Buying a Home? New Rules You Need to Know!

Michael Koenig and Maureen Torretto discuss some new changes to real estate finance law. These new closing rules take effect October 3, 2015.

TRID is the New TILA RESPA Integrated Disclosures. The Loan Estimate replaces the initial Truth-in-Lending disclosure and Good Faith Estimate.

Maureen Torretto, Loan Consultant with iMortgage.
Phone: 925-577-8706

Questions? Send me a note.

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Take Advantage of Market Volatility

Schadenfreude. Ever hear of this term? Basically, it means to take satisfaction or pleasure at the expense of someone else’s misfortune.

Well, that’s basically the opportunity now.

The financial markets are in turmoil, thanks to what is happening in Greece and China. The benefit to you? Look at the chart below. Interest rates are plunging again!
(I just took a screenshot from my Zillow Mortgage app this morning, July 8, 2015.)

Interest Rates Plunging again.


The overall trend of interest rates are definitely going up. Don’t let this second chance pass you by!

Contact me now to learn how to take advantage of the current market trend.

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Stoneridge Drive Extension Finally Opening!



The Stoneridge Drive Extension is finally opening!
Basically, it will allow you to drive straight through from the Livermore Premium Outlet Mall down Stoneridge Drive into Pleasanton. The Ribbon cutting ceremony will be on Friday, November 1st, 2013 at 10am.

  1. 8 beds, 7 full, 1 half baths
    Home size: 8,372 sq ft
    Lot size: 40,003 sqft
    Year built: 1999
    Parking spots: 10
    Days on market: 121
  2. 4 beds, 2 full, 1 half baths
    Home size: 2,205 sq ft
    Lot size: 4,015 sqft
    Year built: 2015
    Parking spots: 2
    Days on market: 27
  3. 4 beds, 3 full, 1 half baths
    Home size: 2,441 sq ft
    Year built: 2014
    Parking spots: 2
    Days on market: 8
  4. 3 beds, 2 full baths
    Home size: 1,556 sq ft
    Lot size: 5,767 sqft
    Year built: 1994
    Parking spots: 2
    Days on market: 4
  5. 4 beds, 3 full, 1 half baths
    Home size: 2,787 sq ft
    Year built: 2007
    Parking spots: 2
    Days on market: 34
  6. 3 beds, 3 full, 1 half baths
    Home size: 1,883 sq ft
    Year built: 2015
    Parking spots: 2
    Days on market: 9
  7. 3 beds, 2 full baths
    Home size: 1,548 sq ft
    Year built: 2004
    Parking spots: 2
    Days on market: 9
  8. 2 beds, 2 full, 1 half baths
    Home size: 1,386 sq ft
    Year built: 2004
    Parking spots: 2
    Days on market: 4
  9. 2 beds, 2 full, 1 half baths
    Home size: 1,386 sq ft
    Year built: 2007
    Parking spots: 2
    Days on market: 2
  10. 2 beds, 2 full baths
    Home size: 965 sq ft
    Year built: 2007
    Parking spots: 2
    Days on market: 193

See all Real Estate near the Stoneridge Extension Opening.
(all data current as of 2/5/2016)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

City of Livermore Featured on Today in America! [Video]


Our own city of Livermore was featured on “Today In America”, a show hosted by Terry Bradshaw.

Livermore is no longer up and coming. It’s new and improved and here to stay!

Pretty cool, eh?

Here are some links to places mentioned in the video:

Livermore Premium Outlets – click for website

Wente Vineyards, Concerts – click for website

Livermore Valley Wineries and Events – click for website

Livermore Valley Performing Arts Center – click for website

Livermore 13 Cinemas  – click for website

Livermore Downtown Events – click for website

Home of the World’s Longest Burning Lightbulb – click for website

Annual Livermore Rodeo – click for website

i-Gate Technology initiative – click for website

Lawrence Livermore National Laboratory – click for website

Sandi National Laboratory in Livermore – click for website

Would you like to make the move to our awesome town? Here are some of the latest homes to hit the market:

  1. 5 beds, 2 full baths
    Home size: 2,296 sq ft
    Lot size: 10,000 sqft
    Year built: 1971
    Parking spots: 2
    Days on market: 3
  2. 5 beds, 2 full baths
    Home size: 2,300 sq ft
    Lot size: 14,638 sqft
    Year built: 1980
    Parking spots: 2
    Days on market: 3
  3. 3 beds, 1 full, 1 half baths
    Home size: 1,360 sq ft
    Lot size: 7,922 sqft
    Year built: 1962
    Parking spots: 2
    Days on market: 3
  4. 4 beds, 3 full, 1 half baths
    Home size: 2,511 sq ft
    Lot size: 7,208 sqft
    Year built: 1996
    Parking spots: 3
    Days on market: 3
  5. 4 beds, 2 full baths
    Home size: 1,536 sq ft
    Lot size: 10,201 sqft
    Year built: 1972
    Parking spots: 2
    Days on market: 3
  6. 4 beds, 2 full baths
    Home size: 2,432 sq ft
    Lot size: 12,183 sqft
    Year built: 1965
    Parking spots: 1
    Days on market: 3
  7. 4 beds, 3 full baths
    Home size: 2,472 sq ft
    Lot size: 8,250 sqft
    Year built: 1991
    Parking spots: 3
    Days on market: 3
  8. 4 beds, 3 full, 1 half baths
    Home size: 1,955 sq ft
    Lot size: 1,589 sqft
    Year built: 2015
    Parking spots: 2
    Days on market: 8

See all Real estate in the city of Livermore.
(all data current as of 2/5/2016)

Listing information deemed reliable but not guaranteed. Read full disclaimer.

6 Tax Facts Home Sellers Should Know

  1. If you’ve owned and lived in your home for two of the five years prior to selling it, you can generally excluded up to $250,000 of the gain from your income ($500,000 on a join return, in most cases).
  2. You are not eligible for this exclusion if you sold another principal residence within the past two years and excluded the allowable gain from your income.
  3. If you can exclude ALL of the gain from the sale of your primary residence, you don’t need to report the sale on your tax return.
  4. If you have a gain on your principal residence that exceeds the allowable deduction, it is taxable.
  5. You can’t deduct a loss from the sale of your primary residence.
  6. Special rules may apply when you sell a home for which you’ve received the first-time home buyer credit. (See IRS publication 523, “Selling Your Home,” for details.)

If you’re contemplating a short-sale, there are some additional tax implications you should be aware of as well.

Got a question about selling your home?
Would you like to know it’s value?

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Seller vs Buyer vs Appraiser [Infographic]

The infographic says it all! (Thanks

Are We Over the Hump?

There’s been much talk about the housing recovery lately, in that, we may actually be recovering.

The S&P Case-Shiller national home price index, which covers more than 80 percent of the housing market in the United States, climbed 6.9% in the 3 months ended June 30 compared to the first 3 months of 2012. That’s rather remarkable.

But those are just cold, empty sterile statistics.

More importantly, are we getting any warm and fuzzy’s out of this market? Well, that depends on who you ask. If you’re a home-owner/seller, nervously watching the market every day to see if you’re still under water, then you’re feeling VERY warm and fuzzy! (Would you like to know the value of your home? click here)  In most markets here in the bay area, we’ve easily seen a 6-10% jump in prices in just the last 6 months!

If you’re a home buyer, you may have mixed feelings about this. More like cool and prickly. The market has become so heated up, it makes it rather difficult to get an offer accepted. It’s not uncommon to compete against 5-20 other buyers when bidding on a property. What’s causing this rocket-ripping-upward price momentum? I personally think it’s these three things:

  1. Relatively low house prices
  2. Ridiculously low interest rates
  3. Buyer’s perception that they have missed the market bottom and may miss out entirely.

So where do we go from here? Well, excuse me while I whip this out (my crystal ball, that is…):

Now that summer is coming to close, we should see this feverish market begin to cool a bit. Election season is upon us, so I doubt we’ll see any policy changes that will have an profound effect on the market. Many people talk about this huge ‘shadow inventory’ that is going to be dropped on the market, thus dropping home prices. No way Jose. Not gonna happen. I’ve got some good sources (let’s just say, a certain representative from Arizona who serves on the House Banking Committee).

Bottom line: We’re going to remain flat to moderately upward over the next 9 months. Buyers: don’t wait for interest rates to go lower. Money is cheap. Use it and abuse it (if you can). Sellers: With the demand we’re at now, there’s no better time to sell. (Update 12/27/12: it’ll be interesting to see the impact of the impending fiscal cliff on early 2013)

This is one of the rare times where it’s a beneficial time for BOTH Buyers and Sellers. It’s really been a buyers market for the past several years (remember all those REO/Bank-Owned/Auction signs plastered all over the neighborhood?). So we are now finally entering a transition phase of balance.

Stop waiting and debating!

Give me a call at 510-270-2201 or contact me here.


Fireworks in the Bay Area – 2012

Would you like to know where there will be Fireworks in the San Francisco Bay Area this year (2012)? Then here’s the list of the fireworks events!

(Note: there may be other 4th of July activities throughout the bay area that do NOT involve fireworks…they are not listed here.)


Alameda County Fair. Entertainment, contests and food are on tap at annual fair. On July 4, the entertainment is the annual blues festival. Fireworks on June 29 and July 6. Fair runs through July 8. Alameda County Fairgrounds, 4501 Pleasanton Ave., Pleasanton. $6-$10, $10 parking. 925-426-7600,

Oakland A’s Fireworks Night. On July 3, the A’s take on the Boston Red Sox in a 7:05 p.m. game with fireworks at the game’s conclusion. Tickets are $10-$200,


Antioch. Family-friendly celebration with live music, car show, food and kids zone starts 5 p.m.; parade is 7 p.m. followed by fireworks at 9:30 p.m.; Second Street, downtown Antioch; $4 donation;

Concord Fourth of July Jubilee and Parade. The event, which runs 10 a.m. to 3 p.m. at Todos Santos Plaza, includes a parade, music, a fair and a 5K walk and run. On July 2-4, there will be fireworks and the presentation of the popular Singing Flag at Dave Brubeck Park, 4363 Concord Blvd., starting at 9:20 p.m. each night.

Martinez. Events kick off at 8 a.m. with flag-raising and pancake breafast and parade at 10 a.m. Fireworks at dusk on Waterfront Park Marina;

Moraga. Events kick off at 8 a.m. and include fun run, dog parade, car show, kids activities and fireworks (around 9:30 p.m.) at Moraga Country Club, 1600 St. Andrews Drive, Moraga;, 925-888-7045.


Gilroy July Fourth Fireworks. Fireworks will start about 9:30 p.m. at Gilroy High School, 750 W. 10th St. 408-846-0460.

Great America‘s Independence Week Fireworks. One of the largest displays in the Bay Area is set for June 30 and July 1 at 9:30 p.m. There will be no fireworks July 4. Great America, 4701 Great America Parkway, Santa Clara. Park admission, $36.99-$46.99;

Milpitas Red, White and Boom! Fourth of July Celebration. Fireworks begin at 9:15 p.m. Bring a picnic and enjoy an evening of music by the Houserockers. Gates open at 6 p.m. Admission: $3. Milpitas Sports Center, 1325 E. Calaveras Blvd.

Morgan Hill Independence Day. The event begins at 8 a.m. with 5K walk/run at P.A. Walsh School, followed by a parade. A car show will immediately follow the parade. Entertainment and fireworks viewing will be located at Morgan Hill Community Park. Music begins at 6 p.m., fireworks display starts at

San Jose Giants Fireworks Extravaganza. Fireworks will begin after each game: 5 p.m. June 30, 6:30 p.m. July 4 and 7 p.m. July 5. Municipal Stadium, 588 E. Alma Ave, San Jose. 408-297-1435,


Foster City Fourth of July Celebration. Music, food and beverages, a parade, dog show, pancake breakfast and arts and crafts. 8 a.m.-9:45 p.m. Fireworks will begin at 9:30 p.m. Leo J. Ryan Park, Shell Boulevard and East Hillsdale Boulevard.

Redwood City Independence Day Festival and Fireworks. Arts and crafts, food and beverages, kids’ activities, carnival, 9 a.m., Broadway and Hamilton streets. Parade begins at 10 a.m. at Marshall and Winslow streets. Fireworks will begin about 9:15 p.m.


Scotts Valley Fourth. The annual Fourth of July parade starts at 3 p.m. along Scotts Valley Drive. Then go to Skypark (361 Kings Village Road) for music, food and other activities. Fireworks at 9:15 p.m. Tickets: $6-$8, available at local stores.


Marin County Fair. Music, food, animals, rides. Additionally, there will be fireworks each night. 11 a.m.-11 p.m. June 30-July 4. Fairgrounds, Civic Center Drive (off Highway 101), San Rafael. Advance tickets: $14-$16; those 4 and younger get in free. 415-499-6800,

San Francisco Fourth of July Waterfront Celebration. Music and viewing of fireworks display over San Francisco Bay. 2-11 p.m. Fireworks begin at 9:30 p.m. Pier 39, Beach Street and the Embarcadero. Free. 415-705-5500,

Housing Recovery Program For America

The following article was written by Michael Krein, President and Founder of the NRBA (National REO Brokers Association), of which I am a proud member. It’s a lengthy article, so grab a cup of coffee and give it a read. What do you think? Be sure to post your comments below.

Here is my complete 4 part Home ownership recovery series –
A simple no-cost cure for the housing crisis!
(Written in plain & simple language that even our government can understand)

Anticipation – definition a: a prior action that takes into account or forestalls a later action b: the act of looking forward; especially: pleasurable expectation

Markets are driven by anticipation – if we change anticipation – we change the market…What is the real cure for the housing market? (Part 1)
Buyers! Buyers! Buyers! Markets all function the exact same way – by the law of supply and demand. Right now the housing market is out of balance as we have more supply (excess inventory) then we have demand. We have more homes for sale than we have qualified buyers to buy them. But there is a key word here that everyone needs to pay attention to and that is the word“Qualified”.
In order to be considered a true buyer, one must possess three qualities, one must be “ready”, willing” and most importantly “able”! – With the term “able” almost being interchangeable with the word “qualified”. But there is one very subtle yet very important difference! An “able” buyer has cash in hand. A “qualified” buyer has the banks cash in hand by way of a new loan commitment.
Right now in many markets almost half of the buyers in the market are “able” as they are cash investors, cherry picking bargains for investment. These are not the buyers that are going to go in and improve and preserve neighborhoods.
More often than not, as the number of investor owned homes rises within a neighborhood, the quality and stability of the neighborhood diminishes proportionately. Again – selling to investors is not the way to save neighborhoods.
The only way to save and preserve neighborhoods and restore home values within those very neighborhoods is by placing owner occupants in those homes particularly in the foreclosed properties that need to be renovated and cared for by a new family.
So this creates two problems now:
First there are not enough investors in the market to buy up all of the excess housing inventory and foreclosures. So the markets are still falling. (Not enough demand) * However there is another way to increase small investor demand on a very large scale – more on that later…
Second – these are not even the folks we want buying up homes as they will typically not improve the neighborhoods or raise property values – and usually they do just the opposite. That brings us back to the “qualified” buyers – those able to get a loan to purchase a home that they will care for and live in. Exactly the type of buyers we want in the marketplace if we are to preserve neighborhoods and restore values. But where are they?
Let’s go back to the concept of ready, willing, and able. We have millions of Americans who are ready and willing. After all who doesn’t want to own a home of their own? The problem is “able” or more specifically in this case “qualified”.
There are millions of Americans out there who would love to own a home, but can’t because they are unable to obtain a mortgage under the current lending guidelines – most of which are being dictated by our government i.e. Fannie Mae, Freddie Mac, and FHA.
So creating more “qualified” buyers and thereby increasing demand for housing and stabilizing and restoring the housing markets is really a function of lending standards – which in turn are controlled by the federal government. So in fact – the government really can solve the housing crisis any time it wants to! This is reality.
The argument you will hear against this is that the government cannot afford to do this. That is a lot of hogwash, for one twentieth of the money the government has spent bailing out the banks – they could have restored the housing markets.
If the people running our government had restored the housing market and values – the banks wouldn’t have had such losses and we wouldn’t have had to bail out the banks in the first place.
To put it quite simply: the government chose to ignore spending $1 for the real cure and instead spent $20 on snake oil that didn’t work anyway.
The real question is: who got rich selling that snake oil? Would you like to know what the real cure for our housing market is? Actually there are two possible cures and neither one will cost us poor taxpayers a dime.
What is the real cure for the housing market? (Part 2)
The overall economy is a mess, unemployment is through the roof, and a true recovery is nowhere in sight. The reality is that the housing market, construction, and related services comprise one of the largest segments of our overall economy.
If we want to have a true economic recovery and bring down unemployment – the housing markets must be fixed first! So how do we solve the housing crisis and fix our overall economy?
It goes back to supply and demand. Prices will stabilize when supply and demand return to a state of equilibrium. Prices will begin rising again when and if we can increase demand past the point of supply.
There are two simple cures for solving the ills in our housing markets, – actually three. It is just that the third as simple as it may be involves burning down about four million housing units and thereby bringing supply and demand back into equilibrium by drastically reducing the housing stock. Yes it would work, home prices would come back up and it would probably be a lot of fun. (Just think of all the great block parties) But not the most practical of ideas in the long run… There are however two very practical and inexpensive ways to restore the housing markets that are so dragging down our economy. Although both are quite practical – one will be quite unpopular with a lot of folks in this country, even though it really makes the most sense and not only will not cost us poor overburdened taxpayers any more money, it will actually generate additional tax revenue. We’ll start with that one and it is very simple.
Illegal Alien Amnesty
That’s right – we have somewhere between 40-50 million illegal aliens living in this country, who work here, enjoy the benefits that your and my tax dollars pay for (schools, hospitals, roads, police and fire protection, etc.) yet pay nothing in taxes and give nothing back. Why don’t we just make them all citizens and let them pay taxes like the rest of us? If we can “spread the wealth” – why can’t we also “spread the burden”?
It is not about politics – it is simply time for a reality check. Most illegal immigrants are not illegal by choice, but by nature of our immigration policies. Most would be thrilled to be able to call themselves Americans. Most would be more than happy to pay their taxes, vote in our elections, and I am sure many would even be prepared for military service if it meant they could become citizens.
In as much as some all bitch and moan about the illegals in this country, let’s be real here as well, they are already here, they are going to be here, so we might as well accept that fact and let them start paying for the services that they are already using. Again most of them would be quite happy and proud to do so. I am not going to get into a long running debate about this as it is not the point of this article. The subject here is how to fix the crisis in the housing markets.
The fact is that if we were to create an illegal alien amnesty program nearly half of those in that category would opt for citizenship. So with that said, an illegal alien amnesty would mostly likely create about twenty million new Americans. More importantly one of the most common dreams and aspirations of all “new” Americans is home ownership. The “American” dream is still alive and well with those folks – they just don’t happen to be Americans… yet.
If we created twenty million “new” Americans – at least 25%-30% of them would be able to buy a home within a relatively short period of time – perhaps one to two years. That would be 5-7 million new “qualified” homebuyers entering the marketplace. More than enough to mop up the excess homes inventory in the marketplace and restore values. If we restored values – we wouldn’t have so many foreclosures and if we stopped having so many foreclosures we could stop spending billions of dollars bailing out banks! Even more importantly these would be owner-occupant homebuyers, the kind of buyers that preserve, restore, and invest in our neighborhoods – not the investors that so often destroy neighborhoods and values.
Not only that – but all of us as taxpayers would receive a secondary benefit as well. Now that we have made them all citizens, we can also share one of our other beloved American Holidays with them as well – April 15th! Now all of these new Americans can start paying their fair share as well.
Politics and all other arguments aside, this is probably the simplest and most effective policy that could be implemented to restore the housing markets and help restore our economy. This has been practical option number 1.
In part 3 of this article we will discuss another option that will likely prove a bit more popular and in effect would likely be easier to implement.
What is the real cure for the housing market? (Part 3)
As we begin part three of our discussion on this subject, let’s go back to the basics, supply and demand. Prices are falling because we simply have more homes for sale either by choice or distress than we do “qualified” buyers to buy them. More importantly we need the right kind of buyers if we want to preserve neighborhoods and restore values. We need owner-occupant homebuyers, those that are going to buy a home to live in it. Those that will maintain and improve that home with pride. Both of those sub-topics were covered in depth in parts 1 & 2 of this article, so we will be moving forward from here.
The fact is that we have a lot more foreclosures yet to come and with the homes already on the market, there is no way that we can ever absorb this excess inventory in the near foreseeable future.
Until that inventory is absorbed – there will be no recovery in the housing markets, foreclosures will continue to increase and more and more of our tax dollars will need to be spent bailing out the banks and these foreclosures. We need about 5 million qualified buyers, over the next two to three years, preferably owner-occupant buyers to absorb the excess demand and start prices back on an upward trend. The question that keeps coming up is where do we find them? My answer is that they are already here right under our very noses! All of those foreclosures on the market were in fact actually owned by someone before they became foreclosures! It is these folks that were previously foreclosed upon that we need to help become homeowners once again. After all – we already know that they would prefer to own a home of their own – that’s how this all started in the first place!
And since we know how many foreclosures there have been – we know how many people have been foreclosed upon. It is pretty simple really. Take these same people who were previously foreclosed upon and let them buy another house. Demand is back – home prices stabilize and start rising again. We get owner-occupants back in homes – neighborhoods get saved, people get to start building wealth and equity again. The economy gets a boost, etc. etc. How much more could any of us ask for?
There is a very simple way to do this, and it can be done relatively inexpensively and relatively risk free and in the long run would not only restore the housing markets but would also save us poor taxpayers billions and billions of dollars in the process. Why can’t we have a second chance loan? Yes, a second chance loan for previous homeowners who got caught up and in some cases victimized by the real estate market. I am not talking about investors here. I have no sympathy for them. An investment is just that an investment – you put your money down and take your chances. Where there is potential reward there is also potential risk. Most of the so called investors were not really investors – they were speculators and it was amateur hour. Most of these investors could have easily avoided their losses if they had bothered to take an hour or so and read a book on real estate investing. In reality, many could have avoided losing hundreds of thousands of dollars simply by investing 25 cents in late charges at the local library.
Enough said about investors. It was they by their own ignorance and actions that helped overinflate the housing markets and forced many ordinary hardworking folks to have to overpay for home. It is these folks that we need to address. They were not out to make a fast buck, they were not using their home as an ATM. Most just wanted a place to raise their kids and have a home that they could call their own. It is this group that got taken advantage of the most. It is only in this group that we can truly say that there may have been victims. But semantics aside, we can work within this group to restore the housing markets. We can do so in an almost risk free and inexpensive manner.
We can create a second chance loan program that is not only self-supporting but completely self-funded as well. We have millions of Americans who have previously lost their homes and would desperately love to own one again. Most of these folks do have jobs and are capable of making affordable payments. With home prices and interest rates where they are now, most can easily afford a home similar to the one they had lost. We could start moving these families back into homes of their own, where they could begin building equity again and helping to stabilize and improve our neighborhoods as only owner-occupants do.
Right now there are millions of these potential homeowners out there renting instead of owning. While renting, they obviously will not be spending money improving or renovating the homes they are in as they do not own them. Nor will the landlords be renovating or improving the homes either as there is simply no motivation for either of them to do so right now.
If we want to see values come back up, neighborhoods preserved and improved, then we must create more homeowners and fewer landlords – it is that simple. It has been nearly 4 years since the foreclosure crisis started and it is still continuing to worsen. Why after four years has nothing been done to stop this? The solution is quite simple – a homeownership recovery program.
Right now the government is spending billions keeping people in homes who are not even paying for them. Loan modifications do not work. Nor for that matter have any of the other government programs. In reality – most of the programs tried so far have actually made it worse.
By keeping people in homes who are not making their payments but also know that they are going to lose the home eventually, we have created another problem. No maintenance on the homes, and no money being invested to improve them. We end up with continually degrading properties and no money being spent on home improvement that could be a huge stimulus to the economy. More so, with no end to the housing crisis in sight and prices still falling, there is no reason for anyone to pay their mortgage on an asset that is still going down in value.
Our current failed policies have so far only contributed to continued decline in real estate values are the real problem now. We need a major shift in housing policy. One that will increase consumer demand (create buyers), and do so substantially so that prices start back on an upward trend. Restoring home values solves so many problems. It creates wealth again which would then help stimulate our entire economy. It would reduce and in some cases eliminate major losses from the banks on foreclosures, and hence save us billions more in bailout dollars. Higher home values translate directly to lower losses for the banks and especially us as the taxpayers (Fannie Mae, Freddie Mac, & other bailouts) It would further reduce and possibly eliminate strategic defaults, as once people realize that their house will come back in value again they will not be so quick to walk away from it.
The Obama administration has repeatedly stated that they want to get out of the mortgage business and government owned homes loans and have the private sector step in in the government’s place.
The trouble is that the private sector is not going to step into a broken market – if the government wants the private sector to take over – then they need to fix the problems first. Once the real estate market bottoms out and the worst is over, private money will come back into the lending arena as the risks and potential losses are greatly reduced. So why don’t we halt this downward cycle – decide that this is the bottom and turn it around – it can be done quite easily. We have the means at our disposal, the system and structure is already in place, no new legislation would be needed and the program would be completely self-funded so not only would we as taxpayers not have to spend any additional money, but by saving the housing markets and restoring values – we as taxpayers could all save billions in future bailouts as well.
The Second Chance Loan could put millions of Americans back into homes, preserve neighborhoods, restore values, eliminate and greatly reduce future bailouts and best of all it won’t cost taxpayers a dime. In reality it will even show a profit and at the same time save us billions on more bailouts and subsidies in the future! In Part 4 of this article, we will explain how the Second Chance Loan program could work.
What is the real cure for the housing market? (Part 4)
Before I get into the details of the program, there is one more very important point that I had not yet made previously, and I think I would like to put this directly to the President of the United States. It is in the lower end of the economic spectrum and in particularly in the minority neighborhoods themselves that the current housing crisis is doing the most harm. Foreclosure rates and defaults are nearly double in the minority neighborhoods. The very neighborhoods where creating homeownership and stabilizing and improving those neighborhoods should be of utmost importance!
Instead we have astronomical foreclosures in those areas and those foreclosures are now being bought up by investors. With this huge rise in investor ownership there, we have created a new class of perpetual renters and have now fast tracked these areas into a new type of ghetto. Mr. Obama –these are the very people who voted for you – take some responsibility and take some action!
The Second Chance Loan Program – the path to recovery.
We already know all of the reasons for needing such a program as well as all of the benefits. Now here is how it would work:
Within the Department of Housing and Urban Development (HUD) we have a wonderful organization staffed with very talented and experienced people. It is called the Federal Housing Agency (FHA). The FHA was initially created in a time very similar to this one to create a vehicle and provide financing for Americans that were not being served by the traditional banks and other lending entities. Those times are here again.
The FHA already exists, already is funded and being paid for. No new taxes are needed to sustain it! Also – FHA mortgages are not government subsidized in any way. The FHA loan programs are self-sustaining and self-supported through the Mortgage Insurance Premiums (MIP) charged to buyers who use FHA insured loans.
Recently FHA has had to raise those premiums as well as tighten lending guidelines to ensure the stability of their reserve fund and to cover mounting loan losses there as well – Understandable in these times. There is also the mechanism to raise funds for these loans by issuing bonds through Ginnie Mae. – Again already in place. So we have the people, the infrastructure and all mechanisms already in place. Now all we need is the programs.
Most importantly – if we do this right all of the politicians on both sides can easily back this program as it will require no additional tax payer funds and benefits everyone. There are no losers – only winners.
Another major benefit of this program is that premiums made when packaging and selling these loans will be very profitable with those “profits” being used to rebuild the delinquent FHA reserve fund – thereby allowing FHA to more rapidly return to its less stringent past guidelines on its traditional loan programs thereby helping even more individuals realize the dream of home ownership and thereby further increasing demand and further decreasing the time required in restoring the housing markets.
What we need is for the FHA to create and implement a second chance loan program in conjunction with more aggressive first time buyer programs. Let’s start with the most important program first – The Second Chance Loan Program.
First I will give the basic guidelines, then discuss the total lack of any downside or need for government funding.
The guidelines for the Second Chance Loan Program are as follows:
Straight – Simple 30 Year fixed rates – no adjustable or other exotic loan products that the consumer cannot understand or that could potentially create future distress through payment shock or other devices.
Everyone is eligible after one year: Bankruptcy, Foreclosure, Short Sale, etc. As long as one year has passed to enable the former owner to get back on their feet and stabilized financially – they should be eligible. (Those who chose a “Strategic Default” with no hardship would not be eligible)
Owner Occupants Only: No Investors on this program. The borrower must move in and occupy the home for a minimum of two years or an additional penalty is applied.
Furthermore – any foreclosure or default the new borrower may have had in the past must have been on their primary residence. No other types of defaults permitted. This means no one who had an investment property foreclosure or short sale may participate.
No Minimum Credit Score Required – the purpose of using credit scores is to determine “willingness to pay” that whole concept has gone out the window in these times. Most people are willing to pay for that which they perceive has value. If we end the downward spiral of home prices and values start rising again – people will be more than willing to keep paying their mortgage as owning and keeping their home is once again in their best interest. The only requirement that we would have would be no collection accounts, open liens or judgments totaling over $1000, and no late payments for the last 3 months.
Buyer must be qualified on income: Yes they still must show that they have the ability to make the payments and have had stable employment for one year. These are not “stated income” or “Liar Loans”. This is actually not as difficult as it sounds – especially when you consider that many people who have been foreclosed upon can now buy back a home similar to the one they had lost at less than half of the old price. What was previously unaffordable, with high payments that were a struggle to maintain, is now very affordable to most of these individuals and payments will no longer be a problem at current prices and interest rates. Current FHA qualifying ratios would be used.
Employment Verification – due to high unemployment and recent reentries into the job market 1 year steady employment instead of two year history.
Mandatory Education: All applicants must attend a four hour class on home ownership, the true costs of homeownership, developing and managing a family budget, and sound financial planning. Including of all things how to balance a checkbook… as you would be amazed at how many people who buy homes need help there.
3% Down Payment: verified, with the seller able to grant an additional 3% to cover closing costs. Most people can manage a 3% down payment.
Higher MIP: (Mortgage Insurance premium) – instead of the standard 1% MIP that is financed into the loan, for second chance borrowers it would be 2%. This automatically doubles the reserve cushion for these loans in case of defaults. Since this is financed – it would be like borrowing $100,000 but paying back on $102,000. In reality – a difference of five dollars and 37 cents per month on a $100,000 loan. (Remember under the old terms they were already adding on the other 1%)
Slightly higher interest rate: the rate would be at 6 % – slightly higher than the standard market rates. After all this is a second chance loan and most people will be happy to even get it. But this slightly higher interest rate will dramatically change the yields when the loans are packaged and sold off as bonds through Ginnie Mae. – Resulting in a substantial profit that can be further used to cushion the reserve fund against defaults. The reality is that on that same $100,000 loan (really $102,000 because of the MIP) the difference in payment would only be about $114 per month. A small price to pay to get a second chance loan, and buy a home cheap at the bottom of the market. Not to mention that as a primary residence loan most of that is tax deductible so it isn’t even $114 anyway… again a bargain.
Direct Payroll deduction for mortgage payment: This one sounds difficult but is really quite easy as the federal government already does it for so many things anyway. Taxes, garnishments, FICA, etc. etc. The federal government is really quite good at this. Some may claim it is an additional burden on businesses, but in reality it is not. I own several businesses and payroll services are incredibly cheap and already handle all of the other deductions anyway. As far as being a burden on the borrower, not really as they would have to pay their mortgage anyway and this just guarantees that they will pay it on time. Again this is a second chance loan and most folks will be very happy to have the opportunity at all. What this really does is help people stay on target with their own finances as well as dramatically lower the default rate and make the bonds we sell to fund this program that much more attractive to investors.
Special Loan Ceilings – Loan amounts to be set @ 125% of median SFR price or less by State &County. This keeps all of the loans in the lower priced segment of the market which for the most part has already bottomed. This further reduces any future losses on potential defaults.
Prepayment Penalty – in order to prevent this loan from being used unscrupulously and to encourage long term owner occupancy as well as to guarantee the additional premium revenue on the loan sale – a standard 5,4,3,2,1 prepayment penalty as used on other types of loans would also have to be placed on each loan. (5% year 1, 4% year 2, 3% year 3, 2% year 4, 1% year 5) This would be the only true change to current FHA policy and guidelines.
  • Restoring real estate values will also bring back up property taxes to bankrupt states and local municipalities…
  • We will become a nation of owners again instead of renters • Highest impact of this program will be in minority and low income neighborhoods
  • Real estate values will begin to recover and both current and more importantly future foreclosure losses will be much lower
  • As real estate values begin to increase again – anticipation will come into play and fewer homeowners will strategically default as they begin to see their home regaining its value and that there is a light at the end of the tunnel.
  • As we shift more people into ownership positions versus renting, – we will see a huge stimulus into the economy as people begin to furnish and improve their homes again. – The trickle-down effect is huge here. • By placing more owner occupants in homes and less renters – we prevent the formation of tenant dominated neighborhoods and future ghettos.
  • We preserve and stabilize neighborhoods rapidly – not only preserving the community but also preserve values and set them on a path for future appreciation – further reducing new foreclosures, short sales and additional losses.
  • • By restoring and driving prices from the bottom up we will also increase the opportunities for trade-up buyers who can now sell their lower priced home and move up to a larger more expensive home while prices and interest rates are still extremely attractive – further stimulating the economy and creating demand above and beyond those homes being affected directly by this program.
Potential Negatives:
Are we rewarding people for walking away from their homes? Possibly? – But under current HAFA/HAMP we are already paying them $3000 to walk away. This will actually prevent a lot of that – not encourage any more of it. By requiring a one year waiting period from foreclosure or short sale it becomes less attractive to walk away from ones current obligations as it would require moving out, renting for a year and then moving once again. Not a popular alternative for most people.
Fraud and strategic default – Would this program encourage more of this? – Possibly – however safeguards are easily put into place to prevent it.
  • First off, a hardship letter would be required just as it is on the short sale – outlining the reasons for the default. This way, one time occurrences such as job loss, medical, or any other extenuating circumstances could be assessed.
  • Second, a Forensic Examination of the default would be done. This is actually much easier and simpler than it sounds as it only need be a one page form along with W-2’s and income statements from the period directly prior to and through the default. A quick ratio of income to previous mortgage payment and total debt load could be used to easily determine whether or not the default was voluntary (strategic) or not. The standard 28/35 formulas could be applied and the results would be instantly obvious.
This puts the government in the mortgage business… – actually quite the opposite – right now with Fannie Mae, Freddie Mac, and the quantitative easing (government buying mortgage backed securities), We are already in the mortgage business! – This starts to get the government back out!
This program creates the vehicle for putting mortgages back in the private sector beginning with private origination right through to the sale of these new second chance home mortgage bonds back out to the private sector. Effectively taking the government back out of the mortgage business in a gradual and steady manner as the private sector reassumes its previous role.
Should we be using Ginnie Mae for this? We may not even have to. It is quite probable that we would not even need to package the bonds and sell them ourselves through Ginnie Mae as given the nature, securitization, and guarantees involved, not to mention the excessive yields; we will probably have a line forming in the private sector to bundle and sell them for us. But if necessary it is nice to know that we do have the ability to do it ourselves if we need to do so. Aren’t we rewarding people for not paying their mortgage? We are already doing that now with policies and laws that allow people to stay in homes for years without paying a dime. At least this way people will be paying for what they have.
What about all of the people who are struggling and paying their mortgage? What are we doing for them? This is the best thing we could do for all of those hard working folks who are killing themselves to pay their mortgage on a home that is worth less than they owe. If we restore the housing markets and bring prices back up – they will all have equity again and their hard work and perseverance in paying their mortgage will be well rewarded. If we do nothing, then we really have let those people down as well.
There are no other negatives – this program is self-funding, requires no additional tax dollars, helps the right people in the right areas and will rapidly begin to restore the housing markets, create jobs and stimulate the economy overall. This program requires no new government agencies be formed or funded, no additional government employees, and no new additional risk to the government.
Housing Recovery Part II – The Steroids
We refer to this part as “Steroidal” because it uses that which we already have and increases the velocity of its results. In some markets we are seeing professional investors account for nearly 50% of all home purchases. Granted “first look” programs have been somewhat useful in increasing owner occupancy and we feel that they should stay, but on shorter time frames. These “professional” investors are buying homes not individually but in the dozens.
The real key here in stimulating additional demand in the housing markets is in bringing the small investor back into residential housing. The small investor does not have the wealth or large sums of liquid cash that the professional investor does and in this economy – many of them never will and are currently being denied the opportunity to participate in a real estate recovery. This is most unfortunate as it is the middle class that has also been hurt the most by this economy and the fall of the other financial markets – many have neither the time nor resources to recover from the devastating losses so many have incurred on their retirement savings and 401k plans.
Furthermore – due to the overly tight and poorly functioning credit markets, the middle class small investor does not have the ability to leverage or employ other techniques at wealth creation that have now been restricted to only the upper class.
There are millions these types of individuals out there that could benefit from the appreciation, tax benefits, and cash flow and leverage opportunities of investing in single family homes but have absolutely no vehicle available for them to do so.
With the right program, a small investor could easily buy one or two rental properties as part of their retirement plan, or even as an alternative to a 529 college savings plan, investment opportunities with long term returns not currently available to them anywhere else. This will greatly benefit those saving for retirement as well as those savings for their children’s education. We need to bring back the FHA 203B investor loan!
We could run it under the same basic guidelines as the “Second Chance loan” described previously, albeit with a 10% down payment. This would also serve to create millions of potential new buyers of single family homes and would create the demand necessary to absorb the entire excess inventory being created through foreclosure and short sales now and for the foreseeable future. This program would also ensure a steady supply of affordable rental properties for those in transition from one homeownership position to the next. (Foreclosure to rental to new purchase & Homeownership Recovery) To see this program reach its utmost potential as well as limit potential defaults and future losses we would limit this program to single family residential only thereby avoiding complicated management issues for these small and less sophisticated investors.
Also to make sure that we see the utmost participation and avoid abuse – this program would limit any individual to one investor loan and married couples to two of these investor loans. Thereby further avoiding fraud and abuse of this program and again decreasing the potential for defaults.
  • It is projected that these programs alone are capable of creating in excess of 5 million home sales within the next three years. This combined with already existing demand is more than sufficient to absorb all excess inventories both existing and projected during the period stated.
  • With this volume of increased and stimulated demand, home prices will begin to rise again – thereby reducing incentives and motivations for strategic defaults, thereby further reducing default and future foreclosures.
  • With this volume of increased and stimulated demand, home prices will begin rising again, thereby reducing losses on defaults and foreclosures already in process and potential saving taxpayers additional billions in future losses.
  • During the next five years these programs should generate well over $30 billion in additional revenue for FHA that can be directly used to restore its reserve fund as well as cover the cost of additional new programs and potentially allowing for FHA to reduce its current overly stringent lending guide lines thereby even further stimulating demand.
  • The hardest hit areas will receive the greatest and most immediate benefits. Foreclosure rates are the highest among minority households and those headed by women, and in the lower priced neighborhoods, foreclosures and defaults are nearly twice that of more affluent and less diverse areas. Owner occupied homeownership rates are dropping the fastest in these areas and it is these areas that most desperately need to stabilized and the neighborhoods saved. It is in these areas that a homeownership recovery program is most desperately needed and where the results will be most immediately seen.
Let’s keep it as simple as possible and let the so-called “experts” come up with their own conclusions…
Loans amounts capped at 125% of median in each area.
Assuming we keep this at the low end of the market where prices have effectively bottomed – worst case scenario on a default and foreclosure we are looking at a recapture rate of 82-83% – most likely even higher recapture rate (lower potential losses) as the market improves due to this program and as prices stabilize and begin rising again – equity begins to build and defaults reduce as they can sell their way out and /or losses drop on defaults as well.
Based on a five year average term (extremely conservative) and a 6% interest rate there will be a projected premium of at least $8000 per average loan. (Bonds with a higher than market interest rate sell above their face value)
(Note – Author is not an expert at Bond pricing and claims no such ability – however based on simple math and limited associative risk the premiums on the bond sales at these interest rates should be in this range – possibly even higher)
On an 82% FMV recapture basis – average loss will be approximately $18000 per defaulted loan. This program would still be quite safe even if the default rate hit 44% – which obviously it wouldn’t. (Do the math)
Based on other controls and incentives in place, the default rate is expected to be no higher than 6% as a worst case scenario. But even with a 10% default rate – this program would still be incredibly profitable.
Assuming a 10 % default rate and an average loan size of $100k – this program should show a loss of $18,000 against an increase in revenue of $80,000 per 1 million lent. Resulting in a net gain of $62,000 per 1 million dollars in second chance loans
Assuming the 100k average loan size – one million new loans would result in $100 Billion of new Loans made with a net result of $6.2 billion dollars (profit) that could be used to restore the FHA fund and run additional programs.
On 100K loan – Effective net to the homeowner would be a payment difference of on $114.86 per month – a very small price to pay to own a home again and to start building equity again. Not to mention the fact that it is basically all interest and tax deductible as well – so the true cost of owning a home under this program vs. the traditional loan that they cannot get anyway really does become almost insignificant.
This still allows for the originator to make their standard fees and spreads as they currently do at current market rates so we would continue to leave a strong financial incentive for the private sector lenders to participate.
Some even simpler Math
The benefit to the average American is obvious. During the boom those that were harmed the most and who have also been hit the hardest during the housing crisis were not the investors or other professionals. It was the average hard working American that was just trying to own a piece of the American dream. They just wanted their own home and a place to raise their kids. It was these folks that were forced to overpay for their homes when the market went insane and the investors were driving the prices out of control. These folks neither were investors or gamblers, nor were they “flippers” the just wanted a home of their own. It was these individuals that were forced to overpay for a home, take a deceptive adjustable loan, encouraged to lie about their income. It was not done out of greed – but out of fear! The fear that with the way things were going – they would never get a home of their own any other way. Those fears were preyed upon and we have all now seen the results.
Here is the math on the first result: (again we are keeping it very simple!)
  • In 2006 poor buyer overpaid – spending $300,000 on a basic home.
  • Went into a bad adjustable or stated income mortgage bordering on sub-prime rate @7%
  • Principal and interest: $1995.91 • Property taxes and insurance based on $300,000 value – approximately another $400 per month
  • Total and completely unaffordable payment of $2395.91 per month Result – Default and foreclosure Now several years later, we have a new equation for this same family
  • Same exact house – in same exact neighborhood – now cost is only $150,000 • Second chance Loan – now at a simple and clean 30 year 6% fixed rate with no surprises later
  • Principal and interest: $899.33 • Property taxes and insurance based on $150,000 value – now only another $200 per month
  • Total and affordable payment of $1099.33 per month Same family in same house – but now we have affordable and sustainable homeownership! We now have an owner occupied home being maintained and being improved upon. We have stable and appreciating neighborhoods!
  • The recent downgrading of the US Government debt combined with issues in the European and other markets recently had a very interesting and somewhat unexpected consequence in that money began flowing back into mortgage backed securities at a surprising rate, depressing yields and actually lowering interest rates – based on this observation the success of this program is further supported.
  • It is possible to further reduce and/or shelter the FHA and the U.S. government from any and all risk in this program while still realizing all of the benefits. Given the amount of premium on these loans it is likely that there are sufficient funds to warrant a transfer of all default risk to the private sector through the use of private mortgage insurance purchased out of the excess revenues generated by these loans. This is something that would need to be further investigated by experts on that aspect.
  • Current policies attempting to keep people in their homes without having to pay for them only drags this process out as all of these individuals know that they will lose the property eventually and therefore stop maintaining or improving them. This creates a situation where there is no spending, with nothing added to the economy and actually creates the situation whereby a large percentage of our housing stock (our nation’s wealth) is continuing to deteriorate and lose value. Thereby destroying wealth and further increasing the losses by our banks and financial institutions.
Perhaps one of the least noticed and potentially most catastrophic issues on the horizon is the current shift in the housing markets as we displace more and more homeowners and create more and more renters (tenants). We are hurling down the tracks to becoming a “Nation of Renters” with a major train wreck being all but guaranteed.
Rents are rising – Fast – due to increase in renters vs. owners, and a limited supply of available rental housing as so many housing units sit vacant and unused during the lengthy and artificially delayed foreclosure processes. By our owned failed policies we have further shifted the housing market into a very dangerous place. Rental costs are rising in almost every market with those most devastated by high unemployment and high foreclosure rates seeing the greatest increase in rents at the time when most can least afford them. Aside from the act of mere financial survival for many of those affected by increased housing costs while renting – this further reduces disposable income and prevents any additional stimulation to our economy. It also prevents most “renters” from ever being able to save enough for a down payment and to once again purchase a home of their own. The bottom-line here is that we are further hurting “the little guy” as not only can they not buy a home of their own, but we are driving up the costs of renting and increasing their struggle in these tough times.
By implementing the programs contained herein we can shift both curves dramatically. By increasing homeownership again – we will begin decreasing the number of “renters” and the demand for rental housing and rental rates will begin to stabilize and come back down. Second – by utilizing the small investor loan we can have more units moved out of standing or “Shadow” inventory and get them placed into the rental pool – thereby increasing the supply of rental units.
By attacking this problem from both sides simultaneously – reducing demand for rental units, while at the same time increasing supply of affordable rental housing – we can reverse this trend relatively quickly and stabilize this sector of the market as well. Bringing rental rates back to normal levels will also serve to create much more affordable housing, allowing for both increased savings as well as increased disposal income that can then be used to either regain homeownership and/or stimulate our economy.
*** A Widening Wealth Gap is Dangerous!
Under our current “solutions” we are drastically increasing the “wealth gap” in this country. This is far more dangerous than most individuals realize – as throughout recorded history, almost every rebellion has occurred when the “wealth gap” in that realm or country has been at its widest point.
Creating personal wealth and ownership of land amongst the widest possible segment of the population has always resulted in more stable governments and less civil unrest. Whenever private ownership has severely dropped or been diminished, it has; with very few exceptions always led to a period of civil unrest amongst the populace. We are readily heading down this path, and if you think it cannot happen here in America – I suggest you look at our own history.
One final note – one of the most drastic instances of an increasing “wealth gap”, and a corresponding decline in ownership is currently happening in the United Kingdom. Look at what is currently going on there! They didn’t think the riots and recent violence in London could happen either – but they did!If you agree lets tell our congress and local representatives to stop complicating a really simple matter! Get involved; this is your country, your life and your future!
Source: NRBA website

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