KeNo's Housing and Economic Portal: Sunday November 8 Housing and Economic stories

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TOP STORIES:

20 Year Old Buys House With $183K FHA Loan (Of YOUR Money) And 3.5% Down - (www.businessinsider.com) Denise Tejada bought a house last month at the age of 20, thanks in large part to a loan guaranteed by the Federal Housing Authority. This story offers a dramatic demonstration that, despite the housing bubble causing the worst economic downturn in generations, the ideology of home ownership is alive and well in the United States and still being supported by the government. Without question, Tejada's loan is toxic--to her and to the taxpayers who are backing the loan. Her house cost $155,000. Tejada's loan was apparently made on a micro-down payment of just 3.5%, the minimum down payment to qualify for an FHA loan. On top of this, however, she got an additional government backed loan to make improvements. Her total loans amount to $183,0000. In short, she was immediately underwater on her new house. The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She's paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments. Tejada appears to be using imaginary numbers about the value of her house. She says that when she bought it, the house was just a “box” with no kitchen or bathroom. Now it is "gorgeous". She claims the renovation has increased the value of her home from $155,000 to $255,000. "I bought my house for $155,000. And now, after all the fixing, after all the remodeling, my house is worth $255,000. So just within a month period, I made a $100,000," she tells Market Place's Scott Jagow. As far as we can tell, this is just mark-to-imagination valuation. She doesn't give any indication about how she arrived at the conclusion that she has made a $100,000 gain in just a month. Even if her improvements had dramatically increased the value of the house beyond the cost of the improvements themselves, she would have to contend a declining housing market. From last year to this year, the median price of homes sale in Oakland, California has declined 28%. Tejada sees her house as an investment rather than a home. And she is planning on buying more homes, despite the fact that her income is already strained by her debt. This three bedroom house is just her "first house" and is "a little too big for me." This is the opposite direction house buying traditionally moved in, with young people buying a small fixer-upper or renting and moving into larger homes as their incomes and family size increased. Tejada has started big. Tejada, a first generation immigrant from Guatemala, isn't going to college. If that was ever the American dream, it isn't hers. She's going into home buying. Her older brother also bought a house. Indeed part of the reason she bought her house so young was that she wanted to beat her brother, who bought his house at the age of 21. She is very happy about the fact that her friends seem impressed that she owns a home. "This is the kind of mentality that our dad pretty much embedded in us since we were 12 years old," she says. Her father bought a house shortly after moving to the United States. Shortly after buying the home, the family started acquiring nicer things. New cars, new televisions, that kind of thing. When Tejada's brother asked about where they were getting the money for these things, the father said it was all because of the house. That sounds a lot like the father was using his house as an ATM, most likely borrowing from a home equity line of credit to purchase consumer goods. As the value of the house increased during the housing bubble, the family seemed to be getting richer. Most likely, they were simply acquiring more debt. This way of thinking has been passed on to Tejada--who believes she made $100,000 in a month. The Tejada family obviously has a very strong worth ethic and a savings ethic as well. Unfortunately, something appears to have gone haywire when it comes to homes. The children were encouraged to work and save but then to spend their savings on homes and to be completely unafraid of massive amounts of debt. This is, in short, a living breathing example of the ideology of home ownership at work. We wish the Tejada's nothing but the best of luck. We hope she really can keep paying her mortgages and that she somehow makes money on her house. But it is outrageous that the FHA is guaranteeing her loans, putting the taxpayer on the hook for her precarious financial situation. Here's a video of Tejada and her brother discussing her house. Also, click here for Market Place's interview with Tejada.

Mortgage applications plummet - (money.cnn.com) Industry group says activity sank by 13.7% last week as interest rates inched higher and tax credit expiration drew nearer. Mortgage applications plunged last week as rates ticked higher above 5%, an industry group said Wednesday, as the expiration of a home buyer tax credit drew nearer. The Mortgage Bankers Association said its index of mortgage application volume fell 13.7% in the week ended Oct. 16 from the prior week. The decline in activity came as rates on the widely-used 30-year fixed mortgage increased to 5.07% from 5.02%, according to the MBA. The week's adjustments included the Columbus Day holiday. Uncertainty about a possible extension and expansion of an $8,000 tax credit for first-time homebuyers may be hampering the housing recovery. The tax credit now can be claimed by anyone buying a home who has not owned one for three years and who closes the deal by Nov. 30. The MBA said refinancing applications also fell, by 16.8% from the previous week. The purchase index, a measure of applications at mortgage lenders, declined 16.7% last week. The MBA's Wednesday report comes on the heels of other downbeat data from the U.S. housing market, which had until recently showed signs of stabilization from a major slump. A report Tuesday showed initial construction of homes rose just 0.5% last month to 590,000, far less than expected. Last week, data showed foreclosure filings hit a record high in the third quarter. Another report predicted the national median home price will drop 11.3% by June 2010. The MBA report also showed the average rate for 15-year fixed-rate mortgages rose to 4.51% from 4.44%.

Like it or not, here comes more stimulus - (money.cnn.com) You won't see it all in one neat package. And you won't hear the White House call it stimulus. But there's a good chance lawmakers will decide to extend some of the stimulus measures included in the $787 billion economic recovery package passed in February and possibly create some new ones as well. On Wednesday, House Democrats are convening a forum of economists to debate the state of the economy, with a specific focus on job creation. And lawmakers are convening hearings on Capitol Hill this week to discuss the economic outlook and the state of the housing market. A number of ideas on the table are lifeline measures, while some are flat-out incentives to spur economic activity. Here's a rundown of what's under consideration, estimates of what the provisions might cost and where they stand currently in the legislative process. Unemployment benefits extension: By year-end, an estimated 1.3 million jobless workers will have run out of unemployment benefits, according to the National Employment Law Project. It's expected that lawmakers won't let that happen. The House has already approved an extension and the Senate has amended it but not yet voted on it. Both parties say they want to extend benefits but they disagree over how to pay for it and how to handle amendments to the bill. In the Senate proposal, unemployment benefits would be extended by up to 14 weeks in every state and then another six weeks on top of that in states where the unemployment rate tops 8.5%. Currently, states with unemployment rates topping 8% now offer up to 79 weeks of unemployment benefits, said Chad Stone, chief economist of the liberal Center for Budget and Policy Priorities. States with unemployment rates between 6% and 8% now offer up to 59 weeks. And all other states currently offer up to 46 weeks. Estimated cost: $2.4 billion. But Senate Democrats say the proposal would be paid for in full by extending an add-on tax for employers under the Federal Unemployment Tax Act. For the past 32 years, employers were required to pay an additional 0.2% on the first $7,000 of a worker's annual wages on top of the 0.6% they normally pay, said George Wentworth, a policy analyst for NELP. That surtax was supposed to expire this year. But lawmakers would extend it through June 30, 2011, to pay for the benefits extension.

Fannie, Freddie Tumble, Shares Called Worthless - (www.bloomberg.com) Fannie Mae and Freddie Mac each fell 22 percent, to the lowest prices since August, after analysts at KBW Inc. said the shares of the government-run mortgage finance companies are probably worthless. Analysts led by Bose George cut the companies’ price targets to zero today from $1 set in April, saying the entities need to be recapitalized by mortgage banks that use their services. Fannie Mae fell 32 cents to $1.14 at 4:15 p.m. on the New York Stock Exchange, the lowest price since Aug. 20. Freddie Mac fell 37 cents to $1.35, the lowest since Aug. 19. The government-sponsored entities, which more than tripled in August, have retreated from 13-month highs of $2.40 for Freddie and $2.04 for Fannie on Aug. 28. “Both the common and preferred equity of the GSEs should be worthless” if the companies are recapitalized, the analysts wrote in a research note. The companies “are acting as a direct arm of the federal government providing massive federal aid to support and revive the U.S. housing market in the midst of a crisis,” the report said. Fannie Mae and Freddie Mac remain the two largest sources of housing money in the U.S., financing about 70 percent of new mortgages, according to government statistics. Regulators seized their operations and placed Fannie Mae and Freddie Mac into conservatorship in September 2008 amid fears that the two were failing and posed a risk to the broader U.S. economy. Recapitalizing Fannie, Freddie: The Congressional Budget Office projects the two will require $389 billion of the $400 billion in taxpayer aid Treasury pledged last year to keep them solvent. “The only viable option to limit taxpayer expense and recapitalize Fannie Mae and Freddie Mac is to set up a Bad Fannie and Bad Freddie,” KBW said, adding that the plan would wipe out existing common and preferred shareholders. The government could spin off new companies that are cooperatively owned by mortgage banks such as Wells Fargo & Co. and Bank of America Corp. that sell loans to Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac, mirroring the Federal Home Loan Bank system, the analysts wrote. The companies have booked a combined $165.3 billion in net losses during the past two years and have received or requested $95.6 billion in taxpayer aid since November.

Guide to Looking up Public Records for Foreclosure Fraud - (www.scribd.com) Helpful Guide For All States on how to research your recorded documents at county recorder and determine if there are forgeries or fraud when facing foreclosure. The evidence may help you stop your foreclosure or set aside a foreclosure. Forgery is illegal & criminal. More and more evidence in coming forth which indicates some of the notorious predatory lenders took shortcuts and did illegal document recordings and some with forgeries. Even though screen shots are from Florida counties, the information can be used in any state and for any county recorder.

Ruling could undo thousands of foreclosures - (www.bostonherald.com) A real estate judge is refusing to reverse a landmark ruling that opens the door to voiding tens of thousands of Bay State foreclosures dating as far back as 1989. “The foreclosure sales (in question are) invalid because they failed to meet the requirements of (Massachusetts law),” Land Court Judge Keith Long wrote yesterday in reaffirming a decision he originally reached in March. Long denied a request from Wells Fargo and U.S. Bank to reinstate two Springfield foreclosures he invalidated in March because of flawed paperwork. As the Herald first reported in June, the case centers on documents that banks and big investors must file any time they sell mortgages to each other. However, some paperwork often gets lost, as mortgages typically change hands over and over again in today’s complex market. Still, Long ruled that banks can’t foreclose on homes unless they have complete paperwork covering every time a specific loan changed hands. The judge found that fixing documents after the fact, as Wells Fargo and U.S. Bank did in the Springfield cases, isn’t enough. He ruled that flaws not resolved earlier can depress bids at foreclosure auctions, reducing how much consumers who face home losses get for their places. “The issues in this case are not merely . . . a matter of dotting i’s and crossing t’s. Instead, they lie at the heart of the protections given to homeowners and borrowers,” Long wrote yesterday. Experts say the ruling paves the way for thousands of people who’ve lost houses to foreclosure to challenge their homes’ seizures. “The judge has thrown into question every foreclosure performed in the Commonwealth over the last 20 years,” said lawyer Lawrence Scofield, who represents Wells Fargo and U.S. Bank. Scofield said only foreclosures before 1989 are beyond review, as state law gives people two decades to dispute land ownership. Market watchers add that the judge’s ruling affects far more than just foreclosed homeowners. For instance, any consumer who owns a house foreclosed on in the past two decades must now worry that a former owner will sue to reclaim the property. Such homeowners could also find it impossible to sell or refinance because of “clouded” titles. In fact, some consumers who’ve tried to buy foreclosed homes in recent months haven’t been able to get mortgages or title insurance because of Long’s initial decision. Bank of America and other firms have even pulled some foreclosed homes off of the resale market. Scofield, who said his clients haven’t decided whether to appeal, believes delays in reselling foreclosures will only prolong the state’s housing slump. “Judge Long has taken a big sledgehammer and shoved the market a lot deeper into recession,” he said. But Eloise Lawrence of Greater Boston Legal Services, which represented one of the Springfield homeowners, claims lenders are “trying to scare people and win in the court of public opinion what they can’t win in (actual) court. Banks decided what was convenient for them should be the law of the land, but that’s not the way it works.”

OTHER STORIES:

Wells Fargo reports record profits - (money.cnn.com)

$700 billion bailout's hidden costs - (money.cnn.com)

'Car czar': Why GM's CEO had to go - (money.cnn.com)

Chair of Congressional Oversight Panel: Housing Market Getting Worse - (finance.yahoo.com)

Dismal Foreclosure Numbers Could Be the Tip of the Iceberg - (www.usnews.com)

County chief judge "irritated" by foreclosure lawyer delay tactics - (www.blogs.tampabay.com)

Drop in foreclosures scary; banks are giving up - (www.daytondailynews.com)

Reverse Brain Drain From Silicon Valley To India And China - (www.ccortez.com)

Where The Hell Is The Outrage? - (www.Mish)

Columnist Doesnt Get Anger Directed at the Super Rich - (www.dadtalk.typepad.com)

Goldman Sachs' Black Magic, Here's How They Did It - (www.theautomaticearth.blogspot.com)