5955 W 8th st, Los Angeles, CA | Powered by Postlets

5955 W 8th st, Los Angeles, CA | Powered by Postlets

Foreclousures are more profitable than Loan Modification, per a new report

Mortgage companies are more likely to foreclose on homeowners than modify their loans because they make more money off foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure, mortgage servicers do not, says report author Diane E. Thompson, of counsel at the National Consumer Law Center. Servicers are the companies that manage the mortgages and collect payments.

"Servicers may even make money on a foreclosure," she writes. "And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed."

Thompson attributes this to a system of perverse incentives created by lawmakers and rulemakers in the market, like credit rating agencies and bond issuers. The private rulemakers typically dictate how a servicer can account for potential losses and profits. They hold enormous sway over securitized mortgages, which are owned by investors. More than two-thirds of mortgages issued since 2005 have been securitized, notes the report, using data from the industry publication Inside Mortgage Finance.

In those cases, the servicer is empowered to handle virtually all aspects of the mortgage, from collecting the monthly payments to initiating foreclosure proceedings. While they're obligated to do what's best for the ultimate owners of the mortgage -- the investors -- servicers have some latitude in deciding what course of action to pursue, be it a foreclosure or loan modification.

When a homeowner is delinquent on a mortgage that's been securitized, the servicer must front the late payment to the investors. When a home is foreclosed, the servicer is typically first in line to recoup losses. But if a mortgage is modified, the servicer typically loses money that isn't necessarily recoverable.

"Servicers lose no money from foreclosures because they recover all of their expenses when a loan is foreclosed, before any of the investors get paid. The rules for recovery of expenses in a modification are much less clear and somewhat less generous," she said.

That's part of the reason why the Obama administration created a $75 billion program to limit foreclosures. The money is to be distributed to servicers who successfully modify home loans, with the hope that the incentives to modify outweigh the incentives to foreclose.

Thompson's report outlines eight specific steps to reverse this trend. They include mandating that servicers attempt to modify a loan before initiating foreclosure proceedings and reforming bankruptcy laws so judges can modify distressed mortgages.

Read more at: http://www.huffingtonpost.com/2009/10/21/perverse-incentives-lead_n_328378.html

1277 S. Orange Dr, Los Angeles, CA

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Residential Real Estate: Industry backs extension of $8,000 tax credit

According to a survey from the California Association of Realtors, nearly 40 percent of recent first-time homebuyers said they would not have purchased a home if the federal tax credit for first-time homebuyers was not offered, and 70 percent said it was either “very important” or “most important.”

The $8,000 credit is expiring Dec.1.

“It is clear that the federal tax credit for first-time homebuyers is working, as evidenced by the spike in home sales in recent months,” said CAR President James Liptak. “This tax credit is arguably the most successful strategy employed by the government’s efforts to stimulate the housing market.

“Because the tax credit has helped so many first-time buyers become homeowners, it is critical that Congress extends the credit beyond the Dec. 1 deadline and includes all buyers, not just first-timers,” he said.

“While affordability has improved in California over the past two years, it is still lower than affordability nationally. As a result, the tax credit is an even bigger factor in California compared with elsewhere in the country,” added Mr. Liptak. “Going forward, the credit will be even more important to the housing recovery.”

While the deadline is not until Dec. 1, buyers need to put in their offer by the end of September in order to qualify, according to the National Association of Realtors.

Sen. Johnny Isakson, R-Georgia, and Senate Majority Leader Harry Reid, D-Nevada, introduced Senate Bill 1678 extending credit to June 1, 2010.

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Analysts are expecting another wave of foreclosures due to the readjustment of many option ARM mortgages.

An adjustable-rate mortgage is a mortgage loan where the interest rate on the note is periodically adjusted.

It can be adjusted for a variety of reasons including rates on one-year constant-maturity Treasury securities, the Cost of Funds Index and the London Interbank Offered Rate.

Adjustable rates take some of the risk from the lender to the borrower and tend to be used when unpredictable interest rates make fixed rate loans difficult to obtain.

Huge rise in number of new home sales in June. Another good news for US housing market

Sales of newly constructed single family homes went up by 11% in June to seasonally adjusted annual rate of 384,000 homes. (AP, Yahoo News) The gain over May is more than expected and it is the largest monthly gain over 8 years as buyers took advantage of low prices, interest rates and $8,000 first time home buyer credit.

Sales have risen for three straight months and this gain was much greater than expected by economists. However the new homes sales are 21% below the numbers of a year ago and median home sale price went down by about 6% in the month of June.

Last week, the National Association of Realtor reported that existing home sales increased by 3.6% in June. These are all encouraging news that the housing market is bouncing back. The median home sale price was down by 12% from a year earlier and also down about 6% from May. The lower home prices and interest rates are great news for first time home buyers as they are rushing to take advantage of the $8,000 tax credit.

There were 281,000 new homes for sale in June which represents 8.8 months of supply – the lowest since October 2007. This shortage is good news for home builders as they have significantly been affected by this housing recession as well. If the number falls to under 6 months supply, home builders would be comfortable to start constructions assuming the financial institution would start lending on construction projects.

Obama Proposes Regulation of Mortgage Products

By DIANA GOLOBAY
June 17, 2009 11:20 AM CST

President Barack Obama in a speech today unveils his administration’s proposals for sweeping regulatory reform including allowing increased authority for the Federal Reserve, dismantling the Office of Thrift Supervision and regulating certain aspects of mortgage lending.

The proposed regulatory overhaul aims to keep financial institutions honest, transparent and healthy while protecting consumers and the national economy.

“That’s our goal,” he says, according to prepared remarks. “To restore markets in which we reward hard work and responsibility, not recklessness and greed — in which honest, vigorous competition in the system is prized, and those who game the system are thwarted.”

He proposes the creation of new agency to look out for consumers, impose regulations on what kinds of loan products can be offered and how they’re presented. A regulator keeping an eye on the mortgage lending space would be able to hold mortgage brokers to higher standards, stamp out exotic mortgages with hidden, exploding costs, enforce reasonable disclosure of terms, and hold non-bank originators to the same standards.

The proposed overhaul includes sweeping changes to promote free and fair markets and close gaps and overlaps in the regulatory system within and between nations. These changes would bring the operation of financial firms within regulation, dismantle the OTS and require hedge fund advisers to register with the Securities Exchange Commission. They would also mean raised capital requirements among financial firms, regulation of credit default swaps and other derivatives and a requirement that loan originators retain an economic interest in the loans they sell.

The administration also proposes granting the Fed new authority to regulate bank holding companies and firms that pose systemic risk and to require these institutions to adhere to stronger capital and liquidity requirements. The proposals inlcude the creation of an oversight council composed of regulators from across the markets that will coordinate to identify gaps in regulation. The overhaul creates a “resolution authority” similar to what the Federal Deposit Insurance Corp. exercises in the insured banking sector.

Financial regulators missed the forest for the trees, so to speak, in focusing on individual firms outside the context of the whole system. As a result, some institutions grew so large and significant as to signal far-reaching shockwaves through the system if one firm were to fail. Obama proposes requiring regulators to consider the stability of the whole financial system when addressing individual institutions.

“We should not be forced to choose between allowing a company to fall into a rapid and chaotic dissolution or to support the company with taxpayer money,” Obama says. “That is unacceptable. There is too much at stake.”

Residential solar energy the top investment

Residential electricity rates have grown by an average of 25% over the last 6 years. This is one reason that residential solar energy is growing rapidly. The new 30% federal tax credit has created a dramatic boost to the residential solar energy market. Falling solar panel prices have also added to the financial incentives. In some locations, with combined federal, state and local incentives, the payback on the initial residential solar energy investment can be as short as 6-10 years. Since the beginning of 2009, residential solar energy installations have grown by 50%.
residential solar energy

The economics of residential solar energy

With electric utility rates increasing substantially every year, estimates are that the average homeowner will spend over $100,000 in the next 25 years on electricity. With costs that high it makes sense to turn that expected cost into an investment that yields numerous dividends. Returns on a residential solar energy system can be as high as 20-25%. This figure reflects the lower cost of investing in a solar energy system now - combined with the increase in value to your home. According to the National Appraisers Institute, the value of your home increases 20x the annual savings in electricity. So if you save $1,000, your home value increases $20,000 without increasing property taxes.

Net-Metering and feed-in tariffs

Most residential solar energy systems will be connected to the grid through a meter enabled for net-metering. This means that when your solar panels are generating more power than you are using, the excess power will be fed back into the grid and your meter will actually spin backwards. Your electric utility will give you credit for the energy you generate, deducting money from your bill. In some locations that are using feed-in tariffs, the utility company is required to pay consumers up to 300% more for the power generated. While feed-in tariffs are not currently widespread, you can see the impact they have on consumer demand for residential solar energy. Ask your solar installer if there are feed-in tariffs working in your area.


Residential solar energy - types

Solar photovoltaics - solar panels

When most people think of residential solar energy, they think of electricity and solar panels. Residential solar panel installation can be completed relatively quickly by trained solar installers after an initial consultation and signing of contracts and rebate paperwork. Solar panels can be placed on the roof of your residence or garage, or elsewhere on your property depending on space requirements and shading.

Residential solar hot water heating

The most cost efficient way to implement residential solar energy is through a solar water heater. Because most household energy is used to heat water for showers or laundry or dishwashing, having the sun heat your water for free is a great way to save money. Solar water heaters don't create electricity - they simply collect the heat from the sun and store it in a tank for later use. Solar heating works the same way the hose in your backyard works when it's exposed to a few hours of sunlight. The water gets very hot - typically rising 10 degrees per hour of sunlight. These systems are also fairly simple mechanically. The solar installer who implements these types of residential solar energy systems has a background in plumbing.
Solar water heating is also a great way to heat your pool and spa.

Residential solar energy - hot air

Another extremely simple use of solar energy for your home is a solar hot air collector. A solar collector made out of thin metal and painted black is fastened to the side of the home and air is circulated through it with a fan. Check out the video of the professionally manufactured solar hot air collector made out of used soda cans on the DIY solar page.
Residential solar energy - for cooling

Yet another efficient use of solar energy for your residence is for cooling. A solar attic fan is inexpensive, simple to install and requires no energy to operate. It can significantly lessen the air conditioning required to cool your home in summer by lowering the temperature around 10 degrees.

Residential solar energy - Lighting

Solar lights are inexpensive and simple to install. Solar lighting is a great way to get started with solar energy. There are many different types of solar lights for your garden, pool, or to enhance security. Solar lights are unique because there are no wires and can be placed in remote areas that lack existing power sources.

Passive solar design

Residential solar energy advocates are always quick to emphasize the benefits of passive solar design. Passive solar is truly free energy. Its as simple as it gets