Have a Wonderful 4^th of July and remember that the liberty and freedom you enjoy were paid for in blood, and continue to be so.

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Happy 4th of July - The Declaration of Independence

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Over the next few days I will be outlining what is in the bill and scaring the crap out of you. Can you imagine how expensive it will be to retrofit your home to hit these mandates?

I did a quick excel spreadsheet and according to the numbers the Secretary of Energy will expect by 2029 that homes will use 62 percent less energy, or else they will be subject to Federal intervention. We will get into Federal intervention and inspectors on a later post.

(A) effective on the date of enactment of the American Clean Energy and Security Act of 2009, 30 percent reduction in energy use relative to a comparable building constructed in compliance with the baseline code;

(B) effective January 1, 2014, for residential buildings, and January 1, 2015, for commercial buildings, 50 percent reduction in energy use relative to the baseline code; and

(C) effective January 1, 2017, for residential buildings, and January 1, 2018, for commercial buildings, and every 3 years there after, respectively, through January 1, 2029, and January 1, 2030, 5 percent additional reduction in energy use relative to the baseline code. US Congress Bill 2454 page 200

And if this is not scary enough, look at the power it gives the Secretary of Energy:

(4) ADDITIONAL REDUCTIONS IN ENERGY USE.—Effective on January 1, 2033, and once every 3 years thereafter, the Secretary shall determine, after notice and opportunity for comment, whether further energy efficiency building code improvements for residential or commercial buildings, respectively, are life cycle cost-justified and technically feasible, and shall establish updated national building code energy efficiency targets that meet such criteria. US Congress Bill 2454 page 202

You will have given the Secretary of Energy the power to decide unilaterally what the energy use codes for the country will be. One person will have the power to decide what homes have to do to comply with his or her whims.

And you think we have problems now with real estate, just think of the fun times we will have if this bill gets enacted into the law of the land.

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Waxman-Markey Cap And Trade Will Make Homes Cut Energy Consumption 62 Percent

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The scary thing is that this genie is out of the bottle. It will be hard to get interest rates back to their levels of even a couple of months ago with the amount of borrowing by the Federal Government. Interest rates should be rising for a while as the Treasury Department sells the trillion dollars in debt and the rest of the worlds investors worry about the health of the dollar.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan dropped 19 percent to 444.8 in the week ended June 26 from 548.2 the prior week. The group’s refinancing gauge declined 30 percent to the lowest in seven months, while the index of purchases fell 4.5 percent.

Unemployment, which touched a 26-year high in May, and rising borrowing costs discouraged homeowners from refinancing, while a growing number of foreclosures sidelined potential buyers waiting for house prices to stop tumbling. Pending home sales showing contracts signed in May rose 0.1 percent, compared with a gain of 6.7 percent in April, the National Realtors Association said today.

“The run-up in mortgage rates is exacting a toll in terms of depressing mortgage applications,” Brian Bethune, chief U.S. financial economist at IHS Global Insight in Lexington, Massachusetts, said in an interview. “The economy is in a phase of attempting to find a bottom. Anything that comes in the way of that, like higher rates, is going to mean it takes longer.” via Bloomberg.com

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And if you are looking to buy an investment property, God bless you. With 2.1 million empty homes on the market, there is a great deal of excess inventory that needs to be absorbed before the market will have a firm foundation.

The group that could buy up this excess housing is the investor class to turn it into productive rental properties or fix them up (spending more money) and sell them. Instead the assets are sitting idle, a weight on the market and the economy.

Four months after President Barack Obama pledged $275 billion to shore up home sales, the engine that powered every U.S. recovery since 1960 is stalled. Bankers’ reluctance to finance buyers who won’t live in properties is one barrier to a turnaround. Stricter qualifying rules and a rise in the cost of residential loans to 5.42 percent have impeded new mortgage lending, which is at a 13-year low. An inventory of 2.1 million unoccupied houses on the market, created by the fastest foreclosure pace in history, may be a drag on a revival.  Bloomberg.com

But as the late Billy Mays said, that’s not all:

If we do not see a housing stabilization soon, many more families will be underwater on their mortgages. Even Alan Greenspan, the retired Fed Chief, is scared. While things are slow right now, restaurants are still humming and people are still spending. Housing is the vehicle that will lead the recovery, but housing could also plunge us into another level of recession just as quickly.

The consequences of a further steep decline in house prices on the overall economy are severe because it would cut so significantly into the American middle class, the vast army of consumers, the ones with conventional Fannie- and Freddie-backed mortgages, dubbed “conforming” in the trade. Any equity that subprime-mortgage borrowers had in their homes is gone. But about eight million conventional mortgages were made for home buyers in 2005 and 2006. House prices have fallen significantly since then.

“The bulk of conforming mortgages made since 2005 are close to being underwater,” says Mr. Greenspan, meaning their mortgages are greater than the market price of their homes. Wow. Although many underwater homeowners will keep making monthly mortgage payments, they can’t refinance or take out home-equity loans — and are at greater risk of default and foreclosure.

“We can take another 5% decline in house prices without much macroeconomic impact,” Mr. Greenspan says. But if prices fall by 12%, more than four million additional homeowners will be underwater. via WSJ

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The new legislation that passed through the House last night, unread by any of the Congress people, had inserted into the bill a new NATIONAL BUILDING CODE. You heard me right, there is language that would have a national building code override your local and state codes.

So what standards are needed for a home in Kittery, Maine will also be required of Miami, Florida or Honolulu, Hawaii.

The bill would give the federal government power over local building codes. It requires that by 2012 codes must require that new buildings be 30 percent more efficient than they would have been under current regulations. By 2016, that figure rises to 50 percent, with increases scheduled for years after that. With those targets in mind, the bill expects organizations that develop model codes for states and localities to fill in the details, creating a national code. If they don’t, the bill commands the Energy Department to draft a national code itself.
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States, meanwhile, would have to adopt the national code or one that achieves the same efficiency targets. Those that refuse will see their codes overwritten automatically, and they will be docked federal funds and carbon “allowances” — valuable securities created elsewhere in the bill that give the holder the right to pollute and can be sold. The Energy Department also could enforce its code itself. Among other things, the policy would demonstrate the new leverage of allocation of allowances as a sort of carbon currency — leverage this bill would be giving to Congress to direct state behavior.  washingtonpost.com.

The bill has not passed the Senate yet so there is still time to act, but I beg you to contact your representatives and let them know how you feel. There is a great deal riding on it, as opposed to the reason Michael Jackson died.

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The Waxman-Markey Cap and Trade Bill Will Control Housing Standards

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But isn’t that the goal of real estate investors?

The investor is also working from the profit motive. Sure they will try to charge more, but the price will be determined by the market. Instead, the government officials that will be in the market do not have a profit motive. The want to maximize power and influence.

So they will sell below market and to those that can benefit themselves the most, with the added concern that the buyers will work hard to provide incentives to the government official making the decision.

That is just logical.

So instead of a marketplace that has profit as it’s driving motivation, it will be replaced with influence. And home prices do not do well in these cases. Which hurts everyone.

What investor is going to put their hard earned money up to rehabilitate a home in a neighborhood where they will not make a profit? When competing against the government, not one I know. So the opportunity for investment disappears and cronyism is the rule of the day.

And that is just plain scary.

If it all works according to plan, the result may be that cities have an easier time buying foreclosures, redeveloping them and then reselling them to homeowners in neighborhoods hardest hit by the housing crisis.

It also gives communities an upper hand in buying a foreclosed home cheap, before it’s snapped up by the investors that already are starting to surface in some neighborhoods. Under one important facet of the program, Mercy Portfolio Services, which is coordinating the NSP program for Chicago, will receive notice of a Bank of America-owned property that’s available for sale before it’s listed on the multiple listing service of Midwest Real Estate Data LLC. That’s considered key. Cities also will be able to get “real time” access to the bank’s real estate owned (REO) property lists through a dedicated Web site.

In many respects, it is an extension of the “first look” and “bulk purchase” programs that the National Community Stabilization Trust has already established with large lenders. via the chicagotribune.com.

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Bank of America Offering Cities First Crack at Foreclosures

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Sad but true…

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Real Life Meets Dilbert

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A notice published last week in the Fayette Daily News revealed the former heavyweight boxing champion is in danger of losing his 109-room Fairburn mansion. The lien holder is demanding full repayment of the original $10 million loan, with an auction scheduled for July 7 on the Fayette County Courthouse steps.

Holyfield did not return a call seeking comment.

Last June a foreclosure notice was issued for the manor at 794 Evander Holyfield Highway, but “The Real Deal” was able to strike a deal to stay in his home, which sits on 235 acres just south of the Fulton County line.

The 46-year-old Holyfield also has a second Fayette property, at 592 and 596 West Bridge Road, under foreclosure, with an original loan amount of $216,000.via ajc.com.

Having met Evander around town and heard stories, he is a good man with a big heart. But the excesses that mark a typical professional athletes life seems to leave them broke more times than not. Sure they get amazing paychecks, but they also spend at rates that would make a normal person faint. Just a little self discipline and common sense would make such a huge difference in their lives.

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Evander Holyfield’s House Under Foreclosure… Again

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You tend to get away with it.

That is the lesson that the investigation into the Friends of Angelo program that Countrywide and Angelo Mozilo offered influential politicians to get below market loans. They got cheap mortgages, he got an ear to listen to how regulations were written. And we all saw how that turned out…

Now the secondary payoff is coming. Instead of investigating the bribery that occurred, we are getting the whitewash in Congress. Hey if you don’t investigate the crime no one can get into trouble. Right?

Mr. Issa said he understands there is some resistance within the committee to issuing a subpoena, but he still hopes one will go out.

The Friends of Angelo program has proved embarrassing for some loan recipients, whose ranks included two U.S. senators, Democrat Christopher Dodd of Connecticut and Democrat Kent Conrad of North Dakota. Both men, subjects of a Senate Ethics Committee investigation, have denied wrongdoing and said they didn’t do any favors to Countrywide.

Mr. Dodd has said his mortgage was at a market rate. Both senators, who also have said they weren’t aware of receiving special treatment, are cooperating with the ethics probe. The ethics committee didn’t return a call for comment.

Mr. Issa says investigations have shown that loans also went to influential Republicans. “This is a bipartisan problem,” he says. via  WSJ.com.

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As many real estate developers are losing buildings to the banks, a group of investors are about to pick over the failures and they are looking for deals. Commercial property values are dropping, refinancing capital is scarce, but there is one group that is raising money quickly. Real estate investment trusts.

They are putting together vulture funds to buy up the distressed and bankrupt properties. And the list of investors is growing quickly.

And there seems to be no shortage of prospective purchases. There is an estimated $90 billion in commercial real estate in the U.S. alone that is “distressed,” according to New York-based real estate research firm Real Capital Analytics. These are properties that have been foreclosed on, or whose owners are in default on their loans or in bankruptcy. “On top of those properties, there is hundreds of billions more in debt coming due in the next few years,” says Peter Slatin, editorial director at Real Capital. “Some REITs are getting prepared for that.” via CNN

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