By John Voket
TOP 5 IN REAL ESTATE NETWORK, May, 2009-Real estate leaders in some of America’s hardest hit markets in California and Florida are giving a chilly reception to the new administration’s latest economic stimulus initiatives, which are promising to help, but are apparently not delivering. In the meantime, another devastated market in the country’s heartland is applying some out of the box thinking, using funds from a leftover program rolled out under the previous administration to resuscitate severely distressed neighborhoods.
In an April 14 speech updating the progress of his nearly $800 billion economic stimulus plan, President Obama used a biblical reference to illustrate that Americans need to set their sights on long-term goals. Likening rebuilding the nation’s economy to the lesson about building one’s house on firm footing, the President reminded his audience that, “… when the rain descended, and the floods came, and the winds blew, and beat upon that house, it fell not: for it was founded upon a rock.”
For Top 5 in Real Estate Members Heather Lange in San Jose, CA and Inga Wilson in Ft. Myers, FL, that inadvertent real estate reference may have been a little hard to swallow, considering neither are seeing any substantial positive movement in their markets as a result of federal stimulus actions aimed at the housing industry that include:
• HOME Investment Partnerships: $1.5 billion to help local communities build and rehabilitate low-income housing using green technologies. This program is addressing thousands of ready-to-go housing projects that have been stalled by the credit crunch.
• Native American Housing Block Grants: $500 million to rehabilitate and improve energy efficiency at some of the over 42,000 housing units maintained by Native American housing programs. Half of the funding will be distributed to projects that can be started quickly.
• Neighborhood Stabilization: $4.2 billion to help communities purchase and rehabilitate foreclosed, vacant properties in order to create more affordable housing and reduce neighborhood blight.
• Homeless Assistance Grants: $1.5 billion for the Emergency Shelter Grant program to provide short term rental assistance, housing relocation, and stabilization services for families during the economic crisis.
• Rural Housing Insurance Fund: $500 million to support $22 billion in direct loans and loan guarantees to help rural families and individuals buy homes during the credit crunch.
• The highly-touted $8,000 tax credit for qualified first-time home buyers.
The credit is equivalent to 10 percent of the purchase price of the home, for a maximum of $8,000, and is available for homes purchased on or after Jan. 1, 2009 and before Dec. 1, 2009. First-time homebuyers purchasing any kind of home – new or resale – are eligible for the tax credit.
For the program, the Internal Revenue Service defined a first-time homebuyer as someone who has not owned a principal residence during the three-year period prior to the purchase. In the case of married couples, the law tests the homeownership history of both the homebuyer and their spouse.
To qualify for the full credit, single taxpayers can have incomes of up to $75,000 and married couples as high as $150,000. The credit amount is reduced proportionally for taxpayers with higher incomes up to $95,000 for singles, or $170,000 for married couples.
“As I look over this list of programs, I have to be honest. None of this is helping us, and nothing is improving,” Wilson said from her office in Ft Meyers. “I live in the foreclosure property center of the universe – 60 percent of the properties are distressed or REO homes”
Wilson said although most of her clients that are completing transactions are paying cash, those going for mortgages, “are taking six months and then the deals are falling through.”
“I was just saying to an associate that I’ve got $4 million in full price offers on short sales – cash offers – that can be off the books in a month, and I don’t think one of them is going to go through,” Wilson lamented. “People are just walking away from the deals. Banks are taking so long, these properties that have an offer today are going to go into foreclosure if they sit on the books for another four months.”
The only government assistance Wilson was able to define came from Florida State Rep Connie Mack and involved only one of her clients.
“I had a full price cash offer on a property with two mortgages, but this client had taken out an SBA loan so he could save his business- with the SBA lien being attached to his residence,” she said. “Now in this market, here’s a guy who got a full price cash offer that was $100,000 over what the house was worth, and he wanted the SBA lien off the house so he could close.”
Wilson said her client’s payment record on the SBA loan was flawless. “He didn’t want the loan excused – he just wanted to sell the house. He was facing foreclosure and going into bankruptcy, which means both banks would have been out all their money. Thankfully Connie Mack’s office came through for him and got the SBA lien released the day before the closing. But how many other people can get a US Congresswoman to go to bat for them?”
Wilson admitted that while the home credit program may be helping some first time home buyers in her area, “with an unemployment rate bumping against 10 percent, most of these first time buyers can’t get a closing.”
Frustrated over a how the stimulus trickle down is even supposed to be applied in her region of central California, Lange said her clients need some guidance, and they need to see some of the “other stimulus funds that went to all the banks.”
“I’m not sure how these programs are going to get funneled through our government systems,” Lange said.” The biggest issue I’m seeing is getting the lending market to free up money. My buyers are trying to jump through hoops to get their properties – buyers trying to take advantage of REOs and short sales.”
Despite the fact that many of the homes in a qualifying price range for stimulus programs in her region are “pretty roughed up,” Lange said clients are waiting and waiting – and eventually walking away with no deal in sight.
“A lot of times, with REOs, clients just don’t want to take the time required to meet the qualifying guidelines for certain programs. She said while single family homes are easier to get through the loan process, those who might qualify under the programs for more affordable condos are being tagged with extra points up front.
“It’s so frustrating,” Lange said. “Banks are looking for increased down payments for condos or town houses. This seems to be countering the stimulus effort. It’s tough for people to pull together even a 20 percent down payment for a single family home. How are lower earners who are shooting for a less expensive condo going to come up with 25 percent or more to put down?”
“I’m not seeing how any of these programs are going to get brought into the process and made available,” Lange said. “Banks that want to unload inventory are not very open or flexible to programs out there – buyers don’t seem to trust the banks, and banks don’t seem to trust the buyers.”
Still, Lange remains positive.
“My biggest hope is these great programs,” she said, “but speeding up the process is important, so these deals don’t die because they’re stuck in the system.”
In hard-hit Illinois, Top 5 Member Rosemary West of RE/MAX Realty of Joliet said, “since March our market showing a little life, people are showing and some low offers are coming.” West said the first homebuyers are beginning to emerge to take advantage of the $8,000 stimulus tax credit.
“We’ve actually implemented that in our marketing,” West added.
On another front, her home town of Joliet, in partnership with DuPage and Will Counties, are applying funds from a Bush-era program to support first-time homeowners while attempting to breathe new life into the region’s most distressed neighborhoods.
Lois E. Goldman, Housing Finance Specialist for the City of Joliet explained that this funding is coming through a 2008 Neighborhood Stabilization program which was designed to stimulate areas that have had significant foreclosures.
“The city now has the money and is in the process of qualifying, buying and rehabbing properties, as well as taking applications and qualifying buyers. We’re going to do as many as we can, with the top end expenditure at $187,500,” Goldman said. “We hope to do six or more, but then we’ll get program income – the sale of the property will trigger income back to the city via a first mortgage, which will be used to buy more houses. The city is getting $3.5 million of which $2.5 million is designated for purchase and rehabs.”
Nonetheless, West said the program rules may be working against those very people the initiative is designed to assist.
“The money is being used to buy and fix distressed vacant homes that are dragging down the markets,” West said. “The dilemma is we have several applicants, and these buyers who want to get these houses can’t qualify to get the loans.”
West also shared Lange’s complaint, that even deals with “absolutely qualified buyers” that commence with a 20 percent down agreement are getting slammed in the process with some banks suddenly demanding more on the cusp of closing.
“We had a couple call to list their house, and we sold them a new house,” West said. “A week before closing the bank called saying they changed the rules. Now this buyer had a 695 credit score and came up with 20 percent down on a $220,000 house. Suddenly the bank wanted 25 percent down? In that situation, how can they justify changing the rules like that in the middle of the game?”
As this report was being filed, Sen. Mark Begich of Alaska was publicly defending the federal government’s $787 billion economic stimulus package. Speaking before several hundred at the University of Alaska Fairbanks campus, Begich told the crowd April 17 that while the bill is not perfect, it was necessary to head off a “perfect storm” of economic trouble the country was facing at the start of 2009.
Unfortunately for Realtors like West, Lange and Wilson, even rock solid opportunities that could pump up home sales in their ailing communities are being washed away like so much sand because new federal stimulus programs and the kind of responsive administration needed to implement them still seem to be lost out there somewhere in Begich’s “perfect storm.”