Portland - Not So Good With Snow

It has been a very interesting 18 or so hours in Portland.  Starting about 3pm yesterday the large wet snowflakes started coming down.  As a native Oregonian, I realize how rare snow fall is at the floor of the Willamette Valley, where Portland sits.  So, when when the snow starts to fall I, like a lot of Portlanders, feel a rush of childhood enthusiasm.  Just seeing the snow adds to the feel of the holiday season.

This blog has been moved to: http://www.aarons2cents.com

Impact of Loan Modifications on Credit

I have been asked quite a few times over the last couple of years how short sales and modifications affect credit. First off, both almost always affect it negatively. However, there are a lot of factors that come in to play. This is a pretty good article explaining how a simple loan modification can hurt your credit:

Mortgage rescue: Credit score killer

By Tami Luhby, senior writer 
December 28, 2009: 8:37 AM ET

NEW YORK (CNNMoney.com) -- Most troubled homeowners view President Obama's foreclosure rescue plan as a way out of their financial troubles.

But many don't realize that entering a trial mortgage modification can actually hurt their credit.

CNNMoney recently received a flood of e-mails from readers complaining about the impact of trial modifications on their credit reports.

To be sure, many people who apply for the president's plan are already delinquent in their mortgage payments, which wrecks their credit backgrounds. And obtaining a trial modification should affect borrowers' scores because it shows they cannot meet their original obligation, experts said.

But being in a months-long trial period may only add to the pain.

Jason Axelrod learned that the hard way.

Axelrod, a municipal employee who lives outside Chicago, entered a trial mortgage modification program this spring.

He had not fallen behind in his mortgage, but he was finding it harder to make ends meet after his overtime was cut and his property taxes skyrocketed. Told it would not hurt his coveted 750 score, Axelrod secured a $565 reduction in his monthly payments.

Eight months later, Axelrod is still stuck in the trial modification, trying to satisfy his loan servicer's endless requests for documents.

And to his horror, his credit score has plummeted to 644.

"It's completely destroyed my credit," said Axelrod. "If I had known it would affect my score, I would have never entered the program."

Representatives at JPMorgan Chase (JPM, Fortune 500), which services Axelrod's loan, are instructed to tell applicants that entering a modification could impact their credit histories, a bank spokeswoman said.

Despite his weakened credit score, there is at least some good news for Axelrod: After being contacted by CNNMoney.com, JPMorgan Chase said his permanent modification had been approved.

Credit reporting guidelines

Under the president's plan, troubled borrowers can have their monthly mortgage payments reduced to 31% of their pre-tax income.

Homeowners are first put in a trial modification for several months to prove they can handle the new commitment and to give the bank time to collect the necessary income and hardship verification documents.

During this period, industry guidelines call for loan servicing companies to report borrowers to the credit bureaus according to their status before they entered the modification - either current or the number of days delinquent.

However, borrowers' accounts are also designated with a code indicating they are in a partial payment plan.

The coding alone can impact credit scores, which measure a consumer's financial health and range from 300 to 850 under the FICO system. The severity depends on how many payments the borrower missed before entering the program. Those who were current in their mortgages could see their scores fall up to 100 points, according to the Treasury Department.

Just what banks are reporting to the credit bureaus remains a matter of some debate. Some servicers have been inconsistent in following the guidelines, according to a Treasury official. Also, they don't always report that their current borrowers have entered modification plans.

Some 24,000 trial modifications were given to those still current with their payments, as of early September. A total of 366,000 trial modifications were in effect at that time. The total number has since risen to just under 700,000, as of the end of November.

JPMorgan Chase, Wells Fargo (WFC, Fortune 500) and Citigroup (C, Fortune 500), which are among the nation's largest servicers, declined to be interviewed for this article. A Bank of America (BAC, Fortune 500) spokeswoman said the bank follows industry guidelines.

According to the Mortgage Bankers Association, an industry group, servicers are required to report all information about their clients, including whether they are in modification plans. For seriously delinquent borrowers, this may improve their status somewhat since they will start making payments again.

"If you are in the trial period, over that three month period, you are going to improve your situation in most cases," said Vicki Vidal, the group's associate vice president for government affairs.

Once borrowers receive a permanent modification, their payment status is listed as current. However, the delinquency remains on their credit reports for up to seven years.

On top of that, the longer homeowners are listed as delinquent, the greater the impact on their credit score. That's one reason why servicers should be quicker to convert borrowers from trial modifications to permanent adjustments, said Jan Jones, a housing counselor in Alaska.

Financial institutions have come under fire in recent weeks for dragging their feet in evaluating borrowers for permanent adjustments.

"What's making people upset is the length of time lenders are taking to consider these workout plans," said Jones, who works for Consumer Credit Counseling Service of Alaska.

Axelrod is already feeling the impact of his lower credit score. He ordered a new car this summer, believing it would come with a lower monthly payment. It arrived in mid-December.

But because of his newly blemished credit background, his two credit unions turned him down for a car loan. His dealership told him the best he could get is a 12% rate, a hefty hike from the 4.7% he was paying before."This is the biggest nightmare," he said. "My credit is completely useless."

November Home Sales Leap

In looking at my business over the last couple of months, I would say this is characteristic of the local market as well as the national market.  I do think the tax credit contributed to inflate these numbers but still I think perception changed.  The clients I have worked with lately realize that things can't continue to drop the way they have.  There are some amazing deals out there right now, and financing is still really cheap.  With the new incentives to sell existing homes, it's tough to lose.  With that said, here is a great article from CNNMoney.com

November home sales leap

By Les Christie, staff writer December 22, 2009: 12:40 PM ET


NEW YORK (CNNMoney.com) -- After surging 10% in October, sales of existing homes jumped again in November, growing 7.4% compared with October to an annualized rate of 6.54 million units, according to the National Association of Realtors.

"This clearly is a rush of first-time buyers not wanting to miss out on the tax credit," said NAR's chief economist, Lawrence Yun.

November was originally going to be the last month in which sales to first-time homebuyers would qualify for a federal tax credit of up to $8,000. However, that deadline was extended through June.

In addition, the tax credit was expanded to cover people who already own a home. They can qualify for a $6,500 tax credit if purchase a new house before the end of June. That should encourage "trade-up" buyers.

The strength of sales in November surprised the industry. A panel of experts compiled by Briefing.com had forecast month-over-month sales growth of just 2.5% to 6.25 million from 6.1 million a month earlier.

The sales total was also a huge improvement over a year ago. Sales rose 45.7% over the paltry annualized rate of 4.49 million units during November 2008.

The contribution made by first-time buyers is evident in a separate survey NAR conducted of its members. They estimate that 51% of sales in November were by newcomers to the market, up a point from 50% in October. Normally, first timers account for about 40% of sales.

Also propelling sales higher were rock-bottom interest rates. The average for a 30-year, fixed-rate loan during the month was just 4.88%, down from 4.95% in October and 6.09% a year ago.

With rates that much lower, homebuyers can save more than $150 a month on a $200,000 mortgage.

The industry expects home sales to slacken December, partially because of the tax credit's originally scheduled demise. That caused some buyers to push up their closing, stealing sales from December.

However, sales will not fall off a cliff, though, according to Walter Molony, a NAR spokesman. "The psychology seems to be turning around," he said. "Potential buyers, who had been staying on the fence, now believe we're at or near the market bottom."

One X-factor, however, is the vast numbers of homes that may come to market over the next few months. There is a large "shadow inventory" -- homes owned by banks and mortgage companies -- that have not yet been put up for sale. It could be as many as 1.7 million units, according to First American CoreLogic.

In addition, another spate of foreclosures could be hitting the market as a number of option-ARM mortgages are set to default.

All that may drive prices down, according to Shari Olefson, author of "Foreclosure Nation: Mortgaging the American Dream." And the impact of these renewed price declines could again alter the market psychology.

"People think that prices have bottomed," she said. "I don't think they have. People will see price declines and that will discourage them from buying."

Mike Larson, a real estate analyst with Weiss Research has preached all through the bust that price declines are what will "fix" the housing crisis.

"We needed to see prices fall to make ownership competitive with renting again, and to restore the normal relationship of house prices to income," he said. "That has now happened and you're seeing buyers come out of the woodwork as a result."

Still, they will have to come out in large numbers to offset the inventory overhang in some of the worst markets, according to Olefson. In the Florida condo market, for example, there is a 35-to-40 month supply of units at the current rates of sale, she said.

Prices still almost certainly have further to fall.

Ballot Measures 66 & 67's Effect on Business

I have been seeing a lot of ads for and against ballot measures 66 and 67 recently, and just received this article from the Oregon Association of Realtors.  Being an independent contractor that has to pay taxes out of my pocket, besides paying thousands of dollars every year in desk fees and marketing costs, a gross receipts tax would definitely hurt my business.  While I do understand the need for more revenue in this tough economy, I don't think hitting businesses is a great way to do it.  Furthermore, this would be a permanent solution to a temporary problem.  In order for Oregonians to have jobs, we need businesses to be hiring and coming to Oregon.  If we continue to add taxes, how are we going to attract more large companies to move their operations to Oregon?  We have one of the highest unemployment levels in the country, and I believe these kinds of taxes are part of the reason why. 

Below is a recap of the effects of these measures on Oregon business:

New, permanent taxes will hurt all Oregonians and businesses

In the midst of the worst economic crisis in more than 70 years, the legislature increased overall state spending by $4.7 billion and voted to permanently increase taxes on businesses and higher-income Oregonians by $733 million - the biggest tax increase in Oregon history.

During the 2009 legislative session, a unified business community strongly opposed the permanent tax measures and proposed a balanced, short-term solution that essentially matched spending cuts with temporary, broad-based tax increases. Virtually the entire business community supported raising the corporate minimum tax. The legislature chose to ignore the recommendations of the business community to pursue new, permanent tax increases, including a gross receipts tax of up to $100,000 on businesses that are not making a profit. 

The Oregon Association of REALTORS® Opposes Ballot Measure 66 & 67 for the following reasons:

1) Since the start of the recession, Oregon has lost 131,500 private sector jobs according to the Oregon Employment Department. In November, 64.4% of Oregonians were employed; the lowest labor-force participation has been since 1978. With unemployment at 11.1% and 211,424 Oregonians out of work, leading economists estimate that the new, permanent tax increases will cost an additional 70,000 Oregonians their jobs. The new, permanent tax increases are projected to further depress the struggling Oregon economy, negatively impacting efforts to stabilize and stimulate the real estate market. It is no secret that Oregonians must have jobs if they are going to be able to purchase and maintain a home. 

The health of the real estate market in many regions of Oregon is directly tied to in-migration from other states. With the highest marginal income tax rate in the nation, Oregon will become less appealing for relocation for businesses and individuals. In addition, the taxes will have a direct impact on the Multiple Listing Services, as a gross receipts tax has a disproportionate impact on those businesses that have high volume (regardless of any actual profit).

 

2) Tax proponents portray Measure 66 and 67 as the only way to fund education and other essential public services. This is simply not true. The Oregon REALTORS® are supportive of a strong education system and protecting essential community services. The fact is the 2009-11 General Fund budget is $485 million higherThe touted budget "cuts" actually reflect an increase in spending, just a smaller increase than anticipated. The legislature has an array of options (including $1 billion in cash reserves), and could maintain current budgets by using existing state agency cash reserves, reducing personnel costs or potentially pursuing a more responsible, short- term tax measure.   than it was in 2007-09 and includes $259 million in salary increases for state employees.

3) The corporations that pay Oregon's current $10 minimum tax are businesses that have not made a profit or have no taxable income. Businesses that make a profit pay the corporate income tax on those profits. Measure 67 changes the $10 flat fee for businesses that have no taxable income to a sliding scale between $150 to $100,000 -- based on a company's gross sales, not net profits. This new gross sales tax disproportionately impacts high-volume sales, low margin businesses like home builders, grocery stores, restaurants and gas stations. 

In fact, most states have no minimum tax on businesses that aren't making a profit. Among those states that do levy a minimum tax on corporations with no profit, 17 charge an average of $200. All but two of these states have a flat rate minimum, like Oregon's. Only New York and Minnesota have graduated minimum taxes based on total sales, similar to Measure 67. Those two states levy a maximum fee of $5,000. The legislature's proposal would tax companies with no profits from $150 to $100,000 -- 20 times as much for the privilege of operating and losing money in Oregon, giving us the highest corporate minimum or 'no profits' tax in the country.

4) Measure 67 amounts to a 40% total increase in state corporate taxes for 2009-11. The corporate income tax rate will go from the current 6.6% to 7.9% in 2009 and 2010. That's nearly a 20% increase in just one of the three components of Measure 67's corporate tax hike. (Corporate income tax increases, corporate minimum tax increase based on gross sales and corporate filing fee increases.)

5) Under Measure 66, the tax rate goes from 9 to 10.8 % for individuals earning more than $125,000 a year and from 9 to 11% for individuals earning more than $250,000 a year. This gives Oregon the second highest income tax rate in the nation -- higher than both New York and California. Furthermore, according to the Legislative Revenue Office, 66% of tax filers targeted in the personal income tax increase are small and family-owned businesses and farms who report their business profits on their personal income statements.

6) The proposed tax increases would be retroactive to January 1, 2009, and no money to cover the tax increase has been withheld from Oregonians' paychecks during all of 2009.  

To learn more about Ballot Measure 66 & 67 visit:

Ballot Measure 66

Ballot Measure 67

 

For more information about the campaign in opposition to the tax measures, visit: www.stopjobkillingtaxes.com

The economic studies below illustrate the negative impact the new, permanent tax increases pose to Oregon's economy and job market.

William B. Conerly, PhD, a Portland-based economic consultant and former Senior Vice President of First Interstate Bank, estimated the personal income tax increases in Measure 66 would cost up to 36,000 Oregonians their jobs by 2015.  

Taxing the "Wealthy" More Will Cost 36,000 Oregon Jobs

Bill Conerly

Another leading Oregon economist, Randall J. Pozdena, PhD, examined the impact of the business tax increases on Oregon employment.  He estimates that, over a 10-year period, the business tax increases in Measure 67 would cost 22,000 to 43,000 Oregonians their jobs – on top of the 30,000 lost to the personal income tax increases.  These job losses would be in addition to the 131,500 private sector jobs Oregon has already lost in this recession.

Raising Oregon's Corporate Income Tax Rate Will Cost 43,000 Oregon Jobs

Randall Pozdena

The Role of Housing in Recession Cycles

Share

Tweet

This is an interesting article I got from a mortgage banker named Joe Conyard with Prospect Mortgage. I thought the information was quite interesting.

Housing plays a substantial role in the U.S. economy. One method of measuring the impact of housing in the economy is to calculate the total amount of capital exchanged in home construction, remodeling, and fees associated with the buying and selling process. Together, this sum is known as the residential fixed investment (RFI). The RFI has averaged 4.8% of the U.S. gross domestic product (GDP) since recordkeeping began in 1947. If you add household-related investments, furnishings and rents to the RFI, the contribution of housing to GDP has averaged about 21% since 1947.

Housing is considered a leading indicator of economic cycles. The housing market will slow in advance of a recession, indicating an economic contraction. Conversely, the housing market tends to expand before the end of a recession. RFI often turns positive one-to-two quarters prior to the end of a recession. In six out of the last nine recessions since 1947, RFI turned positive during or before the final quarter of the contraction.

Most recently, RFI peaked at 6.3% of GDP in the fourth quarter of 2005, the highest level since 1951. RFI fell to 2.4% of GDP in the second quarter of 2009, dipping below the previous low of 3.2% set in the third quarter of 1982. On the rebound, GDP turned positive for the first time in a year in the third quarter of 2009. The RFI increased to 2.5% of GDP. So the current RFI pattern follows the majority of contractions since 1947: RFI was increasing during the first quarter of GDP growth leading out of the current recession.

The latest report for new home sales showed a 6.2% monthly increase. That left the inventory of new homes for sale at the lowest level in nearly four decades. Look for builders to start building soon and the most important component of the RFI — home construction — to increase.

Flying - Not What It Used To Be

Share

Tweet

After two long fights in the last week, it made me think about how much flying has changed over the years.  I remember the days when I used to enjoy flying.  These days however, I can't think of much in life that is more stressful or physically taxing than flying.  Since 9/11, security has become more and more painful, and when the airlines lost all of their money they cut service to the bone!  I remember when you used to get beer and wine for free on international flights.  I also remember when you didn't have to take off your shoes, take your laptop out of your bag, bag up your tooth paste, mouthwash, etc, and everything else you have to do now. Now some of this security is necessary, but some is just a little over the top!  I also remember when you used to get served a meal, or at least a decent snack on 4-5 hour domestic flights.  Gone are these days. 

Still, I think changes could be made to bring it back.  Why not just charge $5 to everyone and start serving sandwiches again?  I wouldn't notice when I'm paying $5 on a $500 plane ticket, but I do notice when I'm sitting on the plane and having to pay $5-$8 for a gas station quality turkey sandwich.  Furthermore, when I was flying back from Pennsylvania last year, we had to pay for water!!!  We're talking about a cross country flight and I have to pay for water?  Come on!  On top of that they only took cash and I had spent all of mine the night before.  At least United only take cards now which makes it easier.  Either way, the service just isn't in flying anymore.

I would also suggest the way baggage is handled needs to be looked at as well.  I understand that bags add weight and thus cost money, but there has to be a better way.  In my experience what charging for bags has done is forced everyone to use huge carry on luggage.  Now instead of checking that bag, they bring the same amount of stuff, and roll it onto the plane in a giant wheely bag.  Now all of the carry-on bins are full of roller bags large enough to hold a body.  Then when I get on the plane, I have to put my backpack at my feet, and thus reduce my 4" of legroom down to 2".  No better way to spend 4 hours than sitting in a seat with your knees to your chest.    

Maybe I should start a new business as an airline consultant.  Like every service industry, it's time to start thinking about things from the customers point of view, not just the bottom line.  I understand it's an industry with razor thin margins, but if you treat people well, they will come back!   By the time I'm done, we'll be eating peanuts, drinking diet coke, and actually enjoying our flights around the country. 

PDX - A Great Ambassador for Portland

Share

Tweet

As I sit here waiting for my delayed flight to Chicago, it makes me appreciate how nice PDX really is.  I sit here in a clean chair, looking at nice vacuumed carpet, and have FREE wifi.  While I'd rather be sitting on my plane moving toward my destination, I have not been in many airports that will keep me as comfortable as PDX.  I think the free wifi is key as it allows me to be productive, get work done, and even keep up with the news while I'm waiting.  There are regional restaurants that don't serve 'fast food', plenty of little shops, and even kiosks.  I still think the thing I appreciate the most is just how clean it is compared to other airports.  On top of that, it seems like the people working here are more friendly and attentive.  I know any person on any given day can can be gruff, but nearly everyone I've talked to here has been more than happy to offer assistance.  If  you are coming into Portland for the first time, or just stopping on your way to somewhere else, I think it's a great representation of our city.  I just wish every airport was modeled after PDX.  It sure would make those 5 hour layovers a lot more tolerable!

Treasury sets guidance to simplify "short sales"

By Al Yoon Al Yoon Mon Nov 30, 6:58 pm ET
 

NEW YORK (Reuters) – The U.S. Treasury on Monday set long-awaited guidance on a plan for mortgage companies to speed "short sales" of homes and other loan modification alternatives to stem a rising tide of foreclosures.

The Home Affordable Foreclosure Alternatives Program provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed, according to an announcement on the Treasury's website.

Guidelines address barriers that have often sidelined short sales by setting limits on the time it takes a bank to approve an offer, freeing borrowers from debt and capping claims of subordinate lenders.

The incentives, first announced in May, expand on the government's Home Affordable Modification Program, known as HAMP, that has seen limited success in lowering payments for distressed homeowners. The Treasury earlier on Monday stepped up pressure on mortgage companies to make permanent the 650,000 trial modifications they have started.

"While HAMP program guidelines are intended to reach a broad range of at-risk borrowers, it is expected that servicers will encounter situations where they are unable to approve" or offer a modification, the Treasury said in its announcement.

Financial incentives for completing short sales or similar deed-in-lieu transactions -- in which the deed is simply transferred to the lender -- include a $1,000 payment to servicers, and a maximum of $1,000 to go to investors who sign off on payments to subordinate lien holders, the Treasury said. Borrowers would receive $1,500 in relocation expenses.

Short sales are favored by real estate agents and community groups over foreclosure because they can preserve the borrower's credit rating and leave the property in better condition than when a homeowner is evicted. While primary lenders typically realize steep losses, their recovery is typically far better than under foreclosure.
But short sales have been frustrating for borrowers and real estate agents, often hung up by negotiations with multiple lien holders and mortgage insurance companies. Real estate agents have complained that sales fall through as lenders bicker over the sales price, what they should receive from the proceeds, and whether the borrower will be held accountable for the debt in the future.

Among requirements, mortgage servicers have 10 days to approve or disapprove a request for short sale, and when done the transaction must fully release the borrower from the debt.

It also prohibits mortgage servicing companies from reducing real estate commissions on the sale, a practice that has dissuaded many agents from taking short sale listings.

In one of the most contentious issues gumming up negotiations between lenders, the guidance caps the aggregate proceeds to subordinate lien holders at $3,000.

Second lien holders in recent months have begun demanding more money from the first lender, seller, buyer or agent in exchange for releasing their claim, agents have said. Because primary lenders would face larger losses in a foreclosure, some subordinate lenders have felt empowered, the agents said.

The largest second-lien holders are Bank of America Corp, Wells Fargo & Co, JPMorgan Chase & Co and Citigroup Inc.

Second lien holders may proceed with a short sale outside of the Treasury program, if they felt the cap was too low, a Treasury official said in October.

"If there was a short sale program that didn't recognize the second lien holder position, it could have pretty damaging consequences for the industry," Sanjiv Das, chief executive officer of CitiMortgage, said in an interview last week.

(Editing by Leslie Adler)