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April 24th, 2009 9:31 AM by David W. Welch
With only about $100 billion left from the original bank bailout what have we seen from the banks and the Feds? Before I go on with this, let me mention the Feds are expecting tens of billions from banks that are paying back TARP money. Many have said they don't like the strings attached, so did they need it in the first place? Back to my point. With the bailout, banks were able to shore up their balance sheets and started slashing prices on their foreclosed properties. I am not saying the prices did not need to come down, but I have actually spoken to REO agents that have said that they are advising the banks to stop cutting the prices and start signing contracts. I posted on case a few weeks ago where the bank cut the price to my buyer not once but twice and then pulled the property for auction. All they had to do was sign the contract, and they would have had the property sold for $15,000 more than the price they dropped it to for auction. The intent of the TARP funds was to give the banks the liquidity to loan money, instead it was the impetus for them to slash prices on their REO's.
The Feds complain that the banks are tightening lending, but FHA increased their downpayment requirement from 3% to 3.5% tightened up credit requirements and all but eliminated condo financing. The number one government backed financing vehicle (and still one of the easiest loans) has become increasingly difficult to obtain. The condo financing policies have forced condo prices into the realm of ridiculous. On top of the greater difficulty in obtaining financing the most recent appraisal guidelines from FHA, Fannie Mae and Freddie Mac force appraisals lower. The $8,000 tax credit requires first time home buyers to file their taxes to get the money back, but many don't have the cash to close in the first place. The Fed response is to adjust your witholding tax and save up the difference. The problem is that the median wage earner would have to save up for two years to fully save the $8,000, but the tax credit ends November 30, 2009. To really take advantage of this why not make it a downpayment assitance credit. Add to this the inconsitency of the messages from the White House to "buy now", and "prices and interest rates are going to go lower." At least this has begun to turn around into seeing "glimmers of hope", but The Fed has said they want to see rates go lower. If people expect prices and rates to go lower they will wait.
Four steps to clearing this up: 1. Feds buy and hold one million foreclosures, stabilizing the real estate market; 2. Make the tax credit available as down payment assistance; 3. FHA, Fannie Mae and Freddie Mac ease up on the guidelines be prudent not restrictive; 4. Come out with a consistent message that prices and rates are good, and it is the time to buy. These four steps will attack the real estate market issues from both sides by reducing supply, and improving demand by increasing buyers desire and ability to purchase.
David Welch, Real Estate Optimist, Follow me on Twitter