Monday, October 6, 2008

House Passes the Economic Stabilization Act

On Friday, the House of Representatives approved the Emergency Economic Stabilization Act by a 263 to 171 vote. I thought it might be helpful to pass on a summary by the CA Association of Realtors explaining how the legislation will set the stage for the eventual recovery of the housing market and the financial health of every household in our country.

Here’s what the legislation does:

Helps American families keep their homes by requiring the Treasury Dept. and any federal agency that owns or controls troubled mortgages to modify those mortgages wherever possible; this may include reducing the principal or interest rate; and extends till the end of 2012 the exclusion from federal income tax of mortgage debt forgiveness.

Addresses the credit crisis by allowing financial institutions to immediately sell $250 billion in troubled assets to the U.S. Treasury Department under the newly created Troubled Assets Relief Program (TARP). Another $100 billion would be made available upon the President’s request. Should the President deem it necessary, and with Congressional review, the Treasury Dept. may utilize the remaining $350 billion;

Protects taxpayers by allowing the Treasury Dept. to take an ownership stake in participating companies. In addition, if after five years TARP has incurred a net loss, the President must propose legislation that would force participating companies to reimburse the government to make up the difference;

Sets up an insurance program, funded by the financial industry, to guarantee companies’ troubled assets, including mortgage-backed securities purchased prior to March 14 this year;

Curbs executive pay for companies utilizing TARP;

Sets up two oversight committees, a Financial Stability Board, and a congressional oversight panel, to which the Financial Stability Board would report;

Creates renewable energy tax breaks for individuals and businesses, including a deduction for the purchase of solar panels; as well as continuing other tax breaks that were set to expire; and extends relief from the Alternative Minimum Tax (AMT) by another year;

Allows the SEC to suspend the required mark-to-market accounting standards and orders a study to be done on the rule’s impact on financial institutions;

Shields bank deposits by temporarily raising the FDIC insurance cap to $250,000 from $100,000; and temporarily increases the federal insurance level for credit union savings to $250,000, both till the end of 2009.


Short Sales - Can't live with them, can't live without them

In this current market, we simply cannot avoid short sales or bank owned properties. In fact, they comprise nearly 60 percent off all listings in some markets in San Diego. Initially, buyers were drawn to these type of listings. The words short sale, foreclosure and REO meant "WOW, a great deal, under market value, you better act now!" Well, this may still hold true, especially with bank owned properties, but many buyers see the words short sale and start running for the hills.

As a Realtor in this market, I have seen both sides of the short sale experience. I represent buyers in need of selling their home in which they owe more to their lender than what the market will pay them. I have successfully helped many sellers get "out from under their home" so they can move on with their lives and not have the stress of paying for an asset they cannot afford. I also represent buyers who are pounding the pavement looking for a deal and also a home that they can close on in a normal time frame. As a buyer's agent, this can be a challenge because you only have so much control over the seller's lender and sometimes have to wait 60-120 days for approval. That is 2 to 4 months just find out if your offer is accepted or not! This can feel like a lifetime for those anxious buyers who are waiting on the edge of their seats to find out where they will be living. This can be a challenging and stressful time for everyone involved.

What is the solution? Well, we can't do so much about the short sale solution, but simply wait until the market eventually works through them. What we can do is change our perspective and approach to how we view short sales. My business coach taught me about the "spray and pray" approach. This may sound a little odd, but it is actually a great plan. What you do is go out and house hunt. You spray the homes you like with offers and you pray that one is accepted. In this market, you can't expect a deal and also a quick closing. You have got to pull out all of the stops and keep looking and "spraying" until something sticks. And eventually it will with the right amount of perseverance and patience.

This is a great market to get into, especially for first time home buyers. The best thing to do is first talk with a lender and find out what you can afford and what amount you are qualified for. This is crucial since the lender requirements have changed. But don't let this stop you from trying. Buying a home in this market may take a little bit more effort, but if you can get in now, I am sure you won't regret it later!