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Regardless of your political leanings and regardless of your economic philosophies, much of the country will see continued rise in foreclosures for 2010, if we stay on the path we are currently on. A jobless recovery, isn’t a recovery!

The first problem is reduced tax collections. As many states are already noticing, they have brought in far less taxes than ever before due to the recessed economic conditions the country faces. These reduced tax collections will only put greater strains on these States budgets and therefore a reduction of State Government will be imminent. A recent example of this is the 25 states that have run out of unemployment insurance and are now borrowing upwards of 24 billion from the Fed in interest free loans. Even though they are borrowing the money, many states will have no choice but to reduce unemployment benefits to individuals so that they will have money to cover the expected increased number of the unemployed.

Secondly, a reduction of unemployment benefits does nothing to help individuals maintain homeownership. Many, if not all Loan Modifications are now considering unemployment benefits as income. This was a necessary change in strategy because of the Government mandate to keep 500,000 people in their home by end of 2009. In other words, banks and lenders had to lessen their lending guidelines to consider unemployment benefits as income in order to stay in lock step with the White House Mandate to “save” 500,000 homeowners from foreclosure. With less government subsidy in the form of unemployment insurance to individuals we can expect one of two outcomes. Either the government wises up and stops putting these politically motivated mandates on our lending institutions and gives them the autonomy to handle these situations as they deem best or, we can expect more mandates, more government influence, more subsidies and in return higher taxes to pay for it all.

Thirdly, we have got to reduce the Loan Modification Default Rate. It is no surprise to me that people default out of loan mod’s by 73-76% in 3-6 months. I am surprised when people can’t seem to figure out why this is happening. In my experience, the majority of these loan mod defaults is because of reduced or completely eliminated standards in order to be approved for a loan mod in the first place. When we reduce or eliminate any standard to be approved, we deceive ourselves as to the real financial picture of the homeowner and ultimately are only delaying the inevitable. The proof is in the numbers, how can any one call a 73% default rate a success………?

Fourthly, we need to have a reduction of Government interference. To gain a true appreciation for less government influence, I challenge each and everyone who reads this blog to take a very close and critical look at the Community Reinvestment Act of 1977. Back in 1977 Congress passed this act in an effort to reduce discriminatory credit practices against low-income people. It was this Act that introduced Sub-Prime to the country. It has gone through several changes in it’s time, most notably in 1989 when George H.W. Bush, after the S&L Crisis, agreed with Congress that more PUBLIC oversight of lenders was necessary and they introduced CRA Ratings. This allowed special interest groups to basically grade lenders and banks as to how well they provided lending to their local communities. These ratings had consequences so, if your bank got a low grade they were penalized with inspections, fees and direct government interference. Ben Bernanke himself said, “This law greatly increased the ability of advocacy groups….to perform more sophisticated, quantitative analyses of banks’ records, thereby INFLUENCING THE LENDING POLICIES OF BANKS.” Who in their right mind wants an advocacy group or anyone else for that matter greatly influencing your banks lending practices? Does this sound right? Needless to say, the CRA went through a couple more changes, giving more and more power to special interest and in return, forcing banks and lenders to loosen or even eliminate credit standards, remember the NINJA loan, No Income No Job, Accepted. My point is, less government influence because government influence comes with special interest and that is corrupt!

Fifthly, we need to reduce small business operating cost. Small business counts for almost three quarters of business in America. If we can reduce the cost burden on these businesses we leave more money in their pocket. More money in the pocket of a small business gives them financial security and with that comes innovation, higher pay, increased benefits and increased production. I believe that if given a choice, most people would rather have a job than a government check.

Sixth need is a reduction of housing inventory. Price’s will only go up when we have less supply, even if the demand stays the same. You don’t reduce inventory by keeping people who can’t afford the home, in the home. Have we not learned this lesson yet? People who can’t afford the home need to go through a disposition method that gives them an incentive to protect the asset / home and gives them the ability to obtain temporary housing or an apartment. Some banks are doing this now in the form of Cash for Keys negotiations and Short Sales but, in my opinion, it isn’t happening enough.

In the end, just changing one of these 6 points I made would have a huge impact on housing for 2010. I hope we, as a Country, wise up and make the changes necessary before we go down a path of imminent bankruptcy… is possible.

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Comment by Richard J. Allen on January 5, 2010 at 10:25am
Great post Jesus!

You mentioned "we need to have a reduction of Government interference." I would add another point to this section in that the government is pushing lenders so hard to modify loans that lenders are NOT completing foreclosures in my area! Many foreclosures go all the way to auction and are postponed sometimes up to nine months! The number of mortgages in default more than 90 days conitnues to increase while the number of REOs has dwindled away to almost nothing. We have a HUGE mess in the near future.
Comment by Albert W. Jackson on December 31, 2009 at 7:44am
Thanks Jesse. The clarification did help me understand better, and for the most part, I have to agree with you.
Comment by Jesus (Jesse) Gonzalez on December 30, 2009 at 5:27pm
To clarify my opinion on government interference, let me explain in detail. It may be easier to understand my point if I elaborate on what I see as negative interference.

When one branch of government does everything it can to supersede the protections of another branch because of political motivations, this is government interference that our country should not tolerate.

For example, Presidential appointees that don’t answer to anyone but the President is wrong and not constitutional. More to the point, when these appointees have oversight of huge budgets and are able to require the private sector to participate in programs that are detrimental or failures for the sake of winning votes is wrong. This practice has gone on for many years, with many administrations both, Republican and Democrat alike, this fact doesn’t make this practice right.

Members of Congress who provide power to special interest groups, this again is wrong and not constitutional. When our Congress decides to give certain groups of people the right to score, rate, or provide any opinion on private industry with the authority to enforce penalties……..this is wrong! To be specific, Google the Community Re-Investment Act and learn for yourself.

The use of power to steal private homes to give the land to private industry, I got one word…..CRIMINAL!

Now, those are some examples of when I feel Government is playing a role it shouldn’t, so now let me tell you when I think Government plays a good role.

The drafting, debating and passing or failure of laws through Congress and not SEIU. When these laws protect consumers from fraud or unethical behavior this is a good thing.
Comment by Albert W. Jackson on December 30, 2009 at 4:45pm
2010 is going to be challenging, like 2009 wasn’t?-lol, but maybe I’m not understanding what’s meant by government interference? I know I’d be completely against a government takeover of any business just for the sake of taking it over. Yet I think it would be somewhat naïve to believe that without our government’s laws/ rules/regulations/enforcement, each business-whether small or large- would par take in ethical and legal endeavors just because they should. We have many examples such as Enron, Arthur Anderson, WorldCom, etc.. to prove this point. Now I’m not saying the government always has the correct answer in correcting the problems however I do see that there is now an attempt at proactively addressing an issue (weather right or wrong) in comparison to just allowing the predators the ability to consume until their full and than trying to clean up afterward. To really ensure that 2010 is a prosperous year the focus does need to be on getting people back to work, but in addition to getting employees back to work, employers need the same if not better access. That’s access to cash and to more markets in a competitive environment where those businesses can sell their products. Now the actual facilitation of this obviously shouldn’t be left up to the government in whole however as dose business, the government will and should have its role. People getting back to work for the private industry will ensure a prosperous 2010 for the employees, employers, government and hopefully even us Realtors.
Comment by Johnny Huang on December 28, 2009 at 5:25pm
Banks repaying back government money leads me to believe they are ready either pay off their execs or do whatever they want with their inventory without government intervention. Keep the shareholder's happy is their thinking.

Also with mortgage rates bound to rise, US unemployment outlook not so great, the US dollar will weaken. US investors with cash are predicted to move their money into safe havens such as gold (predicted to rise next year) making them an unlikely candidate to buy US real estate. Hopefully the overseas investors will see this as an opportunity to purchase real estate in the states.
Comment by MeLisa Minter on December 27, 2009 at 7:40pm
Well I think the current Administration is trying to fix a lot of things that were out of hand before they came on board. I agree that a lot of money is being spent on things that could take a back seat for the moment, but the housing issues, modifications, foreclosures...etc., should be at the forefront.

However, I must say that if the banks repay their stimulus money, that will open the door for both good and bad guidlines. The banks will not be mandated and therefore, a lot of the help their obligated to do now will all but cease. No one will be looking out for the little guys.
Comment by Frank Popeleski on December 26, 2009 at 11:34am
I think you hit the high points quite well. I am an avid reader of the Wall Street Journal, and following housing trends in there I see a couple of important things, some of which Jesse has mentioned. Mortgage Modifications are not working near as well a they planned. New Home starts are going to be up and down. The interest rates are going to have to go up at some time. The numbers of adjustable rate mortgage and the interest only ones ar going to hit big time, the latter in particular. There were studies done on slices of these optional payment loans and the % of folks making the minimum payment was threw the roof. What happens when they re-adjust! More to come for sure.

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