Florida’s #1 Mortgage Planner discusses Mortgage Planning Strategies, News, Tips and more

I was trying to find a good song that sums up why I blog and this one, particularly the chorus does the best job.  The song is done by John Reuben and is titled, “Nuisance”.

As the chorus goes…

I am not trying to be a nuisance
I just think we can do better than this
That was simply my two cents
You can take it or leave it

If you “want to do better than this” as it relates to your mortgage, send me an email so you can get started today.

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Today was certainly a busy one for the House.  It is a good thing it is an election year or some sanity may have entered the voting process.  Instead we end up with more government interventions that should do their job of prolonging the current housing crisis, almost indefinitely.

I already posted their approval of the local government becoming the real estate investor of first choice for foreclosed properties.  But they weren’t going to stop there as they were on a roll to create more turmoil in the markets.

They then approved HR 3221, the Foreclosure Prevention Act of 2008, by 266 to 154, making the recent increases in loan limit for certain “high-cost” areas.  Sounds like discrimination to me.

As if that wasn’t enough chaos, they passed HR 5830, the FHA Housing and Homeowner Retention Act (I dubbed this the Barney Fife bill).  This is the major bailout bill which gets lenders to write down homeowner loan amounts that can subsequently get refinanced into an FHA loan.  It’s main goal is to eliminate the penalties of lender and homeowner mistakes, encouraging them to repeat their ways. 

Of course, all of these new measures will be at taxpayer expense.  HR5830 alone, was estimated to cost Americans $1.7 billion.  One thing is for sure, the Democrats are great at spending your hard earned money.

So, what did the House accomplish today?

The ludicrous majority forced through legislation to bail out homeowners and lenders, allowing them freedom to repeat their screw ups.  They did this all to overshadow the fact the government will now become the lender of first resort and will be allowed to enter real estate investing themselves, albeit at the local level.  Pretty soon, Uncle Sam will be collecting not only your taxes, but your rent and mortgage payments as well.

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Real estate investors may find it harder to buy foreclosed, particularly the fixer-uppers, due to an unexpected entrant, the state government.  It hasn’t become law, so there is still time to grab up those properties now, but if the bill passes, local governments will be allowed to buy foreclosed properties and start their real estate investing venture, of course, at the taxpayers expense.

The House approved sending states $15 billion to buy and fix up foreclosed properties, passing by a vote of 239-188, with most republicans voting against.  The bill will provide loans and grants to areas hit hardest by the housing crisis, so not all neighborhoods will be treated the same.  in fact, I am guessing that the government will pick those areas that they can gain the most from.

This is a separate bill from the Barney Frank fiasco (HR 5830) that is set for vote later today.  The only good news is that President Bush has vowed to veto both if they make it to his desk.

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CNN Money put out an article titled “10 markets set for steep losses” and topping the list, Florida cities like Miami and Orlando.  The list breaks down their forecast for continued losses in the housing market and a forecast for the bottom.

While I don’t put much weight into their analysis, it is interesting to see what the are saying, at least worth sharing, in my opinion.  Here is the breakdown of which Florida cities made the top 10 list and their respective forecasts…

1.  Miami, FL:  12-month forecast is for prices to drop another 24.9%, having only fallen 9.8% over the last year.  The bottom is expected to be in the Spring of 2010.  The median home is currently $329,000.  The change in foreclosure rate is forecast at 370%.

2.  Ft. Lauderdale, FL:  12-month forecast is for prices to drop 22.2%, after a drop of 17% over the last year.  Spring of 2010 is also expected to be the bottom.  Median home price is currently $309,000.  The change in foreclosure rate is forecast at 450%.

3.  Orlando, FL:  Forecast is for a drop of 21% over the next 12 months, having fallen 13.1% over the last 12 months.  They are expected to bottom until the Summer of 2010.  Median home price is presently $245,000 and their foreclosure rate change is forecast at 399%.

6.  West Palm Beach, FL:  Prices have fallen 18.7% over the last year and are forecast to drop another 17.6%.  They are expected to bottom out in late 2009.  With a median price of $305,000 currently, their foreclosure rate is expected to be 435%.

7.  Tampa, FL:  Tampa’s median price is currently at $200,000, having dropped 12.8% over the last year.  They are expected to drop another 17.1% these next 12 months, bottoming out in early 2010.  Foreclosure rates are expected to change 281%.

With numbers like those and their respective forecasts, why would one want to move to Florida?  Well, there are plenty of reasons, including investment potential, even in today’s market.

Prices of homes in Florida have dropped and the potential to cash flow properties is ever increasing.  Trying to “time the market” is futile and I personally don’t think it will take as long as they say to bottom out. 

Besides the fact that home prices have dropped, their longer term picture is still positive.  Just like any other investment, it will have it’s ups and downs, but over the longer term, real estate is still a very good investment.  Just look at the price appreciation over the last five years for these same locations, even after dropping some in value.

Miami, FL:  94.8%

Ft. Lauderdale, FL:  56.1%

Orlando, FL:  62.5%

West Palm Beach, FL:  46.1%

Tampa, FL:  52.1%

So, had you held a property for the last five years, you are still ahead.  In fact, for real estate, you still have had a fairly decent rate of appreciation during this timeframe.  Add to that, the recent run ups in prices started further back in time.  The only downside, if you want to call it that, is that the next run up will likely be more stable and controlled since people will keep the current marketplace in their minds going forward.

If you are thinking about moving to Florida, don’t try and time the markets.  Now is as good a time as any.  If you are an investor, there are already plenty of opportunities to make money here, so why delay?  There may be better opportunities down the road, but why have your idle money doing just that, sitting idle? 

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The Federal Reserve Banks of Kansas City’s President, Thomas Hoenig, is the first I have seen come out with an seemingly accurate comparison of today’s inflationary risks.  As I had mentioned a while back about the comparison of today’s economy with that of the late 1970s and early 1980s when interest rates went through the roof.  Hoenig added the same comparison in his speech yesterday.

Fellow Fed Presidents Fisher and Kroszner have given dissenting votes lately, stating they think the Fed should stop cutting rates, however Hoenig steps out even further.

Some would dismiss these rising inflationary pressures as temporary.  I believe they are more serious.

Hoenig is obviously very concerned about where inflation is going, more so than most of the voting panel.  He talked about how energy prices have been trending higher over the last five years and that there are good reasons to believe recent runups in food and energy prices are not temporal.

Then he goes on to bring up the inflation psychology I talked about before.  Do any of you remember the gas crisis?  I was still very young, but you can already see comparisons to that time occurring today.  I doubt we will get to gas rationing, but you can already see people trying to avoid the pumps.

The bigger concern is that these increases are beginning to generate an inflation psychology to an extent that I have not seen since the 1970s and early 1980s.

It is clear that stagflation is again taking place in our economy like it did back then.  We have been seeing unemployment rates rise and inflation taking place at the same time, the definition itself.  South Florida is currently leading the nation in inflation.

Measures of inflation expectations in surveys and financial markets are moving higher, and businesses are increasingly passing on higher input and commodity prices to consumers and business customers.  In this environment, in my opinion, there is a significant risk that higher inflation will become embedded in the economy and require significant monetary policy tightening to reduce it.

Hoenig gets my vote as this is exactly what I warned about back in September and again in October after the Fed started to cut rates.  Hoenig went on to talk about reasons for the economic downturn to be short lived, among other things, but his viewpoint on inflationary risks is spot on.

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The Federal Reserve released the transcript of this evening’s speech by Ben Bernanke at the Columbia Business School’s 32nd Annual Dinner, New York.  If you look deeply at its content it appears that Big Ben is backing up, or at least leaning towards, House Financial Services Chairman Barney Frank’s approach to bailing out  “underwater” homeowners. Frank managed to get his bill to the floor as HR5830: FHA Housing Stabilization and Homeownership Retention Act of 2008.

But realistic public- and private-sector policies must take into account the fact that traditional foreclosure avoidance strategies may not always work well in the current environment.

It is apparent by his comments that he is determined to ensure government intervention is maximized, despite its drawbacks and potential damage to the economy long term.

When the source of the problem is a decline of the value of the home well below the mortgage’s principal balance, the best solution may be a write-down of principal or other permanent modification of the loan by the servicer, perhaps combined with a refinancing by the Federal Housing Administration or another lender.

Adding in the refinancing option being performed by the FHA, something Bernanke has not mentioned before, is precisely what Barney Frank is proposing.  The bill Frank and his buddies passed allows eligible homeowners to refinance to an FHA backed loan provided the current lender agrees to the writedown (and subsequent write off).

The reasoning behind this endorsement is due to the increasing number of homeowners with negative equity positions lacking the means and/or incentive to keep paying the mortgage.  Write downs of loans is being widely suggested as a means to assist distressed homeowners, leaving moral hazard issues out of the discussion.

High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy…Doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It’s in everybody’s interest.

I would certainly argue that last point as it is clearly not in everyone’s interest when you get down to it.  I certainly have no interest in seeing this play out, nor is it in the interest of most Americans whom continue to be financially responsible. 

Bernanke doesn’t point out the Option ARM loan, but rather suggests that piggyback loans caused much of the dilemma in Florida and other locations hit hard by foreclosures.  Since these loans resulted in little or no equity to begin with, combined with decreasing loans values, these homeowners lack incentive to pay their mortgage anymore, and are walking away.  He also points to the fact that there is a high concentration of investors in areas hit hard. 

The solution Bernanke (and Barney Frank) suggests is to have lenders reduce principal and have the FHA (government) then refinance the loans, making the government responsible for all of these new loans, should these homeowners default again. 

Since the government, and their lackadaisical monetary policy, encouraged the quest for the American Dream, home ownership, maybe they should have thought more deeply about their “everyone deserves to own a home” philosophy.  Of course, hindsight is 20/20, but you would think Greenspan and others could have seen this coming.  Actually, Greenspan admitted to seeing it coming, but he failed to do anything significant to prevent it.

Are we now to believe that government intervention is going to solve this mess that they created?  Bernake seems to be doing everything in his power to intervene, and even working on things beyond his own spectrum.  Check out my previous post to learn more about that track record.

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Any time the government gets involved in a bipartisan intervention, you should be scared.  Their track record of successfully implement something both parties agree to is dismal, at best.  And right now, both parties are working to have the government intervene to clean up the mortgage mess.

Let’s expand a bit and not limit the discussion to just the mortgage mess, for the whole mortgage and real estate fiasco has drawn down the economy.  Now the government is trying to figure out what is the best “stimulus” to get the economy back on track.

Well, if you look at history, the best stimulus is to just leave it alone!!!

The problem is that your elected officials feel like government intervention is required to make things better, even if it costs the taxpayers billions to bail out the undeserving people, in the name of saving a few deserving ones.  The age old “spend a dollar to save a penny” routine.

Economists will back up this thinking, providing scenario after scenario showing how the government could make things better, whether staving off a recession or rebuilding the housing market.  Some people even believe that whenever there is a market failure, the government should step in.

But look at history.  Markets have failed numerous times before.  Humans are imperfect, so they fail as well.  But if Martin Biron lets a puck into the net, the Philadelphia Flyers don’t bench him.

So why do we feel the government should step in and be our new goalie?  The fact is that they lack the knowledge, experience, or even incentive to intervene appropriately.  Just because the markets and our economy is not performing as we want doesn’t mean we believe the government can do any better. 

History shows they screw it up almost every time.  Look at what happened through government intervention during the Great Depression (many liken today’s economy to that era).  Many on the left (Democrats) feel that the 1929 stock market crash showed the failure of the free market and that the New Deal interventions saved the day.

The stock market crash of 1987 was just as big, yet Ronald Reagan resisted the crowds demands for government intervention.  The results ended by foregoing another Great Depression and lead to decades of economic prosperity.

The fact is that throughout history, before Presidents Herbert Hoover and Franklin D. Roosevelt, there was no expectation for government to step in when the economy turned south or the stock market collapsed.  History up to then experienced stock market crashes and economic downturns, but without the government screwing things up, they worked themselves out faster and less painfully than happened during the Great Depression.

The reasons no government intervention is better are sound.  Fundamentally, markets correct themselves for a reason, typically because they paid a price for their mistakes, forcing them not to repeat them again. 

If the government steps in, such as writing down loans for distressed homeowners, the pain (or price) is not realized and the learning experience is lost, even turned the opposite way, encouraging repeat occurrences since there is no penalty for doing so. 

Today, the Fed keeps pumping money into the system and we can see its effects in drastically rising oil and food prices along with a dollar that has shrunk virtually into oblivion.  Do not be surprised if continued government interventions result in greater inflationary pressures, global financial repercussions, and prolonged agony for all.

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Jose Canseco is not your typical foreclosure scenario by a long shot.  However, he does represent what others like him are doing in increasing numbers these days, no matter how much money they make, even the wealthy.

Jose Conseco was born in Cuba and raised in Miami, Florida.  During his famous baseball career, he was the American League MVP and made millions.   His peak earnings during the baseball season was about $6 million, and retired in 2001.  Eventually he bought a $2.5 million dollar, 7,300 square foot home in Encino, a suburb of Los Angeles.  Even he admits his situation is different than most others facing foreclosure.

Like I said, my situation was a little more different than most. I decided to just let it (the house) go, but in most cases and most families, they have nowhere else to go. (Source:  Sun Sentinel)

In the latest phenomenon, Americans have been heard simply walking away from their mortgages, and Jose Canseco is one of them.  While he admits to making millions, mentioning a couple of divorces that cost him millions, even putting out two books on drug use in baseball and trying to get out a movie on them. 

One would think that despite his setbacks, he still would be financially responsible and pay his mortgage and other debt obligations.  So, why is he walking away from his own mortgage commitments?

I do have a judgment on my home and it to me is very strange because it didn’t make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else.  (Source:  Sun Sentinel)

For whatever reason, homeowners like Jose Canseco are walking away from their mortgages.  Though most are likely not in as good financial shape as Canseco, they come to the belief that it just doesn’t make financial sense to keep paying their mortgages. 

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Many thought Richard Dutrow, Jr. was, dare I say, egotistical since he was saying this week that his horse, Big Brown, would win the Kentucky Derby.  Many thought he was overconfident and that the odds would prove that since they were against “inexperienced” horses.

Nevertheless, Big Brown did pull off the win.  So, what does that have to do with mortgages and rate shopping in particular?  Let’s compare races.

Many Americans, if not most, have gotten caught up in the race to get the best deal on a mortgage .  As they run that race, the furious contact lenders, fill out online forms, or whatever else focusing only on getting the lowest rate and fees.  The problem is that the odds are against them, even more so than an inexperienced horse, as Big Brown was, winning the Kentucky Derby.

Mike Mueller put out a good post yesterday that highlights some of the pitfalls associated with the rate shopping race.  All too often, mortgage borrowers whom fall into this trap wind up in the wrong loans, or suffering consequences similar to what Mike spells out in his post. 

Here is a part of what Mike wrote:

For the rate shoppers out there. If you didn’t have your Ducks in a Row - you lost.

What exactly are those Ducks? Good question.

1. a Complete Mortgage Loan Application including all requested documentation.
2. an Underwriters Conditional Loan Approval
3. The ability to meet those Conditions in a timely manner

That’s it. Seems pretty simple right?

But that’s also why you cannot pick up the phone and shop for rates.

Compounding the problem, inexperienced mortgage professionals can cost a lot more in the long, and rate shopping will likely guide you only to those types of individuals.  As I have said before, getting the lowest rate and fees on the wrong loan program will cost more than higher rates and/or fees on the right one.  So, even though an inexperienced horse can win the Kentucky Derby, you can’t win the race with an inexperienced loan officer.

So, when running the race to get the best mortgage deal, run the race like Big Brown did, focused on the end result and not the cost to get there.  If you don’t, not only could you fail to win the race, you get be like Eight Belles and get euthanized right on the track.

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I came across this video on YouTube that I just had to share with you all.  It is an excellent housing bubble parody and will certainly put a smile on your face (hopefully anyway) and break the bleakness that has overwhelmed out housing market.  Enjoy….

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