Lawrence B. Simons

Simons served as FHA commissioner and assistant secretary for housing at HUD during the Carter administration, and under his leadership the federal government hit some high water marks in providing rental assistance to households in need.

During his tenure, almost 1.5 million affordable rental units were added to the country’s affordable rental housing inventory, about half of those through Section 8 vouchers and certificates, the other half through below-market interest-rate financing for development or rehab of rental apartment buildings.

Although his focus was on affordable rental housing, he was a leader in all aspects of residential real estate. He served on the boards of numerous housing advocacy organizations and for many years was on the board of advisors of Housing & Development Reporter, where I worked as a reporter for much of the 1990s.

What I remember from my years of association with him was his generosity, humor, and unflagging concern for households struggling to improve their lives. Although people differ on how much the federal government should be involved in housing markets, including rental markets, Simons was animated by a desire to help people who were in need of safe and affordable housing, so he leveraged his considerable expertise to that end. Struggling households have lost a voice on their behalf.

More on Simons from the National Housing Trust.

“Although low interest rates on conventional mortgages and the drop in home prices in recent years have greatly improved the affordability of housing,” households aren’t able to take advantage of these good conditions, he said.

Bernanke agreed with a question posed to him by Rep. John Campbell (R-Calif.) that there are steps Congress could take to ease regulatory issues that are contributing to the lending problem.

“I don’t think this is purely a market phenomenon,” he said. “I think there are a number of legal and administrative and regulatory barriers to housing being as strong as it should be.”

Although he didn’t go into detail at the hearing, a white paper the Fed sent to Congress two weeks ago lays out some of the issues it sees as a problem. One of them has to do with repurchase requirements by Fannie Mae and Freddie Mac. These requirements reduce lenders’ willingness to lend without strict underwriting overlays because based on certain underwriting matters, if the loans go bad, they could be on the hook to Fannie or Freddie for them.

Overlays are requirements over and above minimum underwriting standards of Fannie and Freddie and FHA.

“This hesitancy on the part of lenders is due in part to concerns about the high cost of servicing in the event of loan delinquency and fear that the GSEs could force the lender to repurchase the loan if the borrower defaults in the future,” the Fed says in the paper.

Also in the white paper, the Fed said Congress should consider allowing Fannie and Freddie, which are under federal conservatorship, to absorb some short-term losses if that would help get housing sales moving again, and that the two companies should be allowed to make some REO homes they hold in their inventory available to buyers for use as rentals.

President Barack Obama in his State of the Union speech last week and in a more detailed plan he released earlier this week is pursuing a limited pilot program with Fannie Mae to allow some REO sales for use as temporary rentals in some markets. NAR has said it wants to be sure the pilot is open to small- and medium-sized investors, not just big investors, and that real estate practitioners be used in the transactions to make sure they’re done in such a way that they don’t destabilize the local markets.

After Bernanke’s House Budget Committee testimony, NAR President Moe Veissi released a statement in support of the need for a sustained federal focus on the struggling housing market.

“We fully support Chairman Bernanke’s comments that the lack of available and affordable mortgage financing, low home values and high foreclosure inventories are inhibiting a meaningful housing market recovery,” he said. “His remarks coupled with President Obama’s new housing proposal announced earlier this week, shows that the administration and Federal Reserve recognize the vital role that real estate plays in both the short- and long-term health of the nation.”

In the video clip above, Bernanke talks about the barriers to a housing recovery. To watch the entire video, go to Bloomberg’s website.

“The timing couldn’t be better for Century 21 Real Estate to advertise in the Super Bowl, and I’m happy to be a part of it,” said Trump in a statement. “The truth is many Americans believe in the value of home ownership and for people who are in the position to buy, this is a great opportunity to either enter the market or move up into a better home.” Here’s a sneak peek at what you’ll see on Sunday.

And seeing this prompted us to dig through the vault to find other entertaining real estate ads. Enjoy!

Do you have a favorite real estate ad? If so, share it with us.

First-Time Homebuyer Credit Lookup Tool

To help 2008 and other borrowers who have to pay back the proceeds of that credit, the IRS today released a “tool” to help make that process easier, the First-Time Homebuyer Credit Lookup Tool.

In essence, the tool simplifies the gathering of information you need to include the proper pay-back amount in your federal tax filing:

• Balance of your first-time homebuyer credit
• Amount paid back to date
• Total amount of the credit received
• Annual installment repayment amount

Prior to release of this tool, taxpayers had to gather this information themselves for reporting on IRS Form 5405. Now it’s available through the IRS by punching in your Social Security number, date of birth, and some other identifying information.

Who else besides 2008 credit users need to pay back their benefit? The IRS says those who used the credit in 2009 or 2010 and then sold their home within three years of purchase. (Under the program, you have to own your primary residence for three years after you take the credit to avoid the pay-back rule.)

You can get more on the rules and the new look-up tool from the IRS.

Access IRS Form 5405.

Access instructions for IRS Form 5405.

In the details he released today, the President said he wants to make the federal government’s existing mortgage refinance program, called HARP (Home Affordable Refinance Program) available to more home owners. It’s currently available to struggling borrowers with loans backed by Fannie Mae and Freddie Mac. For these borrowers, incentives are provided under certain conditions to make refinancing more attractive.

Proposal details

Under the new proposal, this HARP program would be expanded to include borrowers with loans that aren’t backed by Fannie and Freddie. These are the borrowers whose loans were securitized in private-label securities without any federal backing, and they would be allowed to refinance into FHA-backed loans, the same as the Fannie and Freddie borrowers. The administration has estimated that borrowers would save $3,000 a year in mortgage costs.

Key points: 1) More underwater home owners would be able to tap federal refinance assistance than can do so today, 2) mortgage servicers would be restricted in their ability to foreclose until after they’ve exhausted efforts for borrowers who’ve make a good-faith effort to modify their mortgage, and 3) efforts to reduce the inventory of foreclosed homes through bulk sales to investors for use as rental housing would be tried in a pilot program.

To be eligible, borrowers would have to have made their mortgage payments over the last six months with only one delinquency, and their loan amount couldn’t exceed the FHA loan limit for their area. If borrowers owe more than 140 percent of the value of their home, the lender has to agree to reduce the loan balance. Also, borrowers wouldn’t have to submit a full file of paperwork for the refinancing as long as they can verify their employment. The proposal also would enable borrowers who still have equity in their home—up to 20 percent—to participate.

The changes will require legislation, so Congress will have to agree to them for the expanded program to take effect.

In his State of the Union speech last week, Obama said he would pay for the expanded program using a fee charged to the country’s largest banks so the initiative wouldn’t add to the deficit. But some members of Congress have said they oppose charging banks a fee to cover the cost.

The Obama plan would also introduce a Bill of Rights for home owners, part of which is intended to smooth the mortgage modification and foreclosure processes, which today can be contentious and difficult for borrowers to understand. A key part of this is an effort to curb banks’ practice of undertaking a mortgage modification while at the same time proceeding with a foreclosure—a process called dual tracking. Before they can start foreclosure, banks will have to show they took all reasonable steps to modify a borrower’s mortgage.

To help ease inventories of foreclosed homes, the plan would give a green light to Fannie Mae to implement a pilot program to make foreclosures available to investors in bulk purchases for conversion to rental housing. Under the pilot, Fannie would package for sale foreclosed homes in a limited number of markets and require them to be used as rental properties for a period of time.

NAR has concerns with this proposal and has been talking with federal regulators to ensure that the program is carefully tailored to the communities who can truly benefit from it, that small- and medium-sized investors be able to participate, and that real estate professionals continue to play a role in the disposition of the homes.

In a statement released after the President outlined the details of his proposal, NAR said it’s urging the regulator of Fannie and Freddie, the Federal Housing Finance Agency, “to proceed cautiously with the REO-to-rental program since housing markets are complex and varied.

“NAR believes an overly aggressive REO-to-rental program that is not privately administered by local entities and does not involve substantial participation of local market experts, especially licensed real estate professionals, could be disruptive and counterproductive to communities already suffering from high foreclosure inventories and lower housing values.”

More on Obama’s proposal.

Analysis on implementation of the proposal.

Watch the full speech on C-SPAN.

To refresh your memory, the idea behind QRM loans comes from the big Wall Street reform law enacted about two years ago. The law requires lenders to retain 5 percent of the value of the loans they originate for securitization and sale to investors. That’s a requirement that will drive up the cost of financing for borrowers because it forces lenders to put up capital against risk.

But there’s an alternative to this expensive scenario, and that’s QRM loans. If the loans meet these QRM standards, they’re considered safe, so lenders that originate the loans for securitization don’t have to put up 5 percent. That’s good, except that regulators drafted a definition of QRM loans that would require a large down-payment—as high as 20 percent—along with other credit requirements.

The position of NAR as well as some 40 other organizations, including consumer organizations, is that the Wall Street reform law never intended QRM to impose a minimum downpayment requirement; rather, it only sought to ensure that loans are soundly underwritten.

As it is, the Wall Street law includes another provision that in fact does base loan safety on sound loan terms rather than downpayment amount: the qualified mortgage (QM) provision. Among other things, only conventional 30-year fixed and adjustable-rate mortgages can qualify as QM Loans, and lenders have to assess borrowers based on their ability to repay. There’s nothing in the provision that talks about minimum downpayments or other credit reqirements.

Under CRL’s analysis, which is based on about 20,000 loans made between 2000 and 2008, the default rate for loans that meet the QM definition—at a bit under 6 percent– is about half the default rate for all loans made during that period. Almost 6 percent is historically high, but as CRL points out, the period between 2000 and 2008 is not a typical period from a historical persective, since it encompasses the housing market crash and the extremely deep recession that followed on its heels.

But the difference between the two sets of loans shows that the QM standard does what it’s supposed to do: keep defaults at a comparatively reasonable level while still allowing creditworthy borrowers to get financing. This latter point is key, because it’s easy to keep default rates low—if you make standards so tight that only wealthy borrowers with the best credit profile can get financing. What the QM standard shows is you can limit defaults while still keeping financing available.

But as soon as you turn those QM loans into QRM loans and add minimum down payment requirements and other credit restrictions on borrowers, you in fact improve default rates a bit more but at the tremendous cost of pushing most borrowers out of the market. In the CRL data, the default rate on QRM loans with 20-percent down drops something over a percentage point, but to get that modest improvement more than 60 percent of otherwise creditworthy borrowers are pushed out of the market.

The take-away from CRL’s findings is pretty clear: if the federal government wants to curb bad loans without pushing out millions of otherwise creditworthy households from the market, the QM standard seems to do the job just fine. The downpayment and other credit requirements of QRM are unnecessary and harmful.

Lawmakers should look at these findings carefully. Here’s a link to the full study, called Balancing Risk and Access.

More on QRM on Speaking of Real Estate.

More on QRM from NAR.

Researchers at the University of Alabama at Birmingham (UAB) say you’ll earn 83 cents more with the CD than burying your money, so the CD’s probably the better deal. But after you factor in the gas to get to the bank to buy your CD you’re probably better off going with the buried money and just taking advantage of inflation.

So, where should you put your money? Andreas Rauterkus, an assistant professor of finance at the UAB School of Business, says you should buy a house.

“First-time home-buyer rates are around 3.8 percent for a 30-year mortgage, so if you can afford a $1,000 mortgage payment monthly for 30 years then you can buy a $250,000 home right now,” says Rauterkus.

Lary Cowart, an assistant professor of real estate and finance at the school, says you don’t want to wait too long, though. Because once prices start moving, it won’t take long before price changes affect the advantage of today’s low rates.

“Holding out to try and find the lowest price is not a good strategy because if the house were to go down 10 percent but the interest rate goes up 1 percent you are not gaining anything,” says Cowart. “If rates go up 1 percent, say from 4 to 5 percent, that is a 25 percent increase in the interest rate; so the mortgage payment goes up by more than 10 percent and the amount of house that can be purchased goes down by more than 10 percent. People fail to realize that and it is another little thing that will cost them big over the 30-year life of the loan.”

Of course, whether you can buy at all depends on lenders’ willingness to make a loan today to anyone except those with the best credit profile and plenty of money for a downpayment, and that’s a big question today. It makes you wonder if the reason banks aren’t lending is because they don’t have any money available because it’s all buried in the bankers’ yards.

Read the UAB press release in which the researchers talk about buying a home today.

More on lenders’ tight lending policies.

More from NAR on why home ownership matters.

Policy experts speaking with politically active REALTORS® in Washington this week said it would be relatively easy to create the program if an agency like FHA or even if the two secondary mortgage market companies Fannie Mae and Freddie Mac were given responsibility to do it. As policy consultant and former HUD official Brian Chappelle put it, the program could be implemented “almost overnight” because FHA already has its lenders and refi procedures in place.

But Chappelle and others said if FHA or the GSEs undertook the program, it would be best for the government to create a separate insurance fund to cover the new refinanced mortgages. That way, the entities’ main insurance funds wouldn’t be at risk should a portion of the loans go bad.

Brian Gardner, a Wall Street analyst, said the program would require close coordination with the Federal Reserve, otherwise investors in mortgage backed securities would demand a risk premium in interest rates to account for future political uncertainty of the program.

Patrick Swire, a former Obama administration domestic policy advisor and now an analyst with the Center for American Progress, said Obama’s refi initiative is a logical extension of the administration’s previous efforts to help underwater home owners since the economic crisis hit several years ago. The Home Affordable Refinance Program (HARP) was a first attempt to give lenders, investors, and troubled borrowers an incentive to modify their mortgage before the house is lost to foreclosure. This new program would provide an opportunity to implement lessons learned from that earlier effort.

Would lenders even want to participate? Ann Schnare, a policy consultant who formerly was an executive with Freddie Mac, said lenders are worried about getting hit with loan repurchase penalties, which previously happened infrequently but since the mortgage market upheaval have become far more common. So, unless that issue is addressed, lenders would likely be worried about the risks of participating.

Of course, whether the program will even pass Congress is another matter altogether, and that remains the big question. But the panelists appeared to agree that implementation was clear-cut should it pass.

Under the refi initiative President Obama discussed in his speech, underwater home owners who are struggling to stay current on their mortgage would be able to refinance to take advantage of today’s historically low rates.

The video excerpt above shows the discussion, Wednesday, Jan. 26, among the panelists. At about eight minutes, the video is relatively long, but the discussion is substantive and interesting, so it’s worth the investment in time to watch if you’re interested in these policy issues. Session moderator is Alan Zibel of the Wall Street Journal/ Dow Jones News Wire.

Background on the Obama refi proposal.

A subject we’ve talked about a great deal here on the Speaking of Real Estate blog got some play during the Republican presidential debate last night in Jacksonville. (Transcripts are available here.) A question was asked of the four candidates about how to phase out government-sponsored enterprises Fannie Mae and Freddie Mac.

However, none of them gave satisfactory answers. Former Massachusetts Gov. Mitt Romney started out by claiming that “we’ve had this discussion before,” then attacked fellow candidate and former Speaker of the House Newt Gingrich for his business ties to Freddie Mac. Romney concluded by saying creating jobs was crucial for improving the housing market — which I believe is true, but that doesn’t answer the question.

In his response, Gingrich defended his involvement with Freddie and charged that Romney had made a fortune off of his investments in the GSEs. The two candidates went on for a couple more minutes trading barbs about who, exactly, had benefitted more from their Fannie and Freddie affiliations.

Rick Santorum, a former Senator from Pennsylvania, said he “stood tall” against the GSEs back in 2006 when he wrote a letter with other senators asking for Fannie and Freddie reform that involved gradually reducing the number of mortgages underwritten by the two. He then criticized both Romney and Gingrich for criticizing each other instead of focusing on the question.

Former Texas Congressman Ron Paul came closest to answering the question when he said the two organizations “should have been auctioned off right after the crash came.” And he offered an explanation of what led to the bubble in the first place: excessive credit and artificially low interest rates, among other things.

As with Romney’s answer, Paul’s response wasn’t necessarily factually wrong, but the question wasn’t really about how the bubble came into existence and what should have been done in 2008. It was about how to phase out the GSEs now. Presumably, Paul is in favor of liquidating them, but what would that look like?

For its part, NAR has argued that the two entities should be replaced with a nonprofit, government-charted organization that continues to back standardized loans, just as Fannie and Freddie do now, but without the profit motive. The goal for NAR is to ensure  a government-based entity that stays in the market at all times rather than rely on private companies only, since when markets slow, they are prone to leave. Also, whatever structure the new entity takes, it shouldn’t crowd out private competitors — NAR wants private companies to return to the market. (Go here for more information on NAR’s position.)

Now I know the format of televised debates doesn’t lend itself to long, detailed answers about policy. But in the wake of the State of the Union address earlier this week — in which Obama discussed housing problems and solutions at length — and with Congress preparing to tackle new approaches to Fannie and Freddie, these kinds of answers just aren’t going to cut it. If the GOP presidential field wants to be taken seriously on housing, they need to offer something more substantial than they did last night.

(Editor’s Note: REALTOR® Magazine does not make endorsements in political races, and this analysis should not be viewed as favoring any party or candidate over another.)

I wrote my first blog post about the real estate and mortgage industries on Jan. 27, 2005. Much has changed, but several truths about blogging have remained pretty constant:

1. Knowledge is learned, expertise is imparted.

Take all the training you want. Read every book. Learn from a lifetime of experience. Nobody will really care until you share that knowledge. Until I started my blog, I was just a good account executive for a lender. After I started it, I became an industry expert that other news organizations wanted to quote. People don’t want you to tell them you are an expert. They want you to prove it.

2. Have a business purpose behind every blog post you write.

I’ve written about this before. Beyond proving your own expertise to a reader, a great blog posts also serves additional business purposes. They could be designed to help you network with local businesses, or win in the search engines, or to build a library of FAQs you can reference later. Whatever it is, try to establish a business purpose for your posts before you write them.

3. Social networks come and go, but your Web site is forever.

There’s only one place on the Internet where you get to make all the rules. You get to decide when to ask for the sale. You get to decide if others can advertise next to your content. You get to decide who else gets to comment on your work. Where the platform’s very existence is assured. That’s your own Web site or blog. If you have put all your eggs in a basket where you don’t get to make the rules, what are you going to do when the rules get changed for you? A Web site or blog has to be the hub of all of your digital communications.

4. Great work doesn’t come free.

When it comes to hosting your blog or Web site, don’t trust them to a free site. You get what you pay for.

5. If you’re wrong, admit it quickly and emphatically.

This comes straight from Dale Carnegie. People make mistakes. Life goes on. If you’ve found yourself in a position where you want to take something back, just say you’re sorry and take it back. It’s really that easy.

6. Become genuinely interested in other people.

I often refer to a great set of posts by Jeff Turner on listening as a strategy. Again, this is a concept from Dale Carnegie, who once said, “You can make more friends in two months by becoming interested in other people than you can in two years by trying to get other people interested in you.” The more time you spend learning about people in your community, the more you’ll have to write about.

7. Be willing to take risks.

Management guru Peter Drucker once said, “People who don’t take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year.” Seven years after my first blog post, there are still dynamics at play in this new social world that are a mystery to me. I know that I will make more mistakes. I can’t let that stop me, and neither can you. Just try your best and learn from them.