Open Discussion Thread
I've got a strange schedule today so unfortunately I won't be able to post anything of substance until later today, if at all. Consider this an open discussion thread. Feel free to post links to the most interesting bubble stories you've seen this week, discuss your personal purchase plans... whatever.
If you want a distraction from housing for a few minutes, go check out my most recent post (written yesterday, but posted today) on Seattle Traffic: Traffic Court.
14 comments:
Anyone notice that about 75 "reduced" listings just disappeared off of Ziprealty this afternoon?
They were there this morning, now they're gone.
Faux Down-Payment Charities Raise Home Prices, Foreclosure Risk
by Broderick Perkins
Federal agencies are putting under the microscope the burgeoning cottage industry of home financing assistance programs that set up as a tax-exempt charities and then use sellers' funds to finance buyers' down payments.
The Feds say not only is the tax-exempt scheme illegal, the operations artificially inflate the cost of housing, they undermine underwriting quality and they put home ownership at risk.
That's not all.
"So-called charities that manipulate the system do more than mislead honest home buyers and ultimately jack up the cost of the home. They also damage the image of honest, legitimate charities," said IRS Commissioner Mark W. Everson.
The Internal Revenue Service's "Revenue Ruling 2006-27" explains down payment assistance programs that provide cash assistance to home buyers who cannot afford to make the minimum down payment or pay the closing costs involved in obtaining a mortgage can qualify as tax-exempt organizations under Internal Revenue Code section 501(c)(3), provided they are properly structured and operated.
Seller-funded programs don't qualify if they funnel down-payment assistance from sellers to buyers through "self-serving, circular-financing arrangements" the IRS said.
"In a typical scheme, there is a direct correlation between the amount of the down-payment assistance provided to the buyer and the payment received from the seller. Moreover, the seller pays the organization only if the sale closes, and the organization usually charges an additional fee for its services," the ruling states.
The IRS is examining 185 organizations operating down-payment-assistance programs and advises home buyers to verify an organization's tax-exempt status before using their service.
The "Search for Charities" button on the agency's Charities and Non-Profits website page allows consumers to search through the agency's data base of bona fide 501(c)(3) organizations.
The agency has denied 501(c)(3) status to more than 20 organizations seeking tax-exemption and is examining additional operations asking for the status.
A year ago, the U.S. Department of Housing and Urban Development's (HUD) "An Examination of Downpayment Gift Programs Administered By Non-Profit Organizations" found that seller-funded down-payment assistance has led to underwriting problems and an increase in the effective cost of home ownership on Federal Housing Authority loans.
Underwriters reported to HUD that credit profiles of down-payment assistance clients were inferior relative to other FHA borrowers.
"Risk-layering" practices of allowing maximum ratios, premium interest rates and temporary interest rate buy downs compounded risk associated with the lack of a direct investment by the borrower who purchased a home with no money down.
HUD found that the cost of home ownership and risk was increased by the processing fees charged by the seller-funded programs if the cost to the seller was passed through to borrowers in the form of inflated property prices. In some instances, the higher sales price also led to higher settlement fees.
The use of seller-funding down payment assistance has increased "substantially" in recent years. Approximately 6 percent of FHA-insured loans originated in 2000 received down payment assistance from seller-funded nonprofits, but by 2004 the assistance had grown to about 30 percent, according to "Mortgage Financing: Additional Action Needed to Manage Risks of FHA-Insured Loans with Down Payment Assistance" produced in late 2005 by the U.S. Government Accounting Office (GAO).
Like the HUD report, GAO found that seller-funded nonprofit assistance can dramatically alter the structure of the transaction.
GAO said homes purchased with seller-funded down payment assistance were appraised and sold for 2 to 3 percent more than comparable homes without the assistance, giving home buyers an even smaller equity stake.
FHA requires lenders to inform appraisers of down payment assistant sources, but not that the seller financed the source. Without that information appraisers can't fully consider how the assistance could impact the purchase price or the appraised price.
Again, like HUD, GAO found loans with down payment assistance performed worse than loans without down payment assistance.
Further compounding the buyer's risk, "Our analysis showed that those states where the use of nonprofit down payment assistance, primarily from seller-funded nonprofits, was higher than average, tended to have lower-than-average house price appreciation rates," GAO reported.
Published: May 8, 2006
anon @ 02:34:54 PM
I just read something similar in John Rubino's book How to Profit from the Coming Real Estate Bust.
Check out The Nehemiah Project,
http://www.thenehemiahprojectinc.com/
Something WAy bizzare is happening with Zip today. Don't know if it's a computer glitch or an inventory shuffle or what.
Check this out:
Date...Time.....Zip...#listings..#reduced
May24.........98105......70........8.....
May26...10AM...."........90........17....
May26...12PM...."........70........16....
May24.........98115......95........18....
May26...10AM...."........137.......17....
May26...12PM...."........90........14....
May24.........98125......68.........9....
May26...10AM...."........95.........8....
May26...12PM...."........61.........8....
Anyway, the jumps were so huge that I went back a couple hours later to double check. Who knows what happened. It's first though.
Same thing happened in other WA towns, not just Seattle.
I have noticed that zip consistently has fewer listings per area than other companies (usually by 20-30). Maybe for one brief moment they had all the available listings and then they got taken away again?
So there you go Anon, I saw it too, but don't know what to make of it.
Thanks for the article on the Downpayment investigations. I'm hoping this is the tip of the iceberg as far as investigating squeezing people into properties they cannot in reality afford to buy.
IMO that is what is driving up the price of homes- all the funky tricks to get people in.
The network news is starting to report a bit on people whose ARM loans are adjusting. Payments going from 1200 to 2000 a month, etc.
Regarding the inventory shuffle - the "reduced" listings dropped sharply - like 20%
Meanwhile the regular listings increased by a handful (normal).
Looks like a glitch, or a re-listing stampede is going to hit in the next few days.
Also, the main reason Zip has fewer listings is because they remove them as soon as they go pending or contingent.
When friends bought and sold, the units were off the zip site hours before they called to tell me they'd pulled the trigger.
Yes. Zip does remove things the second there is the slightest indication that it might sell in the future (ie. STI, contingent, etc.).
I love it when properties deleted from Zip show back up again a couple months later. Usually contingencies that fell through.
Gives me a lot of hope to see how many people out there MEANT to buy or sell but couldn't quite pull it off.
S Crow,
Thanks for the heads up about Mr. Dunn's blog. I've even added it to the sidebar because I'm such a good sport. Mr. Dunn emailed me a while back and said that he "wasn't trying to spam" and that he "just wanted the information to get out to people who
were following different threads."
The big point he wanted to make?
"Major markets in California have an income/price ratio almost twice that of ours here."
I guess I must have forgotten the time when I (or anyone else here) claimed that Seattle was in just as much of a bubble as Los Angeles or San Francisco.
Oh, and then he closed his email with a delightful attempt at a slam:
"If you don't find that fact significant, then there is no possibility of rational dialogue between us."
I'm hurt. Really.
Tim Dunn, Realtor, is an an eminently rational man. hehe
What I find interesting about bubble psychology in Seattle is it boils down to:
Many jobs forecast = no bubble.
It takes on such a simplistic view that it's almost laughable. It totally ignores:
50% increase in foreclosures in the last month.
Highest cost of living according to Forbes.
51 % of all mortgages are ARMS according to Business week.
Rents are ~30-50% less than what it cost to buy an equivalent house.
One of the most expensive housing markets in the country with a median home price of ~$420,000, making it a top 25 (with California pretty much all of the top 10).
-9% inflationary impact on salaries in real-terms making it second to last of all cities for inflation impacted salaries (this being the primary reason it's the most expensive city to live it).
Many new homes being built.
Many layoffs in recent weeks (850 at WaMu in Canyon Park, 300 at Merit, several offices closed at Ameriquest, etc.)
Low or below expected earnings at many big companies...i.e. Microsoft posted a weaker than expected quarter, Amazon fell 30% short of expectations.
The reality is that Seattle is every bit as much of a bubble locale as any other city (except for areas of Florida, Phoenix, San Diego, and Boston). It's definitely a top 20 bubble city. Once things make a definitive showing of slowing down, you'll see news reports that state the obvious, i.e. Seattle is in a bubble.
you can add to all the seattle destracting factors the crapp weather that makes
Memorail day til the July 5 rainy at least 75% of passing years. People enw to the area dont often get that. This place sucks as far as weather is concerned.
Well, mild winters, but we havent got over our clouds quite yet. Bottom line, it isnt worth it.
from a Soprano episode:
Tony: Have you ever known anyone who committed suicide?
Janice: Tony, I lived in Seattle.
WA is the mass murderer capital of the world I think. What the heck is going on in this state?
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