Well duh! Have they finally figured it out?

Broderick Perkins reported in an RealtyTimes article this morning that Chase and Bank of America have begun programs to offer mortgage modifications to homeowners that involve real reductions in principal. According to his article they have even extended this program to some homeowners who had not yet even ask for relief.
Now that last line generally falls under the “hard to believe” category – big banks helping out underwater homeowners by reducing their loans without them having to ask. Perkins did set that up a bit by explaining that both banks have been under pressure from Washington because of their terrible performances with foreclosures and short sales in the past. I’m sure many Realtors can attest to that.

So, are these real “change of direction” programs or just window dressing to assuage Washington? The article seems to indicate that these programs are being used primarily for customers that had bought into some of the Option ARM products of Washington Mutual and Countrywide, two of the outfits that when bust and were bought out by Chase and BoA respectively. These ARMS were some of the most toxic of mortgage products sold during the “crazy times” of 2003-2006 and are now coming due. Many of these ARMS featured little or no payment against the principal, which put homeowners even further under water.

It’s certainly probable (and much more believable) that Chase and BoA are dong these programs primarily to placate Washington and to avoid having even more Federal programs shove down their throats. The “goodness of their hearts” argument just doesn’t fly.

Many of us in the business have been saying for some time that biting this principal reduction bullet is the only way out of this mess. It’s not clear whether or not these and other banks have some sort of deal with the government to be reimbursed for some or all of the losses that they will be declaring. It seems like I remember that there were provisions in some of the bailout legislation for the banks to be paid out of some of the economic recovery funds for some losses, but I cannot recall the details.

I have had several clients who would have stayed in their homes and been good paying mortgage holders had programs like this been offered to them. Instead they are now living in apartments or rental homes and trying to rebuild their credit. They are part of a tragedy in America that could have been avoided if common sense had prevailed. Of course, common sense seems to be a commodity in short supply these days, especially in Washington.

Let’s hope that this article presaged a true shift in strategy and direction for these and other big banks and that these programs will provide the basis for a way out of the housing mess in which we currently are stuck.

Is the Internet actually getting in the way of real estate?

I work with a number of buyers, most of whom are avid Internet users. That has actually proven to be a bad thing, rather then the good thing that one might have thought it would be. Many of these enthusiastic would-be buyers spend hours searching various Web sites each day in hunt of those illusive deals that I somehow have failed to send to them in my search results.
Of course, they find them. Then they pop off messages to me asking about this house or that, which they found on ObscureRealEstate.com or some other site that claims to have all of the real estate listings (Zillow and Trulia are a couple of biggies that many use). A helpful MLS listing number is seldom included in their messages, just a partial address or a link to some web site that itself doesn’t give much information unless one signs up to have an agent call.

This practice of trolling the Internet in search of previously unmentioned homes for sale has become an obsession for some, but for the most part it is a giant waster of time – theirs and mine. The main reason is that most of the Web sites that people end up on are woefully out of date and are set up mainly to draw the unsuspecting house hunter in so that a “lead” can be give to a agent somewhere.

About 30-40% of the time the great house that the would-be buyer has found has actually been sold for some time. Most of the big real estate sites are terrible at keeping updated, especially those that let agents upload their listings (agents are terrible at keeping things updated on those sites, too). I usually advise my local buyers to at least use the Realtor.com or Realestateone.com - sites that I know are updated every day.

The links to sites with the perfect house on it often resolve to some agent’s personal web site or some local web site of a franchise operation. In those instances there is usually not enough information to even figure out where the house is without signing up to be called by an agent. Those sites are there to generate leads for the franchise agents. They are also most often out of date, so go somewhere else.

Sites like Homes.com and Housevalues.com and Justlisted.com are for-profit lead generation sites whose sole purpose is to lure in unsuspecting buyers and sellers so that they can sell their personal information as leads to hungry Realtors. So, the bottom line is that a lot of time and effort is wasted, both by would-be buyers and by the Realtor that they may be working with in their house hunt. If you find yourself on a site that won’t supply information like the address or the MLS listing number, unless you sign up for something, run (don’t walk) away and find another site.

The Internet is a wonderful thing, but just because you saw something there doesn’t make it true. Just because you see a house “for sale” on a Web site, doesn’t mean that it’s still available. And, just because the pictures that you saw posted there looked great, doesn’t mean that you won’t walk into a real pit, if you visit the place. Let your agent do his/her job and you won’t end up wasting your time or your agent’s time.

Is Facebook already “so yesterday”?

I got an Anonymous Blog comment today on one of my Blogs that caused one of those “uh-oh” moments. This unsolicited and somewhat annoying comment informed me and anyone that might read it (had I actually posted the comment, which I did not) that one can now “buy Facebook Likes”. Perhaps lots of people already knew about this, but it was news to me and a sure indication, in my mind that Facebook has already peaked and is now, so yesterday.

Why do I say that in the face (pardon the intended pun) of ongoing evidence that Facebook is still growing and may exceed 1 billion members this year? Because it is yet another indication that the “suits” have taken over. Try as they might, the Facebook crowd will not be able to stay “cool” once the really cool people find out that they are being had by people who buy “Likes” on Facebook.

There are two things that really tick off the cool people who are the advance guard of success (and the first to abandon ship on a failure or fraud) – companies (sites) that sell out (and sell them out in the process) and companies (sites) that get taken over by the suits – people who figure out how to game the system in order to get to the users with targeted ads. There certainly is an argument to be made that both have occurred with Facebook.

Why does this matter? The truth is that Facebook can coast along on momentum for a couple (maybe a few) years – gaining new members and expanding revenues by selling access to those who sign up; however, it also true that the really cool people who jumped in first are likely to jump back out first, once they figure out what is happening. These are the bleeding-edge adopters and they’ll find the “next big thing” to jump onto.

This is actually quite a natural pattern. Bleeding-edge and early adopters are always looking out for the next cool thing on the Internet or elsewhere in life. They jump onto new things early. They are often fervent supporters and make lots of noise about how great whatever it is that they’ve embraced is. Eventually the rest of us not as cool people jump on the bandwagon, because we’ve read all of these great things that were written by the bleeding edge and early adopter people and we say “I want to be cool, too.” That is when the bulk of the people who jump on anything arrive on the scene. We won’t even talk about the late adopters, who are still unsure about this whole Internet Social Media thing and haven’t jumped on a bandwagon since that got on board with mobile phones, just recently.

So, now Facebook is not about being cool and communicating with your friends. It’s about targeted ads and knowing what you “like” and trying to get you to buy what your friends buy. In other words, it’s not cool anymore because you’ve been sold out and all of the really cool people have moved on. Where did they go? Don’t ask me; I haven’t been cool since 1972. I’m still trying to figure out this Wall thingy on Facebook and have no idea why so many farmers are always asking me to buy something for their sheep. I may move on to the next big thing before I even figure this one out.

It’s not the end of the world…

This morning, as I perused my inbox, I took note of two entries that through pure happenstance were positioned one after another. One headline read - Real Estate Outlook: Housing Market Struggles, which was from Realty Times, while the next entry from the Jack’s Winning Words blog carried this lead quote - “Everything will be OK in the end. If it’s not OK, it’s not the end.” (Carolyn Myers). Sometimes Jack’s winning words are more prophetic than others.

Indeed the Realty Times article went on to provide lots of statistics about the economy – slowly improving, but with many issues still evident – and the housing market as a mjor component of the economy – still stalled by employment insecurity and lending difficulties. The article laid out a litany of issues, from the new requirement for higher down payments to the looming threat of the end of the MID and including the still large overhang of distressed houses on the market depressing prices as contributing factors in the continued housing malaise.

Like a broken record the articles about the moribund housing market are getting really old; which makes the words of Jack’s blog even more meaningful, especially to a Realtor. While I hate the popular saw “It is what it is”, in fact it is and, you know, what it’s not is the end of the world. It might be the end of life ands we knew it, but that just means that we need to learn how to live with this new reality and get on with life.

So, bring it on. Hike the down payment requirements, rescind the MID, make home ownership a privilege that people have to strive top achieve and not some sort of subsidized entitlement. It’s not OK, but it’s not the end. We’ll all figure out how to live in this brave new world.

Lookin' good to feel good...

“What we see depends mainly on what we look for.” (John Lubbock) from the Jack’s Winning Words blog. Jack is a retired Lutheran pastor and his blogs are always full of great advice for life. Since the real estate business is just a part of life, the pithy little sayings that he finds and uses always seem to have a real estate bent to them.


We look at a lot of real estate market data and read lots of market reports and articles and some times (maybe most of the time) what we “see” in all of that data and information is what we want to see – what we were looking for. That works well for eternal optimists, since they always seem to find a silver lining in everything that they look at. For others who might be skeptics or pessimists or worse, there is certainly plenty of bad news to be seen and that maybe what they are looking for to begin with. For many of these people the old saw that misery loves company provides them the only opportunity for company; so, they go about trying to make others miserable so they will have company.

So, the choice boils down to finding a reason to be optimistic and happy or finding a reason to be discouraged and down. Hmmm. How much of a no-brainer is that? Don’t worry, be happy. Don’t look for the bad. See the good instead. Try it, you might even like the results.

Are bank accounting rules prolonging the agony?

It seems to me that the long, drawn-out agony of the current recession is being exacerbated by the accounting rules that let the banks off the hook for the loss of value in the housing market, so long as they can stretch things out and don’t have to recognize the losses that have occurred. The silly thing is that everyone knows that the value is gone.

The homeowner certainly knows that the value of his home is about 60-70% of what it was a few years ago. The assessor knows that the value is gone; that’s why the assessment and taxes are down. Even the bank knows that the “assets” that they have on their books are no longer worth what they are on the books for; however, they don’t have to admit that until such time as the homeowner defaults and they have to foreclose or the homeowner forces the issue with a short sale. Certainly the government knows that up to 30-50% (depending upon what area the home is in) of the value of American Homes has vanished; yet program after program refuses to deal with that reality head-on.

The simple truth is that all of the holders of the mortgages on these assets need to be forced to adjust the value of those assets, take their losses and get on with life. Would that be painful – of course it would be. But is this “death of a thousand cuts” method of dealing with the situation any less painful – no, it’s just pain in slow motion. The government certainly has it in its power to help the lenders get through what might be called a reset of their books, but relaxing some of their capital requirements temporarily while they eat the big losses involved and reset or re-issue all of the mortgages involved at the new values and perhaps at today’s rates.

Would implementing this massive reset idea be a huge undertaking and costly for the lenders involved? Sure, but likely no more costly that the slow process of taking losses one foreclosure or short sale at a time. In fact an argument could be made that this method could be less costly than the cost of all of those foreclosures.

What about the stock holders in those institutions, you may ask? Well, it’s like they are standing proudly in front of a Hollywood set – you can see the front of an impressive looking building (the “assets” that are on the books at false values), but you can’t see that it is just a façade with nothing behind it. Like on a Hollywood set. Are the stockholders really any better off holding stock in a company with assets that are at hugely overstated book value but of much less real value? I think not.

I’m sure that the lenders will say that this is impractical, that the losses would be too great. To them I would respond that the losses have already happened and that just covering your eyes and refusing to see them won’t make them go away. The hundreds of thousands of underwater loans are not going to magically regain all of that lost value if you just wait a few months or even a few years. It’s gone. You’re $400,000 ”asset” is now a $250,000 liability and you need to deal with that and not try to ignore it.