Gov't aims to help more "underwater" homeowners

By ALAN ZIBEL (AP) – 1 day ago

WASHINGTON — The government launched a new effort on Monday to speed up the time-consuming, often-frustrating process of selling your home if you owe more than it's worth.

The Obama administration will give $3,000 for moving expenses to homeowners who complete such a sale — known as a short sale — or agree to turn over the deed of the property to the lender. It's designed for homeowners who are in financial trouble but don't qualify for the administration's $75 billion mortgage modification program.

Owners will still lose their homes, but a short sale or deed in lieu of foreclosure doesn't hurt a borrower's credit score for as much time as a foreclosure. For lenders, a home usually fetches more money in a short sale than a foreclosure. And the bank avoids expensive legal bills, cleanup fees and maintenance costs that follow a foreclosure.

"It's very traumatic and embarrassing and frustrating to go through a foreclosure," said Laurie Maggiano, policy director of the Treasury Department's homeownership preservation office. With a short sale, she said, "your financial issues are your own problem and not neighborhood conversation."

Falling home prices and lost jobs have forced many sellers into this position. For example, in Orange County, Calif., short sales made up about 26 percent of the market in March, compared with 17 percent a year earlier, according to data complied by Altera Real Estate, a local brokerage. In the Minneapolis-St. Paul metro area, about 12 percent of all deals since October were short sales, up from about 8 percent a year earlier, according to the Minneapolis Area Association of Realtors.

The expanded incentives will help accelerate short sales, said Mark Zandi, chief economist at Moody's Analytics. He expects 350,000 homeowners nationwide to use the program through the end of 2012, more than double his earlier forecast.

A short sale appears to be the only way out for Brandee Chambers, 36, of Las Vegas. She got into trouble during the housing boom by taking out a risky loan against her home and using the money to buy two investment properties in Phoenix.

She later lost those two properties to foreclosure, and now she is trying to sell the home she lives in for $209,000, but the mortgage balance is $350,000.

Chambers, who owns two hair salons, says she would rather stay in her home, where she lives with her 14-year old son. But she had no luck getting help with her loan. She said she's resigned to scaling back her lifestyle and renting out an apartment.

"I've had to accept a lot in the last year," she says.

For buyers, though, short sales can be a great opportunity.

Marco Cappelli, 49, a winemaker from Northern California, is planning to buy a short sale this month in the Sierra Nevada foothills. He and his wife are paying $214,000 for a property that had been listed at $270,000. They pair plan to fix it up, install a hot tub and rent it out to vacationers.

Along with the financial incentives, the new government program makes another key change. Mortgage companies will have to set their minimum bid before the house is listed for sale. If the offer is above that, the lender must accept it.

That's a big change from current practice. Lenders generally don't calculate how much money they are willing to accept on a short sale until they have an offer in hand, causing long delays before the sale is approved.

The new program "will give us a degree of efficiency that we have not had in the past," said Matt Vernon, Bank of America's executive in charge of short sales and foreclosed properties.

Under the new process, buyers who submit an offer to purchase a home in a short sale should get a response within two weeks, as opposed to months. If that happens as planned, it would be a big improvement. Real estate agents across the country have complained that lenders are often difficult to reach, sometimes only communicating by e-mail and infrequently at that.

"You're one of 400 properties on a screen," said Dave Bauer, a real estate agent in Danville, Calif.

Some real estate agents who specialize in short sales are optimistic. "It could be the first government program that actually helps Las Vegas," said Steve Hawks, a real estate agent there who specializes in short sales. Most borrowers in Las Vegas, he said, owe so much more on their mortgages than their properties are worth they can't qualify for a loan modification.

The Treasury Department outlined the plan last November, but doubled the original $1,500 in relocation money after realizing that many homeowners need more cash to move out. That's because landlords usually want large deposits from people whose credit records have gone sour after missing mortgage payments.

However, there are plenty of restrictions. To qualify, the home needs to be a borrower's primary residence. Homeowners either have to be behind on their mortgages or on the verge of becoming delinquent.

Currently, the program is not available for mortgages owned or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac, though the two government-controlled companies will soon follow suit, said the Treasury's Maggiano.

Copyright © 2010 The Associated Press. All rights reserved.

Hopefully these new laws will simplify the complex short sale process and allow short sales to happen quicker and easier.

It is all but impossible to know with any certainty what today's jobs numbers are signaling. The huge snow storms of February put a lot of noise in the data, making it hard to figure out what would have happened in a normal month or even a normal February. That means it's hard to know what we should read into the numbers about the direction of the economy.

There are a few standout numbers. To begin with, the headline unemployment number and payroll number were slightly better than expected. The consensus was looking for unemployment at 9.8% and a 50,000 payroll drop. Instead we got just 9.7% unemployment and 36,000 jobs lost. The fact that we beat consensus despite the snowstorms may provide a psychological boost to investors as well as businesses trying to figure out whether to position themselves for more recession or a turn into recovery.

Construction lost 64,000 jobs. As we noted last month, we consider the continued loss of construction jobs a sign that the real economy is undergoing a healthy transition away from the bubble. The big danger with all our new subsidies to housing was that it would thwart the ongoing liquidation of human and financial capital allocated to housing, producing another round of malinvestment. In short, the continued loss of construction jobs is hopeful sign that we aren't creating an artificial recovery by re-inflating the housing bubble.

Unfortunately, the snow storms make it hard to tell how seriously to take this liquidation. It's hard to build homes when you are buried under several feet of snow. So we cannot totally dismiss the dangers of a bubblicious recovery.

The unexpected loss of government jobs is also a hopeful sign. Growth of government jobs can make employment numbers a head fake. They don't reflect actual strength in the economy. Like bubbly construction jobs, government jobs are real jobs. Government workers buy cars, homes, services, consumer goods and services. So government hiring can provide a temporary boost to the economy. But their rise and fall depends on policy decisions rather than underlying economic conditions, which means that they are useless as an indicator of the health of the economy.

The rise in the number of people who are long-term unemployed is terribly unfortunate for those people. But it also indicates an economy in transition away from the bubble economy. During the economic bubble that popped, there was a massive amount of misallocated capital. Too many people gained jobs, connections, skills, experience, and personal attachment to jobs that were not economically feasible outside of the bubble. The loss of those jobs and the unemployment of those people is not the growth of a human "output gap" but the liquidation of misallocated human resources. These people will have to find new skills in jobs that have yet to be created, if we're to have a healthy recovery. Just putting people back in jobs we don't need would be a sign that we were once again blowing up the bubble.

The rise in temporary service jobs is a sign of recovery. In a healthy recovery following an economic bubble, businesses stung by the collapse of long term projects begin to recover from liquidation by engaging in short term spending. This includes making short-term investments and hiring temporary workers. A quick reversal to full-time hiring or investment in long-term projects is a sign of a renewed bubble, foreshadowing a future collapse, rather than a healthy recovery. The small growth in manufacturing, 1000 jobs, is also a signal of a healthy economic recovery.

Over the next several months, thousands of individuals will face the end of their federal unemployment benefits. The typical interpretation of this reads these people as becoming the hopelessly jobless. Expect to see a lot of specualtion about whether the unemployment numbers are concealing the actual number of jobless people. That speculation is half-right. What's really happening, however, is that resources locked out of the jobs market start to re-enter the market. As long as unemployment benefits continue to pay people not to learn new skills or accept lower wage jobs, the recovery will remain anemic. The misallocation of human capital will remain stuck in place.

Of course, if the economy is not recovering, the loss of unemployment benefits can be devastating. We need to create new jobs in new businesses to soak up those now entering the jobs market. This is a tough task, especially since as many as 400,000 workers could be re-entering the jobs market. But it's a two-way street: employers who know that they will not face a labor crunch can more easily expand operations as the workforce expands due to the end of unemployment benefits.

So that's the challenge face: can we create enough non-bubble, non-government jobs to soak up the increasing number of job seekers? Or will we panic and try to re-inflate the bubble, forestalling the necessary reckoning with actual economic conditions and guaranteeing another, most likely worse, economic crash in the not so far off future?   

At first the photo doesn't make sense. Did they lose their jobs and then start a car washing business? No, it's soap bubbles. Bubbles, something we've had a lot of in the past. And now, we're trying to build a more solid future.