My Way Lending

It looks like it going to be a busy year for do-it-yourselfers. A new poll from Consumer Reports reveals that 54 percent of homeowners participating in the poll plan some type of remodeling project during the next 12 months. Sixty-five percent of them plan to do the work themselves.

Now, remodeling is not unknown among homeowners, even during boom times. The recent economic downturn, however, has forced 67 percent of homeowners to rethink their plans. The biggest changes to remodeling plans include:

• Doing the work themselves – 42 percent
• Fixing or sprucing up what they already have – 39 percent
• Remodeling in phases – 36 percent

According to the Consumer Reports poll, the most popular types of work include painting (56 percent), designing (39 percent) and flooring (34 percent). The most popular remodeling projects are kitchens (19 percent) and bathrooms (17 percent).

“Whether homeowners are venturing into a project themselves or plan to hire a professional, you need to lay out a budget, decide what you want most at the end of the project — and decide what you can live without,” advises Bob Markovich, senior home editor at Consumer Reports. “The more homeowners know what they’re getting into, the more money they’ll save.”

Remodeling funds come from a variety of places. Most homeowners, 66 percent, support their projects with their savings. Others, 29 percent, plan to cut back on travel and entertainment while another 21 percent are using a home equity or other loan.

The biggest reason consumers are cutting back on remodeling is that they simply do not have the money, according to 42 percent of respondents. Many homeowners, right now, are focused on paying, modifying or refinancing their mortgage rather than remodeling. There are homebuyers out there, like http://www.times-gazette.com/news/article/4609738 Chad and Brittany Johnson in Ohio, who purchase a foreclosure home for far less than market price and immediately remodel it.

On July 1, 2009, U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan announced an expansion of the Making Home Affordable Refinance Program to include borrowers who are current but up to 125 percent underwater on their mortgage. The announcement was made while the Secretary toured a Las Vegas neighborhood with Senate Majority Leader Harry Reid (D-NV) and Congresswoman Dina Titus.

“This decision is part of our ongoing efforts to maximize the effectiveness of the Making Home Affordable program and adapt to an ever-changing housing market,” said Treasury Secretary Tim Geither. “By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly. It’s a crucial step in our broader efforts to get America’s housing market and economy on the path to recovery.”

Las Vegas is the ground zero of the foreclosure crisis. Not only does the area lead the nation in foreclosures, more than two-thirds of current mortgage holders in the market have mortgages higher than their property is currently worth. Prior to the announced expansion, only those borrowers whose first mortgage did not exceed 105 percent of the current market value of their property were eligible for the program.

Donovan also announced plans to deploy HUD Foreclosure Rapid Response Teams to assess the area hardest hit by foreclosure, starting in Las Vegas. The Las Vegas team will consist of two-senior-level HUD Field staff having experience in Single Family Housing and community outreach. Over they next two weeks these team members will be determining the need in Nevada and surrounding areas. HUD will commit two full-time employees to implement the Foreclosure Rapid Response Team’s recommendations.

Additionally, HUD plans to deploy two Fair Housing equal opportunity specialists to the Las Vegas HUD office. HUD receive about 100 housing discrimination complaints annually from Nevada residents, more than double what was received in 2005.  The Fair Housing specialists will conduct local outreach and education as well as receiving discrimination complaints and conducting investigations. With a local presence, HUD’s Fair Housing & Equal Opportunity office should make it easier for Nevada Residents to obtain justice and relief , to educate housing consumers about predatory lending and to conduct program compliance and monitoring in more than 3,000 public housing units and over 8,500 Section 8 Vouchers.

“The economy is based on trust,” said Dean Johnson, associate professor of finance at Michigan Technological University in Houghton, Michigan.

In situations like the recent housing bubble, or even the stock market collapse of 1929, where markets were driven by debt and fueled by the false expectation that values can only increase, trust can be a very fragile thing.

“One little blip and everything started to unwind,” Johnson said. “The particulars are different, but the basics are familiar.”

Trust, however, seems to be coming back, according to Johnson. If people are cautious and not spending money, the government and financial industry must take action to encourage capital liquidity. During the first half of 2009, this is exactly what they have been doing. And if the effects have not been as immediate as some would like and others needed, at least their efforts are beginning to take effect.

Why does Johnson believe trust is returning? He points to the Volatility Index, or VIX, which measures investors’ expectations of how volatile the stock markets will be. The VIX reached all-time highs in 2008.

“People think of it as the fear gauge,” Johson explained. “it’s encouraging that the VIX, though still high be historical standards, is down about 60 percent from what it was at its peak in November.”

Other, more recent, signs that trust is being rebuilt in the American housing/real estate markets and the financial industry include:

• USA Today reports that while the construction market remains weak the housing market may be improving slightly. Residential construction reportedly dropped to the lowest level since December 1995. Pending homes sales increased slightly in May, according to the National Association of Realtors (NAR).
• Proposed legislation to create a Consumer Financial Protection Agency is making progress at the federal level, according to the Washington Post. The Post reports that the Treasury Department’s proposal for a new federal agency to consolidate the plethora of state and federal regulators responsible for overseeing the lending industry arrived on Capitol Hill on Tuesday.
• At the end of June, Fannie Mae, which is still under the conservatorship of the federal government, reported its mortgage portfolio grew at a compound annual rate of more than 35 percent in May. A report from Dow Jones appearing in the Wall Street Journal indicates a large jump in the issuing of mortgage-backed securities offset continued rises in single-family and multi-family mortgage delinquencies.

Notes of caution, however, are also being heard. Yale University economist and co-founder of the S&P/Case-Schiller home-price index, Robert Schiller told Bloomberg: “At this point, people are thinking the fall is over. The market is predicting the declines are over.” At the same time he is “not optimistic that we’re going to see any sharp rebound.”

Johnson agrees with Schiller.

“It’s still a risky market,” Johnson stresses. “This is the first time in history that you’ve been better off if you’d put your money under a mattress 10 years ago. But hopefully, this indicates that the financial markets are returning to normal.”

Of course this doesn’t mean the housing market or the financial industry will be returning to the halcyon days of pre-mortgage crisis days anytime soon. It doesn’t matter how badly investors, bankers, consumers, lenders, the government or the world at large want it.

“There’s no easy fix,” Johnson concluded. “We have to take our medicine. It took 20 years to create the over-leverage and it will take time to undo that.”