The state of California is using $2 billion of federal money up to $100,000 to reduce principal balances of some homeowners. The program will help up to $9,000 homeowners.
So, how is California selecting some of the homeowners? Is this fair to renters and people that actually paying their mortgages. Read the details and get angry.
US taxpayers bail out California homeowners, as banks fail to pay their share
Contrary to what voters were led to believe, California took the unprecedented step this month to give banks and struggling homeowners up to $100,000 in taxpayer funds to reduce underwater mortgages.
Originally, banks and lenders were supposed to pay 50 percent of the cost of reducing the principal for those whose homes are worth less than their mortgage. But when the banks refused, California took the controversial step of paying the entire amount, up to $100,000.
“We thought, you know, 50-50 was much more attractive and we’d have much more traction with lenders, and it just didn’t turn out to work as well as we would have liked,” said Diane Richardson, legislative director of the California Housing Finance Agency.
The program, known as the Hardest Hit Housing Market fund, is part of a $7.6 billion federal effort to help underwater homeowners in 18 states. California received $2 billion. But when banks and lenders who service loans refused to write down even a small portion of the negative equity loans, California decided to use the taxpayer money to pay 100 percent of the mortgage reduction.
Richard Green, a professor of real estate at the University of Southern California, said it’s not what taxpayers signed up for.
“I think taxpayers would be furious at the idea that everybody gets completely off the hook for this,” Green said. “There are people that say, look, I’ve been a renter all these years, I’ve been paying my mortgage all these years, why am I bailing out these people who made a bad decision? I think the politics of it are very combustible.”
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Proprietary OC Housing News home purchase analysis
3800 East LARKSTONE Dr Orange, CA 92869
$675,000 …….. Asking Price
$350,000 ………. Purchase Price
1/28/2002 ………. Purchase Date
$325,000 ………. Gross Gain (Loss)
($28,000) ………… Commissions and Costs at 8%
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$297,000 ………. Net Gain (Loss)
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92.9% ………. Gross Percent Change
84.9% ………. Net Percent Change
6.2% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$675,000 …….. Asking Price
$135,000 ………… 20% Down Conventional
3.70% …………. Mortgage Interest Rate
30 ……………… Number of Years
$540,000 …….. Mortgage
$125,391 ………. Income Requirement
$2,486 ………… Monthly Mortgage Payment
$585 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$169 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$3,239 ………. Monthly Cash Outlays
($394) ………. Tax Savings
($821) ………. Equity Hidden in Payment
$165 ………….. Lost Income to Down Payment
$189 ………….. Maintenance and Replacement Reserves
============================================
$2,379 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$8,250 ………… Furnishing and Move In at 1% + $1,500
$8,250 ………… Closing Costs at 1% + $1,500
$5,400 ………… Interest Points
$135,000 ………… Down Payment
============================================
$156,900 ………. Total Cash Costs
$36,400 ………. Emergency Cash Reserves
============================================
$193,300 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Cost of Ownership Analysis
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$670,000 880 South WOODLAND St |
0.23 miles 4 bd / 2 ba 1,976 Sq. Ft. |
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$700,000 872 South HEATHERSTONE St |
0.25 miles 5 bd / 3 ba 2,102 Sq. Ft. |
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$949,000 13131 HEWES Ave |
0.56 miles 4 bd / 2 ba 1,869 Sq. Ft. |
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$520,000 441 South HEWES St |
0.56 miles 3 bd / 2.5 ba 2,000 Sq. Ft. |
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$499,900 12852 MALENA Dr |
0.59 miles 3 bd / 2.5 ba 2,000 Sq. Ft. |
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$550,000 18701 FAIRWOOD Ln |
0.65 miles 3 bd / 2 ba 1,774 Sq. Ft. |
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$518,900 545 South LORETTA Dr |
0.72 miles 4 bd / 1.75 ba 2,000 Sq. Ft. |
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$699,900 18141 LEAFWOOD Ln |
0.79 miles 4 bd / 2.25 ba 2,099 Sq. Ft. |
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$549,000 13041 ROSALIND Dr |
0.84 miles 4 bd / 2 ba 1,750 Sq. Ft. |
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$625,000 12471 CIRCULA PANORAMA |
0.92 miles 3 bd / 3.5 ba 2,200 Sq. Ft. |
Conventional wisdom states that rising home prices would bring out sellers. Apparently, the opposite is true.
Expectation for Prices to Rise Deters Would-Be Sellers: Survey
After surveying more than 1,800 active home sellers, Redfin found that some of its customers are holding back from selling now because they believe patience will pay off in the form of higher offers for their home.
The survey revealed that 38 percent of respondents plan to wait more than a year before selling their home, while 25 percent said they plan on selling now. About 36 percent of homeowners plan on waiting somewhere between 3 months and 12 months.
“The would-be sellers we surveyed have made it clear that inventory is not going to meaningfully increase any time in 2012, which will limit sales volume gains-and the lift that real estate delivers to the economy this year,” said Redfin CEO Glenn Kelman. “We believe the main problem is not, as conventional wisdom would have it, that people can’t sell because they’re underwater on their mortgage. The problem with sales volume is that most home-owners just don’t want to sell.”
More than a quarter (27 percent) of respondents said now is a bad time to sell as opposed to only 13 percent who said now is a good time to sell. Half of the respondents were in the middle and said now is an OK time to sell.
Most respondents view the market as one that is favorable toward buyers, with 60 percent stating now is a good time to buy and only 3 percent stating now is a bad time to buy.
San Diego homeowner Jane MacKenzie stated, “I’ve carefully tracked prices on comparable homes in my neighborhood, but they have not yet risen to the level at which I’d want to sell; thus my desire to wait until spring 2013 (tentatively) and reevaluate the comps situation. Hopefully by then some of the volatility in the stock market and the U.S./international scary headlines may have settled down a bit.”
Homeowners expressed optimism for future home prices, with 80 percent believing they are bound to get a higher price for their home after a year or two.
The optimism though is somewhat restrained, with 65 percent of respondents believing prices will rise by a little in a year, and just 7 percent believing they will rise by a lot. Twenty-one percent believe prices will stay the same.
With rental prices increasing, almost half (46 percent) of respondents stated they are considering renting out their home instead of selling.
Redfin explained the move towards renting over selling is likely a factor pushing down inventory as would-be sellers buy a new home and rent out their former primary residence.
The biggest concern for sellers this year was the economy (49 percent), followed by short sales/foreclosures (34 percent), financing trouble (30 percent), and the anticipation for prices to rise (28 percent).
Relocation (30 percent) and a life events (30 percent) were the two main reasons homeowners made plans to sell.
The survey was conducted between August 10 to August 15 and included 1,816 people across 20 metropolitan markets.