Like this news item, in an article in the Wall Street Journal written by James Hagerty, which covers the Department of Housing and Urban Development (HUD) introducing new forms and procedures to be followed at settlement “because ‘many people made uninformed decisions’ in taking out loans.’”

While I will agree that is the basis of many of our current mortgage related problems, putting the new “solution” to the problem at the settlement table shows a complete lack of understanding of the process. HUD needs to be more proactive and regulatory about the way the loan officers and mortgage brokers *sell* the loans on day one. By the time we sit down at the settlement table four or six weeks later, too much money has been invested, too many plans have been set, and the moving vans are waiting at the doors. To think that a buyer is going to be able to stand up and stop the entire process at that point without an enormous disruption and legal proceedings commencing proves that they just don’t get it.

Regulation has its place. And unless HUD is willing to step in and look over the shoulder of the loan officer during the loan application process, the root of the problem is not going to be addressed.

Replacing the old HUD-1 form could be a blessing if the new form is less confusing than the old one, but somehow I’m skeptical that it will be. Like I said, they just don’t get it.

The real estate industry has been warning the government of Baltimore City for nearly a decade that the city’s rebirth, growth, redevelopment and repopulation are seriously jeopardized by the enormous difference in property taxes between the city and the surrounding county. City residential property taxes MUST be lowered, substantially, in order to bring residents back from the suburbs and keep the new residents within the city limits.

But this revelation — that they COULD be substantially lower if commercial property taxes were brought more into parity — is especially galling. The Sun opinion piece used three adjacent rowhouses on Park Avenue in Mt. Vernon as an example. These three houses were constructed simultaneously and have significant interior space. One is residential condos, valued together at $830,000 for tax purposes. The next two are residential rental apartments. So on the surface, you’d think that they should have similar values. Yet one is valued at $309,100 and the other is valued at $231,800. No where close.

Now, I know that rental apartments are probably not in as good condition as a renovated, condo conversion. But certainly those buildings in their current situation are worth more than THAT. The authors of the essay have researched the disparity and estimated that in the last six months of 2007, the “average underassessment” of 118 commercial properties that changed hands was over 23%, which would add up to nearly $75 million that the city is NOT getting. That’s only on 118 properties!

The Mayor may not be in a political position to piss off the commercial property owners given her own troubles right now, but certainly the citizens and the City Council should take note of this and demand action to take the political heat and spread it around a bit. Otherwise the citizens would be justified in rising up to force the issue.

Who is right in this battle of opinions can make a huge difference to the American economy. If Professor Case is correct and we are at or near the bottom, losses in mortgage foreclosures should stabilize somewhere around $500 billion. If prices come down another 10% that can boost the total losses in the mortgage fiasco to nearly $650 billion, which could have a significantly more serious effect on the national gross domestic product and the continued sick health of lending institutions. We need to hope that Professor Case got first billing for some substantial reason, and that he turns out to be correct.

The event co-sponsors are the National Community Reinvestment Coalition (http://www.ncrc.org/) and the HOPE NOW Alliance (www.hopenow.com).

This is a unique opportunity for families and homeowners facing foreclosure or late on mortgage payments to meet in-person with professional financial advisors and representatives from the nation’s major lenders. Full details are as follows:

What: “Save the Block Party” Foreclosure Prevention Workshop

www.savetheblockparty.org

Questions and Directions: 1-800-846-0140

When: Saturday, September 13 2008 – 10:00 a.m. to 6:00 p.m. EST

Where: Watkins Regional Park, 301 Watkins Regional Park Drive, Upper Malboro, MD 20774

Lenders: Representatives from most of the nation’s leading lenders

RSVP: First-come, first served – arrive early, space is limited! Suggested early arrival two hours BEFORE the event begins without reservations.

Homeowners who need help, but are unable to attend the event, are encouraged to:

· Contact the HOPE NOW Alliance at 1.888.995.HOPE (4673)

· Contact their lender directly

· Access free information about options and alternatives to foreclosure at www.HomeSafePMI.com

Background:

According to a January 2008 study published by Freddie Mac, fewer than 50 percent of homeowners contact their lender prior to entering foreclosure. PMI Group’s non-profit workshops have successfully helped hundreds of families to keep their homes with specialized mortgage workout programs and unique financial arrangements.

In a casual, sit-down conference with a lender, homeowners can find solutions to foreclosure they often are unaware may be available to them.

The Journal reported that the worst states in the nation continue to be Florida and California, along with Nevada and Ohio. Second tier problem states included Maine, Rhode Island, Michigan, Indiana, Illinois and Arizona. All of these states had rates of foreclosures above the national average of 2.75%. The Mortgage Bankers Association reported that nationwide,  among mortgages on one-four family homes, over 9% were at least 30 days overdue or in the foreclosure process, up from 6.25% a year earlier. It was also the highest level since the Association started collecting figures 39 years ago.

Maryland, while not among the most troubled states, still has growing issues. Among these same “strong” borrowers, while we are among the states at or below the 2.75% rate of loans in foreclosure, the rate goes up to 4.3% when you include those who were at least 30 days late in their payment, according to the Sun.

Maryland looks worse when you turn to look at the sub-prime loans. According to the figures complied by the Federal Reserve Bank of Richmond (whose district includes Maryland), 5.84% of owner-occupied homes have sub-prime loans. Of those households, a troubling 10.55% are either in foreclosure or have already been foreclosed upon, and those houses are now sitting on the market for sale. Within the state, Prince George’s County is identified by the Fed as having the worst foreclosure problem. Other secondary foreclosure clusters pop up in sections of Baltimore City.

Fortunately there are blurbs of good news. On September 9th’s edition of PBS’ Nightly Business Report, the CEO of Coldwell Banker Real Estate confirmed nationwide what I reported a few days ago from my own experience — activity in the last few weeks has picked up in real estate offices around the country. With the bailout of Fannie and Freddie expected to make mortgages more affordable and hopefully easier to obtain, at least for a few months, we should be able to work out of some of the excess inventory and stabilize home prices. Not a moment too soon.

And in mid-August, the large new-homebuilder — Toll Brothers, Inc. — publicly released statistics that were some of the most hopeful we’ve seen in two years. Their quarterly guidance talked about a declining rate of cancellations, and signs of “growing pent-up demand” from people who have delayed buying while the market was crashing and financial institutions were imploding. (Wall Street Journal, August 14)

We’re not out of the woods yet, as today’s continued bad news from Freddie and Fannie clearly remind us, but its nice to see both local and national signs that we *may* finally be bottoming out.

A recent headline in the Wall Street Journal — page one, above the fold — said it all. “Greenspan Sees Bottom in Housing, Criticizes Bailout.” Ouch.

Now, I’m pleased that someone of Mr. Greenspan’s reputation sees the end of this coming in the next few months — actually sometime in the first half of 2009. (I think Baltimore is in the process of seeing it now, but that’s just my opinion.)

The real knife in the back came later in the article where Mr. Greenspan takes issue with the entire Fed-backed, Treasury-backed bailout of Bear Stearns and Freddie and Fannie. The two mortgage giants, the Government Sponsored Entities (GSEs) Fredde Mac and Fannie Mae, should have been nationalized, he argues. Shareholders should have been wiped out, assets taken over, and their function split up into as many as ten separate entities and then sold off to individual investors.

Ya know, at this point, I don’t think that TOTAL reliance on the private marketplace would reassure ANYONE. After all… wasn’t it the private marketplace that got us IN to this mess in the beginning?

In a survey taken by the National Multi Housing Council (as reported in The Real Estate Professional, a trade magazine), the owners of the nation’s largest apartment buildings are confirming that occupancy rates remain high and that the number of tenants moving out to become homeowners is very low. More than 80% reported a significant decrease in the number of renters leaving to purchase their own home.

But the number of tenants moving from investor-owned properties into larger professionally managed buildings has increased, most likely because of rising foreclosure rates on investor-owned buildings.

Obviously, for the housing market, this isn’t good news. New homeowners coming into the market are the ones that allow current homeowners to sell and move up, setting off the domino chain reaction into bigger and more expensive houses. Government policy makers who are looking for ways to shore up housing need to take a look at this statistic and work on encouraging the renters to take the leap.

That’s about the only conclusion you can draw from the result of a recent poll by Harris Interactive, commissioned by our old friends at Zillow.com. They got answers from 1,361 homeowners across the country, and (as reported in a recent Wall Street Journal) a whopping 62% of the respondents thought that the value of their home had actually increased in the previous 12 months.

That’s right. INCREASED.

Never mind that Zillow’s own terribly flawed and unreliable data (see one of our previous posts) shows that 77% of all homes in the US depreciated in value over the same time period. The poll was conducted between June 30 and July 2, 2008, so maybe people’s brains were just overheated from hot summer weather. But 56% of the respondents also said that they would be spending money to improve their “more valuable” properties over the next six months.

The “can’t happen to me” psychosis gets even deeper when you probe the public attitude toward the foreclosure crisis. Even though 90% of the respondents knew that foreclosures were occurring in their local market and 80% felt that the rate of foreclosures would remain steady over the next six months… a full 48% of them opposed government efforts to assist such homeowners to stay in their homes.

What should those of us in the industry make out of such “Twilight Zone” attitudes? We will have to try harder to educate potential Sellers, and perhaps take them on preview tours of the competition to fight the idea that their property is the “best in the neighborhood.” Like addicts coming off of a pretty good high, homeowners still aren’t ready to go “cold turkey” and realize that real estate investments sometimes go down. Including their own. We can either support their addiction and continue to list properties at unrealistic prices, or be the ones to stage an intervention and tell them the truth.

I think our Code of Ethics compels us to be the truthteller.

A recent Wall Street Journal article reported the success of two developers in the Pacific Northwest who have taken to designing 1,000 square foot cottages, on small town-size lots. Over the last ten years, these pioneers have made a good deal of money building about fifty Craftsman-style cottages, ranging anywhere between 800-1,500 square feet. Think 1920s-style “bungalow courtyards.” These homes, all within a comfortable commuting distance to Seattle, were built in various communities and surrounding a “commons” shared by all the residents.

They can’t build them fast enough.

Who is buying these? Certainly NOT first time homebuyers, since they are significantly more expensive per square foot than the usual tract mansion. In many cases, they are refugees from the modern American suburb, willing to downsize significantly to be able to buy into a real community, where people interact with their neighbors and they can lessen their carbon footprint. Not to mention lowering their energy usage and utility bills.

Builders in other parts of the country are taking notice. Boston and Indianapolis are on track to get similar developments in the coming months, as the children of the baby boom start to look for new ways to organize society and step back from the expansive post-WWII style of suburbs that chew up forest and farmland at ridiculous rates, cause an expansion of utilities and infrastructure that become expensive to maintain and use, and cost time and money in commuting longer distances.

If this disruption in the housing market and the concurrent rise in energy prices can have the effect of making dramatic changes in the way America houses its population, then perhaps some of the pain will have been worthwhile.