip. I get that. But in doing so, you often seem to trivialize some of the very real problems with the economy. Maybe you don't mean to, but that's how I perceive it.
Originally Posted By RoadTrip Speaking of Case-Shiller... <<Karl Case, co-founder of a home-price index that bears his name, said more auctions of foreclosed properties will hasten the reduction of inventories from record levels and may lead to a faster housing recovery. "I think we're going to see some signs of life in the next few months," Case, an economics professor at Wellesley College in Wellesley, Massachusetts, said in an interview with Bloomberg Radio. "The market is beginning to clear somewhat. There is some good news in this.">> Source: <a href="http://www.economist.com/blogs/freeexchange/2008/05/good_news_for_housing.cfm" target="_blank">http://www.economist.com/blogs...sing.cfm</a>
Originally Posted By Sport Goofy << Karl Case, co-founder of a home-price index that bears his name, said more auctions of foreclosed properties will hasten the reduction of inventories from record levels and may lead to a faster housing recovery. >> Meanwhile, the data released today . . . * Total housing inventory at the end of April rose 8.8% — about 4 million existing homes — a 10.2. month supply We're not clearing inventory as fast as it continues to be added to the market.
Originally Posted By SingleParkPassholder <a href="http://lansner.freedomblogging.com/2009/05/27/calif-loses-crown-as-worst-us-home-market/23243/" target="_blank">http://lansner.freedomblogging...t/23243/</a>
Originally Posted By EighthDwarf <<I believe you are still mistaken. The Mortgage Forgiveness Act does not provide funds to write-off mortgages. It merely excludes any write-off a bank does as taxable income for the homeowner.>> I never said it did. If a bank writes off your credit card debt, they will send you a 1099 at the end of the year, which can be a disincentive to not fulfilling your obligation. That disincentive for homeowners was taken away thanks to the Act. Therefore, homeowners can default on their mortgages (or negotiate a short sale) and not have to worry about paying taexes on the amount forgiven. The banks take the loss (which they can write-off). In fact, what I have described in my posts has become an extremely profitable marketing strategy for realtors who get paid on a transaction basis. They help people walk away short sell their homes (for a commission), tell them to rent a house for a couple years, and then offer to help them buy again (at much cheaper prices) when their credit heals. <<The real estate problem is localized... just because one city or part of a city is in terrible shape does not mean EVERYONE is in terrible shape.>> I think that's too simplistic. The real estate problem is what caused the downfall of our financial institutions - hardly a localized problem. While not everyone has seen the value of their home deteriorate as much as others, I have a hard time believing the whole crisis has not significatnly affected most people in one way or another.
Originally Posted By EighthDwarf And here's another story that came out today. From the link: <<The scale of the mortgage overhang may help explain why, even after banks such as JPMorgan Chase (JPM, Fortune 500) and Citigroup (C, Fortune 500) received generally upbeat stress test results, some prominent skeptics of the housing bubble are warning that the financial system's problems aren't over. "There is still a very large unfunded capital requirement in the commercial banking system in the United States and that's got to be funded," former Fed chief Alan Greenspan said last week in an interview with Bloomberg. He added that "until the price of homes flattens out we still have a very serious potential mortgage crisis." >> <a href="http://money.cnn.com/2009/05/27/news/mortgage.overhang.fortune/index.htm" target="_blank">http://money.cnn.com/2009/05/2...ndex.htm</a>
Originally Posted By fkurucz <<I believe you are still mistaken. The Mortgage Forgiveness Act does not provide funds to write-off mortgages.>> Correct. But as I said before, in most states mortgages are treated by law as "non-recourse" loans, which means that if you are foreclosed and the house sells for less than the balance of the loan that you are not held responsible for the gap.
Originally Posted By RoadTrip Well, it's not most, but it is more than I would have guessed. Is it any surprise the Arizona and California, two of the worst states, are among them? Frankly, I think those laws should be changed. It is ridiculous to be able to just walk away from any type of debt. <<Alabama Alaska Arizona Arkansas California (as long as non-judicial foreclosure is used which is the most common) Colorado District of Columbia (Washington DC) Georgia Hawaii Idaho Mississippi Missouri Montana (as long as non-judicial foreclosure is used) New Hampshire Oregon Tennessee Texas (but even in a non-judicial foreclosure, the lender can pursue a deficiency judgment) Virginia Washington (as long as non-judicial foreclosure is used which is the most common) West Virginia>> Source: <a href="http://www.practicalchic.org/blog/?p=6" target="_blank">http://www.practicalchic.org/blog/?p=6</a>
Originally Posted By fkurucz <<None of us, not a single person here, can predict for certain what will happen with the housing market.>> I will go out on a limb. In most markets prices will continue to fall until they are in line with local incomes (3x). The lack of toxic loans (AKA creative loans) will insure this. Buyers will have to prove steady income and savings. No more NINJA (No Income, No Job, No Assets) loans. Special markets (beachfront, etc.) will command a premium. What could possibly throw a wrench into all this would be the gov't respiking the punch bowl by having the FHA, Freddie and Fannie start offering NINJAs, subprimes and other toxic loans. Of course they will need money to lend, and I suspect that will be in very short supply. On the other hand, there is a very good chance that US mortgage rates (and interest rates in general) will rise substantially in the near future, which will puch house prices down even further.
Originally Posted By fkurucz <<We're not clearing inventory as fast as it continues to be added to the market.>> And not only that, but there is still plenty of shadow inventory (REOs that are not on the market). And I just read that 11.8% of all mortgages are either delinquent or in some stage of the foreclsoure process.
Originally Posted By Mr X ***It is ridiculous to be able to just walk away from any type of debt.*** What's your solution? Bring back debtors prisons or something? (as if the prison population weren't already bad enough)
Originally Posted By fkurucz **<<The real estate problem is localized... just because one city or part of a city is in terrible shape does not mean EVERYONE is in terrible shape.>> I think that's too simplistic. The real estate problem is what caused the downfall of our financial institutions - hardly a localized problem. While not everyone has seen the value of their home deteriorate as much as others, I have a hard time believing the whole crisis has not significatnly affected most people in one way or another.** I agree. Everyone says "Its different here". The local press here in Larimer County loves to trumpet that housing prices have held up here, yet I see that it takes months, if not years, to sell anything here priced over 300K. There are a few neighborhoods here where houses stil sell, but they are the exception and not the rule. And the bubble pop has had other effects. The local builders and contractors are hurting big time, as housing starts in the county have dropped from 2000+ annually to about 300. The silver lining is that there are never any lines at restaurants these days.
Originally Posted By fkurucz <<It is ridiculous to be able to just walk away from any type of debt.>> Why? Corporate America does it all the time.
