While its political leaders may occasionally flirt with secession, Texas thrives on connection. It surpassed California several years ago as the nation’s largest exporting state. Manufactured goods like electronics, chemicals, and machinery account for a bigger chunk of Texas’s exports than petroleum does. In the first two months of 2010, exports of stuff made in Texas rose 24.3 percent, to $29 billion, from 2009. That’s about 10 percent of the nation’s total exports. There are more than 700,000 jobs geared to manufacturing goods for exports in Texas, says Patrick Jankowski, vice president of research at the Greater Houston Partnership. “A lot of it is capital goods that the Asian, Latin American, and African [countries] are using to build their economies.”
Thanks to that embrace of globalization, the Texas turnaround may help lead the nation’s economic turnaround, just as California’s economy was once a bellwether. Now that Texas has become a player in the global economy, we can expect a new kind of swagger.
© 2010

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The proposed legislation that had real estate sellers and buyers legitimately concerned about seller financing passed the house on December 11, 2009, as part of HR 4173. Also known as The Wall Street Reform and Consumer Protection Act, the bill now goes to be voted on in the Senate.

The original text of HR 4173 was a staggering 1279 pages and intended to provide wide sweeping reform to insurance, derivatives, and the financial services industry. It has now grown to include multiple amendments and the mortgage reform that would impact owner financing.

Before consideration of the Wall Street Act began on the house floor, the House Rules Committee included Title VII, another 200 pages known as the Mortgage Reform and Anti-Predatory Lending Act. This legislation was originally passed as part of HR 1728 on May 7, 2009 (see How Congress Wants to Change Seller Financing). It had fortunately stalled in the Senate but is alive once again with its inclusion in the Wall Street Reform Act HR 4173.

Why the Concern?
The Mortgage Reform Act sets forth strict regulations on mortgage originators. It effectively takes away the rights of private property owners by bringing them under the regulation meant to apply to Wall Street and Big Banks.

Most of us would agree there is need for reform after the bailout of AIG, Citigroup, and other entities the government considered “too big to fail.” However, the inclusion of seller financing is going to hurt the very people it is trying to protect – the average person on main street trying to buy and sell property with some kind of alternative to failing bank loans.

The Mortgage Reform Act applies to mortgage originators and defines mortgage originators. It also provides exclusions for when the law would not apply. The portion that has owner financing worried is the following section 101(3)(e):

(E) does not include, with respect to a residential mortgage loan, a person, estate, or trust that provides mortgage financing for the sale of 1 property in any 36-month period, provided that such loan-

(i) is fully amortizing;
(ii) is with respect to a sale for which the seller determines in good faith and documents that the buyer has a reasonable ability to repay the loan;
(iii) has a fixed rate or an adjustable rate that is adjustable after 5 or more years, subject to reasonable annual and lifetime limitations on interest rate increases; and
(iv) meets any other criteria the Federal banking agencies may prescribe;

Basically the law would apply to someone selling a home and offering a seller carry-back installment sale, except in the above instance and provided the loan meets those 4 requirements. (Anyone else concerned about how vague that last one is…(iv) meets any other criteria the Federal banking agencies may prescribe…?)

So if you want to sell more than one property with seller financing every 3 years the law applies. That means the licensing, testing, bonding, net worth, and reporting required of mortgage originators. This will limit how many buyers are able to fulfill their dream of home ownership. Buyers often turn to seller financing when banks decline a home loan.

So what can we do? Write your Senator to voice your opinion. Explain how seller financing will hurt the little guy and encourage them to Vote NO on HR 4173. Remember, this is the same Mortgage Reform language that was included in HR 1728, so keep making your voice heard.

Looking for more information on the proposed legislation? Here are some additional resources:

CLICK HERE – To read a summary of the bill related to mortgage reform as published by the Law Firm of Pepper Hamilton Financial Services.

See Below…For a sample letter to use in communicating with your State Senator encouraging him or her to VOTE NO on HR 4173 and HR 1728.

CLICK HERE – To read the section of the bill related to Mortgage Reform (formerly HR 1728 and now included as Title VII of HR 4173 Wall Street Reform and Consumer Protection Act of 2009)

CLICK HERE – To track the progress and read the full text of HR 4173 (over 1,279 pages plus numerous amendments).

SAMPLE LETTER:

[Name and Contact Information]

DALLAS (Dallas Morning News) – Area home prices were positive in November for the first time since September 2007, according to Standard & Poor’s Case-Shiller Home Price Index, released today.

Dallas area residential values increased 1.4 percent in November from one year earlier, which was the best performance of the 20 cities tracked in the monthly survey.

However, Dallas home prices fell 0.6 percent in November 2009 from October, according to Case-Shiller. Home values bottomed out in the index in March 2009 when prices were down 5.6 percent.

Prices declined 5.3 percent for all cities from a year ago.

Case-Shiller tracks the prices of typical single-family homes, excluding condominiums and townhouses, comparing sales of specific properties over time.

From The U.S. Department of Housing and Urban Development HUD TAKES ACTION TO SPEED RESALE OF FORECLOSED PROPERTIES TO NEW OWNERS

WASHINGTON – In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.

“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Donovan. “FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said.

In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

* All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
* In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
* The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website.

Further Reading:

http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2010/HUDNo.10-011

The remaining Top 10 states in terms of total foreclosure activity included Arizona, Georgia, Texas, Ohio, New Jersey, and Maryland.

Foreclosures are up 19 percent from last October, but a deeper look at the RealtyTrac report revealed two positive developments for the housing market.
1. Foreclosure activity is down 3 percent from last month
2. Foreclosures per Household decreased in 9 of the 10 most heavily concentrated states

Furthermore, Nevada’s foreclosure pace is down 4% from last year. This is a big deal because Nevada has long led the nation in foreclosure-related activity. Until last month, Nevada’s year-to-year foreclosure rate hadn’t fallen in more than 4 years.

It’s too soon to say that the foreclosure market is drying up, but bargains are getting harder to come by. First-time buyers and bona fide investors alike have been snapping up property at a furious pace.

According to an industry trade group, distressed homes account for nearly one-third of home resale activity.

That said, buying foreclosures isn’t for everyone.

For one, properties are often sold as-is and may be defective. The cost of repairs may negate “the deal” or “the steal” — depending on the cost of the home.

Secondly, closing on a foreclosed home can be a 3-month long process. This is because banks rarely process home sale paperwork as fast as a “person” would. A 3-month time frame may not fit your schedule.

In the end, fundamentally, buying a foreclosed home is the same as buying a “regular” home — there’s a contract and a closing. Most of the steps in the middle, however, are different.

Read the complete foreclosure report and take a peek at the foreclosure heat maps on the RealtyTrac website. If you like what you see, talk to your real estate agent about what to do next.

There’s still good deals in the foreclosure market, but based on October’s data, they may not last through the winter.

Texas Requires Use of All Comparable Properties, Enacts Changes to Tax Appraisal Process

Under a new law that went into effect on Jan. 1, chief appraisers of Texas’s central appraisal (assessment) districts are prohibited from excluding foreclosure sales and properties as comparables that have lost value due to the declining market. House Bill 1038 prohibits exclusion of properties in the same neighborhood as the property being appraised solely because the property was sold at a foreclosure sale within the last three years, or has a value that has declined because of a declining market.

Several changes were also recently made to the ad valorem tax process in Texas. The passage of Proposition 2 by voters in November 2009 will require that residential property is appraised only based upon its use as a homestead regardless of whether the residential use of the property by the owner is considered to be the highest and best use of the property. Additionally, passage of Proposition 3 will allow the state Legislature to dictate the standards and procedures for the appraisal of property for ad valorem tax purposes. Prior to the passage of Proposition 3, this was the responsibility of county governments.

The passage of House Bill 1038, along with the passage of Proposition 2 and 3, is intended to improve the fairness and accuracy of the appraisal process and will help ensure that appraisal districts are following uniform appraisal practices and procedures. According to Gov. Rick Perry’s office, “The intent of these measures is to increase transparency and accountability in the appraisal process.”

To view a copy of H.B. 1038, visit www.capitol.state.tx.us/tlodocs/81R/billtext/pdf/HB01038F.pdf . To view a copy of the legislation that authorized the consideration of Propositions 2 and 3 visit, www.capitol.state.tx.us/tlodocs/81R/billtext/pdf/HJ00036F.pdf .

Guest post by Brian J. Brady

It shows you that we are past the viscous subprime crisis, when that shark chewed through the balance sheets of a number of banks and financial institutions, in some cases devouring them whole. However, it is not yet safe to get back in the water:

There are these other slices of mortgages that are not quite as risky as subprime that reset in the next couple of years. Years 2010 and 2011 face big resets in so-called Alt-A and Option ARM loans. What this means is more write-downs and more losses for banks and others who hold these mortgages.

Making all this worse is the fact that the housing market has not yet recovered. T2 Partners made the case that the current “stabilization” of the housing market is a head fake. Mostly, it’s due to huge government support of the housing market. But there is still a large inventory of homes out there. And with these resets coming due, we’ve still got a large amount of foreclosures on the horizon.

All the while, the unemployment numbers are still poor. T2 Partners calls the unemployment situation the “most severe since the Great Depression.” The US economy has shed over 8 million jobs in this recession and unemployment – officially – is over 10%.

Plus, it’s not like the average US consumer is in a good position to sail through this crisis. Household liabilities are still high, as this next chart shows:

US consumers need to save and rebuild their financial strength. This is why the savings rate is on the rise. This is why, for the first time since the 1950s, household credit debt declined.

As real estate investors, it seems clear that any idea that depends on discretionary consumer spending – say, buying trendy new sweaters or watches or expensive shoes – faces some big head winds. Better to the stick with the necessities, I say.