Paulson says mortgage relief plan not a bailout

KANSAS CITY, Missouri (Reuters) - Treasury Secretary Henry Paulson, on the second day of a tour seeking to build support for a government-sponsored mortgage relief plan, on Tuesday said it was not a bailout for people who made bad financial decisions.

"Foreclosures are very costly to lenders and investors as well as harmful to homeowners," Paulson said in an interview on Fox News Channel. "There's no bailout with government money, none whatsoever."

Earlier this month, Paulson unveiled a proposal that would temporarily freeze low introductory, or "teaser," rates on subprime mortgage loans for five years so that some borrowers would not face the loss of their homes when the loans reset at higher rates.

But the Bush administration proposal has met skepticism, with critics warning it may make some lenders wary about future lending because they see the government stepping in to change terms. Others say people should bear the consequences of their bad decisions.

At a meeting with about 200 community members, including bankers, housing counselors and activists, Paulson defended Treasury's role in helping broker the mortgage relief plan by saying that it was only intended to bring market participants together, not to interfere with normal market processes.

"The role of government is to prevent a market failure," Paulson said. "We don't want to do things that would cut off funds (from lenders) in the future."

Kansas City was the second stop in a coast-to-coast swing Paulson is undertaking this week to discuss the program. He later traveled to Stockton, California on Tuesday to address homeowners and real estate professionals alongside Gov. Arnold Schwarzenegger.

Stockton, about 80 miles east of San Francisco, had the highest foreclosure rate of any U.S. metropolitan area in the third quarter, with one foreclosure filing for every 31 households in the three-month period, according to RealtyTrac Inc.

Both Paulson and Schwarzenegger acknowledged that the mortgage modification program would not help all of those who are facing unaffordable rate resets, particularly those who have already missed payments and may be facing foreclosure.

Focusing on those whose loans can be modified would "take out a big chunk of the problems," Schwarzenegger said.

"We can't help everybody, but we can help most of the people that really need the help," the governor said.

NEW FED RULES

In a move to avoid a repeat of the loose lending standards that have put many American homeowners at risk of losing their homes, the Federal Reserve Board on Tuesday proposed new protections for subprime borrowers

Under the proposal, U.S. lenders would have to determine borrowers can afford a mortgage before making the loan. In addition, borrowers will get details on their brokers' compensation and be billed monthly for annual charges like property tax and insurance.

The U.S. House of Representatives also passed legislation on Tuesday that would for three years erase the tax bill that many homeowners would face as they struggle with burdensome home loan payments.

Under the legislation, debt that was forgiven in a foreclosure or as part of a loan workout will not be classified as income.

Paulson told Fox that a wave of interest-rate resets coming in the next two years required action, but unlike in the past, it was more difficult for lenders and mortgage holders to negotiate new loan terms, since many mortgages have been split up and sold as securities around the world.

"So what the industry has done is come up with some streamlined procedures to fast-track these modifications to approximate what would have happened under normal market conditions if there was more time," he said.

Addressing the community forum, Paulson described the weak housing sector as the biggest single risk to the national economy now, but he added: "We think and believe we are going to continue to grow."

"Rampant appreciation" in housing markets had created conditions for the current housing slump, Paulson said. "This downturn was inevitable."

(Additional reporting by David Lawder in Stockton; editing by Gary Crosse)

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Key provisions of the Fed mortgage plan

Key provisions of a Federal Reserve plan to protect home buyers from shady lending practices:
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_Restrictions on penalties for paying off a mortgage early.

_Requirements to set aside money to pay for property taxes and homeowners' insurance.

_Showing proof of income when seeking a home loan.

For both risky and not-so-risky borrowers, the Fed proposed:

_Prohibiting certain types of misleading or deceptive advertising for home mortgages. For instance, it would bar using the term "fixed" to describe a rate that is not truly fixed over the life of the entire loan. It also would require that all applicable rates or payments be disclosed in ads with equal prominence as advertised introductory "teaser" rates.

_Requiring lenders to provide financial disclosures to borrowers early enough for them to use while shopping for a mortgage.

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Check around before considering a reverse mortgage loan

Major changes are taking place in the reverse mortgage industry. And with its rapid growth during the past year or so, it certainly has become an industry.

First the basic definition: A reverse mortgage is a loan against the equity in the home owned by a senior individual or couple. In most cases the owner(s) must be at least 62 years of age. The loan provides monthly income for the owners, usually for the rest of their lives, or until they sell or move from the property. It can also be taken as a lump sum, line of credit or combination of those options.

For years there have been three primary reverse mortgage plans available — Federal Housing Administration’s Home Equity Conversion Mortgage, Fannie Mae’s Home Keeper plan and the Financial Freedom Cash Account. The plan’s concept has become more popular in recent months and years with senior homeowners. This has motivated many of the nation’s large banks and mortgage lenders to start offering reverse mortgage products.

Some of those lenders are trying to edge out competitors by lowering their fees and increasing their payouts. This will probably upset some borrowers that have already committed themselves to more costly
programs.

One lender has reduced the minimum age requirement to 60. Others are making loans on second homes, and are offering jumbo reverse mortgages for high-end homes valued up to $10 million.

The key reasons for the growing activity in this area are twofold. First, cost of living continues to grow while seniors are often living on fixed incomes. They need the extra monthly income to meet their rising financial needs. Also, there is a growing number of senior homeowners, with baby boomers now reaching retirement age.

These factors raise the antennas of banks and lender firms. They see it as an opportunity for a new and lucrative profit center — one that will undoubtedly grow in coming years.

One of the problems created by all the new firms jumping on the reverse mortgage wagon is more confusion for prospective borrowers. It was puzzling enough before the recent developments, but now it can be downright frustrating to seniors studying the various plans and trying to determine the one that would best meet their personal needs.

The reverse mortgage plans always look great when discussing it with a representative of a firm. One point those reps don’t like to focus on more than necessary is the fees, normally paid upfront. They can be very high, often 5 percent of the home’s current value or more. They can be rolled into the loan amount but will ultimately have to be paid with interest.

Q: When will it be a good time to buy real estate again?

A: The next 18 months will be a particularly good time to buy real estate, according to Jim Wagner, an attorney specializing in real estate investments and retirement planning issues. He notes the following reasons:

Home construction starts are now at the lowest volume in the past 14 years. Foreclosures are on the rise, providing many good buying opportunities. Inventories of available homes are at a high volume. And housing prices are declining in most markets. He also noted that mortgage interest rates remain at historically low levels. He recommends the use of a self-directed retirement plan.

“The ability to access IRA monies to purchase foreclosed homes or other properties, or to offer private loans when credit is tight, puts the self-directed IRA holder ahead of the game,” Wagner said.

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Be sure to ask if house purchase will incur homeowners association fee

Q: I had a couple ask me to find a home for them that did not have any sort of fee that had to be paid to a homeowners association (HOA).

I found a house they liked a lot, so I asked the listing agent (it was a property that had been foreclosed upon by the lender) to look into it. He supposedly did his research and came back and said there was no HOA fee.

I also asked the title search officer to look at this issue before the house went into contract, and she also said there was no HOA fee. The only association that came up was one for the contractors for the development.

My clients purchased the home. Last week they called and said they received a statement for their HOA dues for $30 per month.

Should that have come up on the title search with the escrow instructions? Now what do I do? My clients are upset.

A: To the best of my knowledge, an HOA should have come up on a title search. For most associations, the HOA is allowed to collect assessments by virtue of the rights given to the association in the association documents. These association documents are generally recorded against all the titles to the homes in the subdivision or community.

The title search office may have made a mistake. In any event, the existence of a HOA should have been disclosed by the seller, even if the property is being sold to you by a relocation company.

Still, this is something you should have found out a long time ago.

One easy way to determine if there are dues owed to a HOA is to see if there are any common areas or amenities that can be used by the home your client was buying. If the development has a clubhouse, shared playground or other common amenity, and after asking around you find out it is not managed by the town or city or other municipal government, then it’s likely that monthly or annual fees from the homeowners must be paid.

You should have knocked on a few doors to talk to other homeowners who lived in the development so you could get some first-hand information. Other listings in the development from current or past sales may have disclosed the amount of the fees. But if you just relied on what other people told you, and they were less than forthcoming, it’s not hard to see how you’ve wound up in this difficult situation.

That’s not a great way to run your business. It’s no wonder that your clients are upset.

If your clients want to explore legal options, they should talk to a real estate lawyer or litigator. In the meantime, your clients should check the documents from their closing and see if the title work showed any documentation regarding the association. If there were documents that disclosed the existence of the association and its ability to collect fees from the homeowners — whether your client’s decided to read it or not — they are on the hook to pay those fees. If the title company missed the document, the title company may have some responsibility for the error.

However, it sounds like you really didn’t do the homework your clients relied on you to do. In this respect, you failed them and they are now paying the price.

Q: My husband and I are currently in the market to buy a home. At this time, we don’t have a buyers’ agent.

My husband is an experienced mortgage broker, and he feels he can handle the negotiation of a contract since he also has access to a real estate attorney. Do we need a buyers’ agent or not?

A: The question you have to ask yourself is this: What do I gain or lose by using an agent to buy a home, and what do I gain or lose if I don’t use one?

Here are the reasons to use an agent: You’ll work with someone who really knows the housing stock of a particular area, and has seen the houses get listed and sold with some regularity. This individual will ideally be well versed in the goings-on in a particular neighborhood, and will be up-to-date on information about school districts, local public works projects that have been approved but perhaps have not yet begun, and other important quality of life issues.

Ideally, your agent will be scouting out properties for you to see that meet your needs, which will save you time, and will help you figure out whether you can afford many of your wants in the current marketplace. Your agent will also hopefully know the listing agent, or at least have a working relationship that allows your agent to find out what’s really going on behind the scenes with the seller, that can help you formulate your negotiation strategy.

What’s the downside to using an agent to buy property? I can’t think of too many. The money to pay the agent comes from the seller, so you shouldn’t have any out-of-pocket costs. You have the agent’s fiduciary duty to get you the property for the best price possible.

What happens if you don’t use an agent? Many buyers think they’ll get the house for less. But that isn’t often the case because sellers who are selling by owner already know that they can save 4 to 6 percent by not using an agent. They’re planning on keeping that cash themselves.

If you come to the table without an agent, the seller won’t necessarily give you a better price and the listing agent may not have an incentive to reduce his or her commission to make the deal. If you negotiate the deal yourselves and you have a tough negotiation, some might say you won’t have someone helping you remove the emotions from the transaction. Frequently, real estate agents are the ones that are able to make a deal happen.

But I really think this question comes down to money. You and your spouse, like so many buyers, think you’ll get a better deal on your own. I’m not sure that’s true.

Saving that money will depend on the area in which you live, the type of home you are buying, the community you are buying in, and the number of homes available for sale in that community.

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Grow veggies in the winter with a greenhouse

I have wanted to build a greenhouse on the back of my garage for many years. I plan to have some of it about 3 feet below ground to help insulation; therefore, the roof to ceiling height can be taller without needing as much glass. In the back of my mind, I have figured out many of the details on how to do it, but I am worried that it was a little bit unconventional to have it partially buried in the ground. I haven’t started digging because the location is close to a silver maple that would probably have to be cut down. Removing the tree would open up a large area of my landscape to more sun for better vegetable gardening.

I am less afraid of building the greenhouse now that I have a new book, “The Earth Sheltered Solar Greenhouse Book.” It describes how to build an energy free year-round greenhouse. The author Mike Oehler also wrote “The $50 and Up Underground House Book.” He has many years of experience living in and building homes and greenhouses in northern Idaho, where the winters are so cold most people would expect them to be heated with expensive fossil fuels.

He is in the part of Idaho near the Canadian border, but he is able to keep growing tomatoes into the middle of December, as well as kale and other more cold tolerant vegetables through the winter without additional heat. Following his advice and the principles in the book, most of the country would be able to grow warm weather plants like tomatoes through the majority of winter, if not year after year. Adding a little heat would keep crops alive all winter; his design would save a lot on the heating bill.

The book is written in an easy to read style. Oehler freely admits to design flaws and errors that he found through trial and error, but because he has been doing this since the 1970s, he has also discovered what works well. The reader should not be put off by pictures of some eccentrically built structures with odd sized materials. The basic information found throughout the book is sound.

The next book also includes practical garden wisdom. Niall Edworthy has gathered quotes, facts, recipes and trivia from all time periods and all regions of the world in “The Curious Gardener’s Almanac.” Even though the book has an English author, the book is not specifically oriented toward the British gardener. The book is not meant to be read in one sitting, but does make delightful reading in small bits here and there.

Here are a few things I found as I read: Americans eat 30 pounds of potatoes a year, including about 8 pounds of French fries. The wheelbarrow was invented as a military transport tool by the Chinese in about 200 A.D. There are more insects in a square mile of rural land than humans on the whole Earth. Insects eat about a third of all food crops grown. The Greek word for the herb fennel is marathon; it was used by Greek soldiers to build stamina and courage.

Golf clubs used to be made from apple, beach, holly and pear tree wood, and drivers are still called woods. Clarinets and other wood wind instruments may also be made from pear wood.

The book is broken up into chapters for easier reading.

The last book you should consider is the “Organic Lawn Care Manual” by Paul Tukey. It could just as easily have been titled “Just Say No to Lawns on Drugs.” Tukey describes the benefits to using an organic lawn care system without only using an organic product.

The book describes how a landscape based on organic soil that is alive won’t use or need synthetic fertilizers that can kill microorganisms.

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source: timescall.com