NAR’s Take On The Emergency Economic Stabilization Act of 2008
Well, it’s official. President Bush signed into law the Emergency Economic Stabilization Act of 2008. Richard Gaylord, the President of NAR, stated “This far-reaching and meaningful legislation would go a long way in helping restore confidence in the nation’s financial system. Provisions in the bill would directly benefit Main Street by making financing more available. The legislation would not only help make home mortgages more available, which would help stabilize home sales and prices, but also help families who are trying to secure a car loan or borrow money to send their children to college. It would help protect Americans’ retirement savings and small businesses across the country.”
I sincerely hope that this will be the case. I pray and hope that the money isn’t just destined for the pockets of the executives and brain-trust on Wall Street to develop more ways of fleecing money out of ordinary citizen. I know that many of my real estate colleages resent this law because they feel that they shouldn’t have to pay for other people’s decisions. I can’t blame them…because a vast majority of them are culpible in helping those consumers make those “bad decisions”. I guess my colleages believe that the consumers held a gun to the mortgage rep’s head to force them to rpovide them with the predatory loans that they got stuck with. That they, the real estate agents, were completely hands-off…that the consumers just came up with the idea that home proces would rise 200-300% over the next 2-3 years, long before their mortgages would reset. That they didn’t ask anyone else’s opinion. That the mortgage rep acted completely on their own without any support from the real estate agent. I’ve never been stupid enough to believe this. Whenever I hear one of my colleages make the statement that we shouldn’t be looking to bail out the consumers who they feel made “bad choiuces”, I look at them and think -
“Here is an accomplice to the mortgage fraud”.
But, on the other hand, should we bail out the executives who took advantage of uninformed and unrepresented (yes, even those working with real estate agents were unrepresented because the real estate agent in that case was only looking out for themselves). My answer is that we don’t have a choice. Because of all of the deregulations starting back in the Reagan years, these executives now hold our own economy for ransom. We, as a nation by buying into the lies and misinformation from our politicians over the last 20+ years have handed over our economy to people who have no moral conscience and whose only God is the Alighty Dollar. We don’t have a choice, at this time, but to pay the ransom. What we should also do is to take our ecenomy back from those people. Intelligent and common-sense regulations overseeing the financial institutions.
Since my wife, Linda, and I expanded our business into the Pre-Foreclosure market, we have spoken to many home owners who were taken in by their former real estate agents, and many are still being taken by their current agents. We have a better understanding of what happened to them and how they got into the financial mess they are in. In fairness, many of the homeowners did act in good faith and were only overwhelmed by circumstances beyond their control. We know, we were once in the same situation as they find themselves. So, we were extremely happy to hear of the provisions included in the new law to help those distressed home owners.
The act would require financial institutions to work with lenders and mortgage servicers to find ways to avoid foreclosures. It would also create a Troubled Asset Relief Program to purchase and guarantee the troubled assets from financial institutions that hold mortgages or mortgage-backed securities.
“If done right, the cost of such a plan will possibly be below the figures that have been widely reported,” said NAR Chief Economist Lawrence Yun. “In fact there is a very good chance that taxpayers will reap a positive return on this investment over the long term.”
“By unclogging the financial pipeline, liquidity will be greatly improved and mortgages will become more accessible and affordable, allowing families who dream of owning a home to do so and at the same time help current owners keep the home they have,” Gaylord said. “There will not be an economic recovery without a housing recovery, and this ambitious legislation is what our economy needs. We will work hard with the House of Representatives and the administration to ensure a quick and smooth enactment and implementation,” said Gaylord.
The Bill Will Help Homeowners and Borrowers
The Senate legislation responded to the criticisms that lenders have been slow and/or unwilling to work with homeowners and borrowers. It encouraged negotiation in short sales and consumer efforts to refinance or reconfigure existing mortgages:
- •·When the Treasury (or other federal agency that holds mortgages) acquires troubled existing mortgages from financial institutions, agencies are required to work with lenders and mortgage servicers to find ways to avoid foreclosures. (ed. – We hope that they closed the loophole that many lenders MAY be using when it comes to short sales, which we posted about previously)
- •·All federal agencies are required to work with servicers to facilitate loan modifications that will consider the net present value of the mortgage.
- •·Similar refinancing and foreclosure prevention requirements apply to mortgages involving owners of multi-family properties and owners of commercial properties. Policy goal is to assure that tenants don’t lose their residence or their place of business when an owner has problems with the mortgage.
- •·Changes to existing mortgages can include (but are not limited to) revisions in principal, interest rate and period for repayment.
Tax Relief
The Senate added an extensive package of extensions of expired and expiring provisions that had passed previously on a vote of 93 – 2. Extended provisions include the 15-year life on leasehold improvements, brownfields clean-up deductions, deductions for mortgage insurance premiums and relief from the Alternative Minimum Tax.
The Bill Will Get Money into the Financial System Quickly
The credit markets are nearly frozen. Lenders can’t lend because they are receiving no payments on existing loans. The legislation allowed the government to buy troubled loans and mortgage securities. The funds that the institutions received when the government purchased the existing portfolios were to be available to issue new mortgages with more carefully specified and monitored lending standards. Provisions include:
- •·Create a Troubled Asset Relief Program (TARP) to purchase and guarantee the troubled assets from the financial institutions that hold mortgages and/or mortgage-backed securities.
- •·A new Office of Financial Stability within the Treasury to operate TARP, with input from the Federal Reserve, Federal Deposit Insurance Corp (FDIC – the agency that works with failed and failing financial institutions to insure and protect consumers), the Comptroller of the Currency (bank regulator), Office of Thrift Supervision (regulator of former savings and loan companies) and the Secretary of Housing and Urban Development.
- •·Don’t give out all the money at one time. First release of funds to purchase troubled assets will be $250 Billion. Second release of up to $100 Billion must be authorized by the President. Final $350 Billion can be issued only on Congressional approval. Congress given 15 days to act.
Congress will keep a tight rein on TARP. Congress will have the assistance of numerous agencies charged with specific tasks and reporting responsibilities:
- •·TARP Oversight Board at Treasury — monthly activity reports to Congress.
- •·Secretary of Treasury — detailed reports to Congress for each $50 Billion in transactions.
- •·Government Accountability Office (Congress’s auditor) — financial reports about TARP activities every 60 days.
- •·Judicial Review — Federal courts may issue injunctions when there is a finding that the Secretary of the Treasury has acted in a manner that is arbitrary, capricious or outside the law.
- •·Create a new Inspector General (IG) for TARP. An IG might be viewed as the “cop on duty” who has authority to investigate TARP’s activities. IG will make quarterly reports to Congress.
- •·Appoint a Congressional Oversight Panel – receive and process all these reports to keep Congress apprised of the state of financial markets, activities of the regulatory system and the use of TARP’s asset acquisition and disposition authority.
- •·Federal Reserve — provide reports to Congress on utilization of the lending authority created earlier this year. That authority was intended to assist ailing financial institutions.
Put Brakes on the Bad Guys
Congress wanted to curtail “bad acts” of executives who gambled and lost.
- •·Assure that skilled asset managers who buy and sell TARP assets have no conflicts of interest with prior employers or firms.
- •·No golden parachute or severance payments to executives of companies that sell assets to TARP. An executive who receives a parachute payment will be required to pay a 20% excise tax on it.
- •·No tax deductions allowed for any executive’s compensation of more than $500,000.
- •·All financial regulatory agencies are required to cooperate with the FBI in its investigations of fraud, misrepresentation or malfeasance in the selling or advertising of financial products.
Give the Taxpayers a Stake in the Profits
Historically, when the government has intervened to shore up a company’s or government’s financial dealings (such as the loan guarantees made to Chrysler and the aid given to New York City during a fiscal crisis), the long-term effect has been that the government has made money back on the deal. The legislation provided an “upside” benefit for taxpayers:
- •·Any profits generated when the government subsequently sells TARP assets would be used to pay down the national debt.
- •·The government will receive warrants in the companies that participate in TARP. The warrants are similar to stock, but do not grant any voting authority to the government. If the participating company pays dividends at some future time, the warrants would allow the government to receive the dividend. Similarly, if the government sells its stake in the company, the warrants would entitle the government to any appreciation.
Safeguard Savings & Recoup What’s Still Owed
- •·Increase the amount of federal insurance on bank accounts from $100,000 to $250,000. This will be particularly helpful to smaller and local banks and small businesses.
- •·If, after five years from the date of enactment (the date the President signs a bill), the program has lost money, the sitting President will be required to present a plan to Congress for ways to recover the funds from the financial institutions that benefited from the TARP relief.
Again, we agree with NAR and applaud our politicians for taking a stand. What we are waiting for is to see if the much needed help to the distressed homeowners is really on its way or will the money be diverted elsewhere.
Terry Iwaniw
REALTOR Associate
First Time Home Buyer Specialist
Foreclosure Prevention Consultant
RE/MAX Home Team
609-417-1086
http://www.terryi.com/
http://www.snewjerseyhomes.com/
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