One of the things that really gets under my skin is the number of  “Scams”  with signs, TV ads and radio announcements telling people that they can get out of their home, renegotiate their debt, or some other scam, as if it were as easy as stopping off for a hair cut.  What the home owners don’t understand is yes they are very often getting a hair cut by these companies and they are going to get clipped in the future far worse for their actions!

You may want to consider keeping your property here in Las Vegas even if you owe 50% more than it is worth.  Why?  Because what may be coming after you dump your property may be more painful than if you had kept it.   Nevada protects you in many instances on your initial 1st mortgage purchase money and limits your liability to the value of the property. Thus in those instances you may not have a problem later after you dispose of the property other than ruining your credit. 

If you refinanced or had a second mortgage this whole game may just have changed.  For instance a “Home Equity Loan” although attached to your home is a personal guarantee loan and if defaulted on in any way the lender has the right to seek collection against your assets.  This may also be true concerning refinance 1st or other 2nd mortgages.  To answer these questions you should dig out your original loan papers review them and seek the advise of your attorney and also the advise of a “Certified Public Accountant” who has malpractice insurance. 

A common response by “Scams” is that the lenders will write off their loss and send you a Federal 1099 form and you can avoid the tax because of the temporary moratorium on the loss offered by the Federal Government through “The mortgage debt relief act.” Yes, in some cases you do not have to pay taxes on your loss for the debt forgiveness on your primary home when it is sold at a loss to the lender and he issues you a 1099c. 

The thing that really gets me is that people think that because the lender issues a 1099c and writes off the loan on their books the borrower no longer owes the money to the lender.  In many cases this simply is NOT TRUE!  Then collection business in the United States is about to become much bigger and much more lucrative than it ever has.

Many large mortgage companies will be selling off these written off loans to collection agencies and sometimes these will be spin off companies of the banks.  So you won’t see any of the big banks coming after you in 3 to 7 years from now but you will see the collection companies.  They will be looking at your assets, income and other available ways to collect against you.  They will accelerate any interest rates, late payment fee’s, collection fee’s and any other allowable charges to the maximum allowed under the contract.  They will attach your income,  attach or force the sale of your assets and make your life miserable.  If they can somehow get you to send them even a dollar they then have another 7 years to collect against you.  Yes you now are a slave to your debt and although you thought everything would be rosier when you walked away from your home 7 years ago you now realize its either pay the debt including interest and late fee’s or take out bankruptcy which means another 7 years of bad credit and problems qualifying for everything from a loan to higher insurance rates to getting a better job.  Yes, you may one day look back and wonder why you just didn’t keep paying for that home as in the last 7 years it is now worth more than what you owed and now you don’t have the home, you just have the debt.

If you had kept the home you would still have it, your credit would be good and probably the value will have recovered.  What you would not have is, unpaid debt, no compounded interest, no late fee’s, no collection fee’s and you wouldn’t have a collection agency after you trying to garnishee your wages and forcing you to sell your assets. 

Remember that banks originally gave you the loan to make money on you.  They are not a charity in which you are just forgiven miraculouslyof thousands of dollars which they promise never to return and ask you for.  If they can legally collect from you they will.  A bank writing off your loan does not mean that they can’t come back and collect against you latter and then pay taxes on what they collect!  Short Sale and foreclosure are not nor will never be a way to freely escape your written, legal and moral obligation to repay a debt. Even if the IRS gives you a free ride this does not mean that your Mortgage Company will release you.

Let’s assume that you bought your home in Las Vegas in 2005 and paid $300,000 for it.  Let us also assume its value is now 50% of what it was in 2005.

If you keep your home or investment property and think long term things may change in your favor quicker than you anticipate.  Most economist believe that because of the ballooning of our national debt that inflation will ensue. This means that holding dollars will be a way of loosing money (the purchasing power of cash).  This will result in everyone buying commodities and this includes houses in order to shelter the value of their money.  If inflation is just 5% per year for the next ten years you will see the following:

Beginning home value $150,000
Year 1 @ 5% inflation $157,500
Year 2 @ 5% inflation $165,375
Year 3 @ 5% inflation $173,644
Year 4 @ 5% inflation $182,326
Year 5 @ 5% inflation $191,442
Year 6 @ 5% inflation $201,014
Year 7 @ 5% inflation $211,065
Year 8 @ 5% inflation $221,618
Year 9 @ 5% inflation $232,699
Year 10@ 5% inflation $244,334

In 1990 the inflation rate was 5.4% and most economist believe that we in the U.S. will see inflation rates higher than we have ever seen them until we control our deficit.  So think of the above numbers as conservative.  Also realize that as demand for inflation proof investments rise so to will the value of the assets.  The above figures show no appreciation due to demand. If there is appreciation which has averaged about 3% per year in Las Vegas then the price of a Las Vegas home will exceed the 2005 value in 10  Years.   The figures below reflect 5% inflation plus 3% appreciation after 2010:

Prop. value as of 2009  $150,000
2010 @  5%  inflation $157,500
2011 @ 3+5% growth $170,100
2012 @ 3+5% growth $183,708
2013 @ 3+5% growth $198,405
2014 @ 3+5% growth $214,277
2015 @ 3+5% growth $231,419
2016 @ 3+5% growth $249,932
2017 @ 3+5% growth $269,927
2018 @ 3+5% growth $291,521
2019 @ 3+5% growth $314,843

You now have  a piece of real estate that is worth more than you paid for it and probably has a lower balance owed.  You have used the interest as a tax write off for 10 years.  You have either had a place to live or have had rental income and depreciation write off for the last 10 years.

What you do NOT have is $150,000 collectible balance by a collection company along with compounded interest late fee’s and collection costs which may now exceed the original balance of what you borrowed.

One final point for you to think about.  Would you loan someone $300,000 and when you got back $150,000 simply take it as a tax deduction and forget about it when you know they may have money you can get in the future?

Don’t get sucked in to the recent scams about Short Sales and Foreclosure.  Consult your licensed C.P.A. and attorney and take your loan documents with you when you do.  Pay for their advise and follow it. Don’t listen to anyone no matter how self assured they are or how much of an expert they seem to be.  The decisions you make now could affect your financial well being for up to the next 15 years.

Don’t guess, don’t hope, KNOW!

Hope NOW a pig with lipstick

Surprise, surprise now the Federal Government, “Fannie Mae and Freddie Mac,” has come out with a new rescue program to help home owners who are upside down in their properties. (Washingtonpost.com)

This program may “Temporarily reduce home loan balances.” This translates to we (the Bank) will reduce the principle balance until the value of your home goes up and then (the Bank) will move in and take any equity that you may gain by reinstating our deferred principle.  It means no loss or penalty to the banks that obliterated all solid underwriting guidelines and caused this housing bubble in the first place. No penalty for the most guilty parties.  Instead they get access to government money at reduced rates and can borrow freely at the Fed. window. Wow, what a punishment! That’s like inviting your teenager to throw another party as punishment for just having a party and trashing your house!

 The new program may “Reduce interest rates to as low as 3% temporarily but may be increased the rates at a later date. This means that if the lender determines that they can get more from the borrower or the market improves and they can get more by driving the borrower into foreclosure by increasing the interest rate, they are free to do so.

The new program may “Extend the term of the loan from 30 to 40 years.” This would result in a much higher total interest charge to the banks advantage. Once again, no penalty to the bank, only the borrower.

About the only good thing about this program is that it attempts to rewrite your mortgage to a 38% payment of your gross income. But if you can’t meet that criteria you can’t get into the program and foreclosure is your next stop. The Bank now knows you can’t afford the home so they now immediately move to foreclose.

Perhaps the most interesting thing about this program is that anyone applying for this new program through “Hope Now,” or Hope NOT as most who have used the program will tell you, is that if you pay your bills on time you can’t qualify. You have to stop making your mortgage payment for at least 90 days and damage your credit or they won’t consider you.

So let us recap this program from the perspective of the Lender:

a) Don’t pay your mortgage for at least 90 days. (We the Banks are encouraging you to be a dead beat).
b) Even if you had been making your payments before, if you can’t meet the 38% debt to loan ratio, we will now know to go ahead and foreclose against you.
c) We (the Banks) will extend your loan to 40 years so that we can make an additional 10 years interest on you while only slightly reducing your monthly payment.
d) We (the Banks) may differ a part of the principle you owe us in the hope that your property value will go up so that we can then take the appreciated value. This is much better for us (the Banks) as we won’t loose anything even though we used poor guidelines in writing the loan in the first place.
e) We (the Banks) may drop your interest rate to as low as 3% temporarily because we are paying less than 1% currently for our money at the Fed. window. This will save us from repossessing your home and help us lower our losses until the market gets better so that we can then increase your interest rate without re-guard for your ability to pay and foreclose to get our money if we determine that is in our (the Banks) best interest.

Let’s now recap from the Borrowers view point:

a) Thank you for making me go 90 days late on my mortgage, to be considered for your loan, so now all my credit card interest rates have now substantially increased.  My debt on my charge cards have now increase to the point that I no longer qualify for your program.  By the way, my car insurance has also increased and the part time job I just interviewed for ran my credit and determined I could not be trusted to handle money as my credit is too poor.

b) Thank you for allowing me to pay 40 years on this mortgage (an extra 10 years) so that I can pay you much more interest and minimize any equity that could be gained by a 30 year loan.  I appreciate that I will pay you more than 25% more interest than on a 30 year mortgage resulting in you making much more money on me.

c) Thank you for differing principle on my loan so that when I go to sell my home and you reinstate your claim I will either have to “Short Sell” it and damage my credit all over again or if I have held my home long enough for its value to have re-apreciated I will have the distinct privilege of receiving nothing for all my time and effort in keeping my home. I will be worse off than if I had let you have my home and taken out bankruptcy, rented for 7 years rebuilding my credit while saving a down payment for a home.  But now I get nothing. I have no future in trading up to a nicer home because I have no equity in this home.  And if I am forced to sell due to a move in the next 7 years it is worse.  If I am forced to short sell after the end of 2009 then I will no longer be able to waive the Federal income taxes on the loss that you will send me on a 1099 form. Therefor I will owe taxes on the entire loss.

This program should be name the “PIG” program. It smells, oinks and is bloated in favor of the Mortgage Companies.

Gee, this program sounds like a real winner where do I sucker up?

If the American people were to fall for this scam it will lengthen the price adjustments period for property and slow down the depreciation cycle. It will not stop the falling real estate market. For most Americans this is not a program that will help them but a band-aid temporarily stopping the bleeding when what is needed is surgery to cure the problem.

The authors of this so called program “Fannie Mae” and “Freddie Mac” have now shown us all that the government bail out and their pledge to Americans to help put a bottom to this problem is not what they are interested in. Their interests only include their own selfish interests and to the detriment of the economy and the man on “Main Street.”  Nothing has changed.

Sec. Paulson has also show us his colors.  Remember the little $700 Billion bail out program to buy bad mortgages? It seems Paulson has decided not to use a drop of the money for that purpose. Instead he’s going to give more money to the Banks.  In a very quiet move he changed the tax code saving the banks perhaps $107 billion in taxes when they acquire other Banks. That’s why the fight between Wells Fargo and J.P. Morgan over Wachovia.  Mr. Paulson by that tricky move made the Bail out into an $807 Billion dollar program.  Sec. Paulson or should I say Santa Clause, could you make me into a Banker one day so I could get all this free and near free money to lend to main street? I want a license to steel also.

Do you think Paulson knows he can join his friends (the Bankers) after January 20th as the new administration takes over.  That’s when he will make the big bucks for screwing American main street and giving the Bankers all our money.

The only fair solution is to have a Bankruptcy Judge determine what is equitable. The Banks don’t want this and would rather put forth programs like the above that will further victimize the public and not treat them fairly and lengthen the depreciation and economic recovery cycle! Weather or not the Bankruptcy courts want this job is not the question. The question is where this problem could best be handled in a fair and balanced manor. If the courts don’t want this then have the Judicial Branch over see and select Arbitrators with the Congress requiring all parties to submit to this binding mortgage arbitration. This would eliminate the need for bankruptcy and provide experts in the field to stand in the middle and make equitable judgements in the balanced interests of all parties.

Please wait while I set my soap box down. I am about to give my opinion on this disgusting turn of events by our government.

The Fed lending rate cut, for the most part,  bails out the Banks.

The short term Fed rate is the rate Banks can barrow from the Fed resulting in them making more money.  As a general rule they do not reduce the rate they are charging the consumer resulting in more interest spread or profit.  If their money costs less they make more money.  If the bond market becomes nervous about inflation mortgage interest rates on loans could actually increase as a result of the Fed cutting rates. The cutting of short term Fed rate helps save Banks from their bad investments.  The Fed isn’t really interested in helping ”the average guy on the street.” They are interested in helping the Bankers club and all the upper crust of the investment society.

You will see results on your credit card bills , ARM’s and HELOC’s that are tied to the Fed. bank rate.  This will not help people with teaser rates that can not afford the new rate adjustments.  These home owners and investors will still loose their homes.  This is still a major problem that will not be mitigated by interest rates as poorly written loans cannot be fixed from the borrowers side. These properties will have to be taken back and resold.

If the government wanted to help the average man and the economy. They would give a one time tax credit to go out and buy real estate in 2008.  Maybe offer a one time tax write off of up to 5% of the total purchase price of the property as a direct tax write off.  Example: you buy a house for $200,000 you get a tax credit for $10,000. That means if you are in a 33% federal tax bracket you could earn $30,000 and pay no tax on that money.

This plan would motivate the average guy who is currently sitting on the sidelines to go out and buy a house!

This would help fix the foreclosure rate by stopping this downward spiral of foreclosures with no Buyers.  This would mitigate the losses to the mortgage industry, slow or stop falling real estate prices, stimulate the building industry and the U.S. economy in general.

The Fed and the Government in general is to busy trying to protect the Bankers and Wall Street Investors, they aren’t looking at the larger problem of how to fix the hole housing industry which would change the economic conditions here in the United States and thereby the whole world.

It is the same problem we have had in U.S. for the past 50 years, protect the corporate contributors to elected officials and send the little guy down the river. If we were ever able to eliminate election contributions perhaps our citizens could start looking at the candidates and the issues rather than slanted advertising reducing our elections to a popularity contest.

This has never been more transparent than in the present Executive Branch of our Government with Vice President Halliburton (Cheney).

The Bush plan of sticking $500 in taxpayers pockets is not going to induce people to go out and spend. What will they buy with $500 dollars? More Chinese products at Wal-mart.  How will that help our economy?  We have to benefit those people willing to help our economy not the foreign deficit.

 Reward those that will go spend in industries that will get the basic economy going and fix the problem areas.  The rest of the economy will follow.  By focusing on tax incentives for real estate we will be fixing the problem. 

It’s time for our elected official to turn into leaders, not bickering bureaucrats.  Leadership is something that has been sorely absent in American politics for a long time on both sides of the isle.  Congress and the White House needs to take a look at who they are and gather the courage to help OUR Country, not our Corporations, not our Foreign Investors, not their own interest or campaign contributors.  

Our political leaders VERY QUICKLY need to gather the patriotic courage of our forefathers and do what is right for the people and our Country. If we do not put our own house in order how can we help anyone else.

 If they fail in this task, we may very well see ourselves in  the worst situation since the Great Depression.

It appears that the foreclosure rates on sub-prime mortgages have continued to restrain the ability of qualified Buyers to obtain financing when purchasing a home.

   This has resulted in many fewer home purchases nationally.  As lenders try to determine how to estimate their portfolio losses and project further losses in the financial markets.

The Fed has reacted with short term interest rate cuts but this has not curbed volatility in the mortgage markets.

The losses in the mortgage sector could reach an estimated $2 Trillion dollars.  But in relation the dot com stock market bubble resulted in a $7 Trillion dollar loss.

The National real estate markets report some areas are still falling in pricing and volume while some areas of the country are actually appreciating.

See more by clicking on the picture above or this link to see this U.S. Real Estate Report video.

The Fed decision arrived with a Big Change! The Fed surprised most economists and traders with a one half percent cut in both the Fed Funds and Discount Rates. Stocks soared higher and enjoyed their largest gain since 2003.

What does the Fed interest cut mean? Rates on consumer car loans, consumer loans, and Home Equity lines will all benefit. But because Las Vegas Home Loan rates are tied more closely to inflation, it is not uncommon to see less of a reaction…or even an opposite reaction in mortgage rates.

This cut also hurts rates of return on investments.  This gives foreign investors less incentive to invest in US securities. This action by the Feds has resulted in sending the Dollar much lower against the currency of most major foreign countries. This makes foreign goods more expensive for us to buy, which adds to inflation pressures.

This Fed interest cut is good news for the U.S. economy, but may nudge inflation a bit higher.

I have just completed the latest video report on the U.S. real estate market. You can view the report about the United States Real Estate markets by clicking on the picture to the left.  It appears the real estate market in general is beginning to turn for the better.  Find out why the markets are looking up in this special “U.S. Real Estate Report.”

I  just completed the May 2007 video report on the U.S. real estate market conditions. You can watch the video by clicking on the picture to the left. If you prefer to read you can find the script below.
RealtyTrac  a foreclosure service reported that 430,000 foreclosure filings, default notices, auction sale notices and bank repossessions were reported nation wide during the first quarter of 2007. That is one in every 264 homes. According to Moody’s analyst Mark Zandi 2.87 % of the total U.S. housing market is in some sort of foreclosure. Mr. Zandi feels the problem will continue through 2007 as subprime loans rest to new higher interest rates through the rest of this year.
 This figure represents a dramatic increase in for closures up 35% from the same quarter in 2006 according to RealtyTrac. Viewers should keep in mind that the greatest part of the 430,000 foreclosure filings include the initial “default notices” which is a letter sent out to owners that are more than 30 days late on their payment.  Please note, that a property may have up to 3 foreclosures taking place at the same time if the owner has a first mortgage, second mortgage and home equity loan on the property.  Less than 5% of these “default notices” become actual foreclosures as most home owners will then makeup their payment and late fees.
 
 More Than 430,000 Foreclosure Filings Reported in Q1 According to RealtyTrac(TM) U.S. Foreclosure Market Report 

Mortgage Delinquencies Reach All-Time High

On April 24th, Countrywide Financial Corp. Chief Executive Angelo Mozilo speaking at a Milken Institute Conference said he expects the mortgage market to improve in 2008 and be “Very healthy” in 2009. He said that 5 to 6% of the nations riskiest subprime loans may face foreclosure. He went on to say that 94% of these loans will not go into foreclosure.

Currently more people own a home than in any time in the history of the United States.  Much of this is due to the subprime or exotic loan market. Although foreclosures are at an all time high so is home ownership.  For someone to rent in today’s real estate market and save tens-of-thousands of dollars for a down payment and closing costs is unrealistic for most people seeking the American dream.  Many home owners today got their opportunity through these exotic and subprime loan programs and 94% will make good on their dream of long term home ownership.
Concerning the subprime mortgage companies that have gone bankrupt or are severely damaged by the market change.  We need to keep in mind that we live in a free market society and these companies chose to loan money at higher rates to these people.  Investors bought stocks in these companies and purchased bonds that promised higher yields than other more conventional investment. The investors in these assets choose to take the risk to receive the higher return, it just didn’t work out for them.
So in the end we have 94 families that now own a peace of the American Dream and 6 families who didn’t make it happen, for what ever reason.  Maybe some of these 6 were investors risking their credit on the appreciating real estate market.
Are we to feel sorry for the short term real estate investor taking their risks?
Are we to feel sorry for the Exotic mortgage company taking their risks?
Are we to feel sorry for the stock and bond investor taking their risks?
Should we really be upset with the 100 people that took out subprime and exotic mortgages because they didn’t have a down payment?
Right now there is a movement in congress to change the laws on loans.  If successful this might block future 94 people from obtaining their American dream of home ownership.  Mortgage Companies have already tightened their restrictions on exotic or subprime loans we don’t need any new laws.

If no down payment exotic mortgage loans are such a bad thing, then why have we Americans allowed our Veterans to have them ever since World War II.  No Down loan programs are not a bad thing as long as it is reasonably balanced with risk.  Should investors have no down loan programs? Probably not. This alone may make a large dent in that 2.87% repossession rate that the mortgage companies are now crying about.

We need to preserve every opportunity for our youth to obtain home ownership weather the real estate markets take a small re-adjustment or not.
On April 24th the NAR reported that the number of homes sold in the U.S. decreased by 8.4% from the 2006 figures.  A part of this lower sold rate could be attributed to the severe weather that occurred in February when homes that closed in March would have been placed under contract.
A positive sign showed the National inventory of homes for sale fell to 3.75 million units which is a 1.6% decrease in inventory representing a 7.3 months supply in the market place.
The median sales price of a single family home is down 0.9% from 2006.  If this were stocks it would be considered a minor adjustment but to hear the national press trying to sell papers and air time it seems a crisis.
David Lereah, chief economist for the NAR “We’re still looking for existing home sales to gradually improve during the last half of 2007.”
Weather Hits March Existing-Home Sales After Three Monthly Gains

Finally, I want to tell you about a report that came out of Las Vegas about one of Carl Icahn’s companies.  Mr. Ican is a well know corporate investor that buys when the market is soft and sells when it is strong  producing billions of dollars in profits. This last week a deal was struck between his company, owner of the Las Vegas Stratospher and 3 other minor casinos, and a real estate holding company owned by Goldman, Sachs & Company.  The Stratosphere was purchased by Mr. Icahn’s company out of bankruptcy when the market was soft, a Buyers Market.  Mr. Icahn’s company is now under contract to sell the properties for $1.3 billion dollars.  They announced this would lead to a net gain of $1 billion dollars.
The moral to this story is buy when others aren’t and sell when everyone else is buying.
It’s a Buyers market in most of the United States and excellent investments with excellent terms abound.  Interest is low and selection is plentiful. Weather this is your first home, vacation home or retirement home, now is the time to make a great deal on a home.  Don’t wait until everyone else is buying or you may be paying a lot more.

American Real Estate Partners, L.P. Agrees To Sell Its Nevada Gaming Operations to Whitehall Street Real Estate Funds for $1.3 Billion