Saturday, November 8, 2008

California's budget and the economy to effect real estate

Dr. Housing Bubble Blog
Leave it to California to first, stall a budget for a record 85 days only to pass a budget that amounts to kicking the economic shiny can down the pothole-filled road. We may want to save those cans for their redemption value since things are getting progressively worse. Only 6 weeks after being signed, the budget is now facing a stunning $11.2 billion deficit. It took longer to pass the first budget than it took us to once again drive off an economic cliff. What exactly happened here?

Well first, the initial budget passed in September for the 2008-09 fiscal year amounted to a buffet of gimmicks, illusions, and putting your hand in one pocket, taking $20 out and shifting it over to your other pocket deluding yourself that you are now richer. So how did they pass that budget?

*$3.3 billion in sale of authorized Economic Recovery Bonds

*$1.9 billion in changes to accrual accounting

*$5.1 billion of lottery proceeds

*$1.4 billion in other initiatives

*$8 billion in spending cuts

This is what it took to pass a $143 billion budget on September 23. More debt and accounting smoke and mirrors. Nothing really addressed the structural problems facing the state. Barely enough time to catch our breath but here is what awaits California. This comes from the Special Session 2008-09 report:

“Economic conditions have deteriorated dramatically since the Governor signed the 2008 Budget Act of September 23. This deterioration was reflected in General Fund revenue collections for the month of September that came in $923 million below forecast. As a result, California faces a revenue shortfall of $11.2 billion this year. Specifically, the Department of Finance estimates that General Fund revenues will be approximately $567 million lower in 2007-08, $10.7 billion lower in 2008-09, and $13 billion lower in 2009-10 than earlier projections.”

This coming from our government so you know things are actually worse. So where was this supposed and deceptive money going to come from? Let us look at the revenue sources for the state:

Friday, November 7, 2008

Loan Modification - U.S. considering new foreclosure prevention Program

Potential foreclosure plan still being debated - Oct. 30, 2008
NEW YORK (CNNMoney.com) -- The government is expected to announce soon that it will devote up to $50 billion to directly address the source of the financial crisis: bad mortgages and millions of homeowners at risk of foreclosure.

White House spokesman Tony Fratto said on Thursday that "no decisions" have been made on "a number of housing proposals" that the administration has been reviewing "for some time."

But three administration officials indicated to CNN that the new program would be designed to prevent foreclosures by having lenders reduce delinquent borrowers' mortgage payments to affordable levels. In exchange the government would guarantee some percentage of each loan to backstop lenders if borrowers re-default on modified mortgages.

The plan could help up to 3 million homeowners, although that number is not firm, according to the administration sources.

If it comes to fruition, the government's new loan program could trump the efforts of the Hope for Homeowners program put into place on Oct. 1 by the Federal Housing Administration.

Lawmakers spent months fighting over the legislation that created the FHA program before enacting it in July. Lenders may be more likely to participate in the latest government plan if it imposes less stringent requirements.

The Hope for Homeowners program offers full government backing for lenders that agree to write down a mortgage to 90% of a home's appraised value. But the loss to lenders can be greater than 10% because many troubled homeowners are also "under water" because of falling home prices - meaning they owe more on their home than its current market value. So to participate in Hope for Homeowners, lenders in many cases would have to lock in a sizeable loss.

The plan being considered likely would not require such a strict writedown. Instead, it might require that the new payment for the borrower be affordable.


For more information on California Loan Modification

Loan Modification - Stop Forelcosure, Countrywide and Bank of America Programs.

Almost 400,000 Countrywide mortgage holders will get help - USATODAY.com
Nearly 400,000 homeowners will be able to get more affordable loans after Bank of America (BAC) agreed Monday to modify mortgages that originated with its Countrywide Financial unit. The move could be worth more than $8.6 billion and mark the largest predatory lending settlement in history.

Monday's deal settles claims brought by attorneys general in 11 states that accused Countrywide — acquired in July by BofA — of misrepresenting loan terms, loan payment increases and borrowers' ability to afford loans.

Bank of America says it will restructure loans for Countrywide customers holding subprime mortgages and option adjustable-rate loans that permit borrowers to pay only a small portion of interest and principal owed each month. Some might wind up in new fixed-rate loans; others might not.

But the Bank of America deal represents only a fraction of the future defaults and foreclosures facing homeowners. There were more than 2.2 million foreclosure filings in the USA in 2007.

EVEN MORE DETAILS: Read Bank of American's press release

"There could be a couple million more (foreclosures to come), so it begins to put a price tag on the problem and how expensive it is," says economist Joel Naroff at Naroff Economic Advisors.

Pat Lashinsky, CEO of ZipRealty, says as many as 6 million homes will have gone through a short-sale or foreclosure before this housing slump is finished.

Loan Modification Programs - Indymac, Bank of America, Countrywide

Struggling IndyMac borrowers may be in the dark about offer to lower their mortgage payments - Los Angeles Times
The FDIC's experience has implications beyond IndyMac because the loan-modification program there is being looked at as one of the templates for an emerging government plan to help stem foreclosures. That plan would offer loan guarantees to encourage loan companies to alter as much as $500 billion in mortgages to make them more affordable to struggling homeowners.

But you can't help borrowers if you can't reach them. Despite the difficulties it has encountered, the FDIC appears at IndyMac to have been more successful at reaching them than most mortgage companies have been. Horror stories about elusive homeowners abound in the mortgage industry.

Bank of America's Countrywide unit tried to contact one delinquent borrower 150 times before the homeowner called -- in response not to the deluge of letters and phone calls but to news accounts of a new Bank of America plan to modify loans, said Steve Bailey, a mortgage executive at the bank.

Loan Modification - Hope for Homeowners

Expectations lowered for new mortgage aid program - Los Angeles Times
WASHINGTON -- The government expects only 20,000 troubled borrowers will apply to refinance into more affordable home loans by next fall under a new mortgage aid program passed by lawmakers over the summer.

The $300 billion "'Hope for Homeowners" program was launched Oct. 1. Designed by lawmakers eager to respond to the mortgage crisis, the Congressional Budget Office had projected it would let 400,000 troubled homeowners swap risky loans for conventional 30-year fixed rate loans with lower rates.

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But the early results are discouraging: the government received only 42 applications in the program's first two weeks, according to the Federal Housing Administration. The low turnout was first reported by the industry newsletter Housing Wire. Since the applications take about 60 days to process, no loans have been approved yet.

Steve O'Halloran, spokesman for the Department of Housing and Urban Development, called the projection of nearly 20,000 borrowers "an extremely preliminary estimate of early applications for a program that is barely a month old. Borrowers and lenders are continuing to sign up."

Since the program requires lenders to voluntarily reduce the value of a loan and take a loss, it's unclear how many lenders will participate. In addition, the program may be unattractive to some borrowers because those who sell their properties must agree to share some of their profits with the government.

Wednesday, November 5, 2008

Loan Modification - JPMorgan and WAMU

Massive Effort to Save Mortgages - WSJ.com
J.P. Morgan Chase & Co. launched an ambitious plan Friday to modify the terms of $70 billion in mortgages for borrowers who are behind on their payments or soon could be.

The move by the New York bank will cover as many as 400,000 borrowers. They'll be moved into loans carrying lower interest rates, smaller principal amounts or other more-affordable terms.

The changes will particularly focus on a type of loan structured in such a way that the borrower's outstanding balance sometimes grows month after month. J.P. Morgan inherited $54 billion of such loans with its takeover of the beleaguered thrift Washington Mutual Inc. in September.

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Wamu has to be one of the most disorganized workout departments out there.  Chase is one of the most professional.  It will be nice if they execute on this ambitious plan.