What are They Doin’ With My Money Now?

The government is trying to come up with some kind of plan to rescue (or bail out) failing mortgage banks and investment firms with billions of dollars of taxpayer's money.

I hesitate to write this because I’m neither an economist nor a politician, however, the banking problems on Wall Street are on everyone’s minds and there is a lot of confusion and misunderstanding. I’ve been trying to read up on it because, as a Realtor, I’m expected to know what’s going on, right? I try… The news is changing so rapidly right now that it’s hard to keep up. Let me give a couple views of what’s happening…

BACKGROUND
Throughout the ‘good times’ of the last decade there were a couple trends going on. It became politically correct to encourage broader home ownership. The Community Reinvestment Act was revised in 1995 to require Fannie Mae & Freddie Mac to devote a percentage of their lending to support affordable housing. In effect, these new rules loosened loan qualifications to allow more people to become homeowners. This was supported by nearly everyone involved because it meant that more homes were selling, more loans were made, and more people were buying homes. It worked as long as home prices continued to rise.

Once housing markets began to slow down and prices started to fall, many of these homes were no longer worth what was owed for them. If the homeowners didn’t keep paying, then the banks were stuck with homes that they could not sell. What was an asset became a liability.

The core of a bank’s business is loaning money, and when their assets are worthless, their ability to loan funds is gone. Therefore, some of these banks are failing. When this happens in large numbers, the government gets very nervous and wants to do something.

BAILOUT TIME?
So, Congress is trying to come up with a plan. The most recent proposal was a $700 Billion ‘bail out’ that would buy up these ‘assets’ that the banks cannot sell to anyone else. This is the core purpose- to take these lousy home loans off of lender’s books. The loans are no longer liquid and no one knows what they are really worth.

Some people are saying that the government could make a profit down the road by buying up these assets and selling them later. This is a possibility, but there aren’t many people that would say that we want the government investing our tax dollars in this. The real goal of the bail out is to stabilize the financial ‘crisis’ so that consumer confidence can be restored- a key factor in the recovery of the housing market or stock market.

If the government does buy these questionable mortgages, it is likely that they will also initiate some kind of ‘work out’ plan to help reduce the number of foreclosures and get homeowners set up with payments that they can afford. After doing this, they hope that the number of mortgages headed toward default would decrease.

ANOTHER VIEW
Some economists say that the banks should be allowed to file bankruptcy. Jeffrey A. Miron, writing for CNN, shares this point of view. He writes, “Bankruptcy does not mean that the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a business that remains profitable.”

Miron also calls the talk about the economy collapsing “ridiculous scare-mongering”. He contends that if these ailing banks go under, then some other company will step up to make the loans as long as there is profit to be made.

FEAR DRIVING DECISIONS
Dave Ramsey, personal finance guru and syndicated talk show host, has his own plan that he’s calling the “Common Sense Fix”. He says that fear is driving a lot of decision-making going on and this is only heightened because of the election and current political climate.

Ramsey’s one page plan includes three things: 1. Provide government-backed insurance for sub-prime mortgages (with strings attached to help restructure delinquent loans), 2. Change the Mark to Market accounting rules and 3. Remove the capital gains tax completely- flooding the market with investor funds, not taxpayer dollars.

It’s clear that there is a lot of fear out there. It appears that our financial systems were built on shaky ground, which is a good reason to be a little skeptical right now. Who do we trust in a time when everyone seems to have political motives or a company to save? Can the same people that guided us into the mess now fix it?

CLEANING HOUSE
Hopefully, the net result of this complex situation is that we do find a solid footing for our markets and restoration of our confidence. Whenever you clean house, it usually gets messy before things get organized again. That may be what we’re experiencing right now.

-Peter

www.NashvilleCityHomes.com

Of Alleys and Septic Systems.

I've learned a couple things about alleys and septic systems that I thought I'd share before I forgot. As a homeowner, you may never run into these problems, but my last two listings have had some unusual issues that had to be dealt with.

A Home Needing A Sewer Line...
The first home was a fixer upper that had been vacant for a couple years. When I listed it, the sellers told me that it had a septic tank. This was unusual since it was located in the middle of town. Apparently, when the sewer lines were installed years ago, the homeowners were not required to connect, though most did.

I knew this would be an issue to anyone that might purchase the home, but in speaking with my broker I learned it may even be required to be connected before it could be sold. To confirm this and get some more answers, I called the folks at the Metro Health Department who said this was true. If the property was sold, the buyer would not receive clean title to it until it was connected to the sewer line.

If the home was not located on a sewer line it wouldn't be an issue, but at this home, the sewer ran right through the backyard. It was an ordeal getting it done, but we got the sewer line finished by closing and it's all behind us now!

Building a Fence in the Alley...
My other recent listing was unusual in that there was an old alley that ran beside the home, in addition to the one behind. This side alley was left from earlier times when they were used for fire truck access. It hadn't been used for years and the sellers wanted to enclose it with a privacy fence.

In cases such as this, the city unofficially allows fences, etc as long as the adjacent homeowners allow it. I say "unofficially" because there are no official documents allowing the fence, and it is still a public right of way. This means if the city ever does need to use the alley, they have that right and they may remove the fence, etc. at without replacing it. The homeowner is at risk for the improvements.

For an alley to be officially closed, an ordinance must be passed that abandons the alley. When this occurs all the adjacent owners dived the alley right down the middle.

You have to have patience in dealing with Metro Government on these sort of issues. You'll probably get transferred to two or three other departments before getting the answers you were calling about. It seems that it has gotten a little better over the past few years as they have greatly improved their website with lots of direct numbers and even email addresses for the people you need to talk to.

I remember getting a building permit for some home remodeling in 2003 and being so frustrated because I could never get anyone on the phone. I'm sure that still happens, but I do see improvement. It is a bureaucracy after all.

-Peter

www.NashvilleCityHomes.com
REALTOR. City Home Specialist.