September 7, 2009

President Barack Obama
1600 Pennsylvania Avenue NW
Washington, DC 20500

Dear President Obama:
Great speech to the kids yesterday!

I'm sure that letters from citizens can't go directly to you - you're only one man, and certainly you get more letters and email than 100 Presidents could read in one day. I hope that this one gets through the screening process.

My husband and I are both real estate brokers in Cottonwood, Arizona.

I don't for one second think that I know more about economics than all of the high-powered advisers in their shiny ivory towers that work for the United States government. I do, however, know what's going on in Cottonwood. I know why our economy is so horrible, and it’s one very simple finger that I have to point.President Obama, I'm proud of you for trying to get a coherent health care plan in place. I agree that it's desperately needed. However, I think that you're putting the cart before the horse. It's great to have a good health care plan, but I'm not going to worry much about my cholesterol when I'm homeless. Long-term health problems like cancer or thyroid imbalance or a heart murmur don't much concern me if I live in the culvert under the highway.
We need to deal with the homeless, and we need to deal with the certainty of millions of newly homeless before we get to health insurance. Excuse me, but that's where your attention needs to be – first things first and all. Besides, if the money isn’t moving there will be no income to pay taxes on and health insurance will be impossible to fund. (Don’t worry - I’ll tell you about the newly homeless in a minute, when we talk about nonexistent loan modifications and foreclosures.) Or, maybe we could split the focus? Let’s do half health insurance and half Carol Anne’s problem. As long as they’re all up in arms anyway, what do we have to lose?

Where does the economic buck stop? Why is our economy still gasping? Why are people losing their houses in droves? That answer is ridiculously easy for me to answer.

The Banks.

There are 3 ways that the Banks are totally FUBAR'd, and these 3 things are why so many more Americans are going to be sharing that culvert with me.

Let me tell you what I see every single day. Mr. President, I’m going to speak to you the same way that I would talk to my sons, or to a friend – you don’t seem like the type of person that requires beating around the bush. (My husband found a pun in that “beating around the bush” statement, but it was unintended.)
Here’s what’s going on:

THE BANKS ARE REFUSING TO LEND MONEY. I've lost count of the times that a wonderfully qualified buyer has written an offer and tried to get a loan and was turned down by a bank underwriter. Consistently, the underwriter's job is obviously to stall as long as possible and then at the last minute come up some stupid piddly-assed reason why they won't make a good loan.
Our most recent turn-down was because the underwriter decided that the buyer would get "payment shock." This was a great buyer: good credit score, good job, good income, and he desperately wanted to move his wife and son and mentally disabled daughter into that cute home with the nice picket fence. It's not going to happen.
The underwriter denied the loan because this buyer had never made a house payment before and so would go into shock and he would bail when he wrote that first mortgage check. I shit you not - he can’t buy a house now because he's never bought a house before.
I will be happy to show you this file and tons more just like it.

Please, Mr. President, consider for a moment what would have happened if this sale had closed (as it should have) and this buyer had gotten that house. Our buyer would have immediately gone down to Home Depot and spent a couple of thousand dollars on paint and tile and whatever. He would have made his payments on time, plus interest. The Bank would have had that interest money to lend to someone else. The loan originator would have gotten paid and would have been able to pay her bills. I would have gotten paid and then would have been able to pay my bills. I would also have bought a pair of shoes, which I always do when a deal closes, and we probably would have gone out to dinner. Money should have moved, but instead it didn't.
Please ask “Why?”

You're doing a great job with incentives like the up to $8,000 tax credit. However, incentives don't mean a thing if, when we get a buyer off of the fence and they try to buy a house the Banks won't lend, not even to good solid buyers. The government programs to help people to buy all look good on paper, but we're sure not seeing any difference down here in the trenches. The money isn’t moving. Please ask “Why?”

SHORT SALES. A short sale is when a buyer has to sell a home that they can no longer make the payments on. The problem is that they owe more on the property than it will sell for in this market. So, to sell it, we need the Bank to agree to allow the sale - otherwise we can't do it. Mr. President, understand that if the Bank doesn't agree to the short sale then they will eventually foreclose on the property. These are their choices: short sale or foreclose.

The latest numbers are that once it's all said and done it costs a Bank an average of $50,000 to foreclose on a property.

So when I come to a Bank and say, "Hey, Bank. Here's Mr. Seller, who owes you $135,000. I can sell his house for $100,000. If you work with us there’s a shortfall of $35,000. However, if you don't work with us and you foreclose you'll eat $50,000 right off of the top of a house that you also can only sell for $100,000 because you’ve inherited that $35,000 shortfall – it didn’t go away.
In the meantime the house will sit vacant and will deteriorate and then will only sell for $90,000. You, Bank, get to pay commission and closing costs and upkeep and taxes and HOA fees, probably totaling around $10,000.
Do the math. Work with us, lose $35,000. Refuse to work with us, lose the same $35,000 plus the $50,000 plus the estimated $10,000 for vacancy and deterioration plus the $10,000 for commissions and closing costs. The total estimated loss there is $105,000. This is a no-brainer, Bank.”
At this point the Bank should be kissing my toes for offering them the absolute best of 2 bad choices and they should do anything in their power to facilitate this short sale. That’s just good business.
But NO – the Bank drags their feet and jerks everybody around and finally does foreclose, sometimes on the same day that our completed short sale was supposed to close.
Short sales are a nightmare because of the Banks, even though it is absolutely in the Banks' best interest to make a short sale happen. Right now, 4 out of 5 short sales do not close successfully. That figure should be reversed - 4 out of 5 short sales should close. They don't because the Banks refuse to co-operate, which is bad business. What’s up with that? Surely across the board all Banks cannot possibly be that incompetent, can they? Can they really?
President Obama, please ask “WTF?”

LOAN MODIFICATIONS. In my world, anybody and everybody that depends on the housing market is in serious financial trouble. REALTORS®, contractors, plumbers, mortgage brokers, electricians, roofers, excavators, title companies and officers, well drillers, fence guys, lumber companies and their employees, the list goes on and on into infinity. You know the list. Add to this list the elderly that expected social security and their IRAs and 401K’s to keep them secure in their old age – they’re losing their homes, too.
It's not even remarkable anymore that someone has lost a home or has filed bankruptcy - we even talk about who’s the cheapest bankruptcy attorney and which is better for selling your stuff, eBay or Craig's List? I'm telling you about good, responsible, hard-working people whose source of income has dried up, just like when a spigot gets turned off.
All of these people used to spend money and keep the economy moving. We now have no money to spend, and so the businesses that depended on us are folding, too. Nobody is traveling and so the tourists aren’t coming, either.
Restaurants, clothing stores, jewelry stores, car dealerships and their employees, life and health insurance companies, art galleries………… I can stop here – you know the myriad types of businesses. They’re all either in a world of hurt or belly up because the money isn’t moving.
This results in severe loss of sales tax for the cities and counties, and now they don’t have the resources to deal with the onslaught of the newly homeless.

People call their REALTOR® for advice and we tell them to talk to their mortgage companies and say, "Hey, Bank. I can see what’s coming. Sometime in the near future I won’t be able to make my payment. It’s going to happen - talk to me, please. What can we do?" The Bank says, "We won't have a thing to do with you until you're in foreclosure."
Well, OK, if you insist. Like there was a choice, right?
They miss the required 3 payments so that they can go into foreclosure as instructed, and then the Bank says, "Look – you’ve missed 3 payments and so now we won't talk to you some more – you’re a bad risk. We're just going to take your house. Get out."
In the meantime, since these people are more than 30 and then 60 and then 90 days late on their mortgage, some sort of alarm gets tripped and the Banks who hold their credit cards raise their interest rate from 6% to 29%. The Banks also lower their limit to the point that now they’re "over limit" even though they weren't when they used the money and that trips more alarms and that's a big help now, isn't it? (I swear on my mother's grave that I'm not making this up – even George Orwell couldn’t make this up. The Banks can and they do do this, thousands of times every day.)
Remember about short sales, above, that it costs around $50,000 for a Bank to repossess a property? OK, what's the best option here? Work with the homeowners and give the economy a chance, or kick them out? Apparently it's "Kick 'em out!" because that's what's happening.
Mr. President, I know that your administration has instituted a ton of programs to induce the Banks to modify their client’s loans. What are the numbers? Out of the tens of thousands of foreclosures that have been filed and/or completed, how many were modified? I guarantee you that the number of homeowners who have been “worked with” by the Banks is horrifyingly miniscule.
Mr. President, please ask “How many?”

The Banks will tell you that “They’re trying!” No, Mr. President, they’re not trying. They’re stalling, they’re jacking people around, they’re asking for increasingly ludicrous documentation, they’re pretending that they don’t want to put Americans out on the street and then they’re doing it, over and over and over again. It just doesn’t make sense – it’s lunacy.
Mr. President, Please ask “Why?”

OK, so I’m full of what’s wrong, but what’s the solution? I don’t know. That’s your job, Mr. President, and I’m praying for you.
I write this letter with the hope that maybe it just hasn’t been made clear to you what’s happening to your citizens down here on the streets of America, or why and how it’s happening. I write this letter with the hope that whoever reads it will get it to you and to the people who can help you to figure out how to change this nightmare. I write with the hope that you won’t pussy-foot. I write with the hope that you’ll ask “Why?” and then go smack somebody around.
Best wishes,



Carol Anne Warren, REALTOR®
Associate Broker, Arizona Adobe Group Realty
918 North Main Street, #A
Cottonwood, Arizona, 86326
928.300.9031
carolanne@adobegr.net
www.cottonwoodrealestate.net

Q: “I KEEP HEARING ABOUT THIS UP TO $8,000 TAX CREDIT IF I BUY A HOUSE. WHAT’S UP WITH THAT?”

CAROL ANNE: If you have not been on the title on a home for more than 3 years, if you make less than $75,000 for a single person or $150,000 as a couple, if you buy in the United States and close escrow before December 1, 2009, you’re probably eligible for the $8,000 credit.


Q: “DOES IT WORK FOR CONDOS OR MANUFACTURED HOMES OR CO-OPS OR TOWNHOUSES?”

CAROL ANNE: Yes, and sometimes even houseboats. Talk to your accountant or check it out at ww.irs.gov.



Q: “BUT I WON’T OWE $8,000 WHEN I FILE MY TAXES – I’M PROBABLY GETTING A REFUND. IS THIS $8,000 ANY GOOD TO ME?”

CAROL ANNE: Yes, it is. This is the cool part! If you don’t owe so much, then the IRS will cut you a check for the balance. For instance, if you owe no taxes, the IRS will send you the full $8,000 when you file plus whatever refund you’ve got coming. Them, say, if you owe $2,000 on your 2009 taxes, then you won’t pay the $2,000 and you’ll get a check for $6,000. Pretty sweet, isn’t it? Make sure that your tax guy knows to claim it for you.


Q: “SO IF I QUALIFY, I CAN BUY A $20,000 LOT WITH A "P.O.S." SHACK ON IT AND GET A TAX CREDIT OF $8,000?”

CAROL ANNE: That’s a good plan, but no. First of all, you have to claim this property as your principal residence, so you have to live there at least 51% of the time. Second, the tax credit is $8,000 OR 10% of the purchase price, whichever is less. If you bought this shack for 20 grand then your tax credit would be $2,000.


Q: “CAN I USE THIS $8,000 AS PART OF MY DOWN PAYMENT?”

CAROL ANNE: Probably not. We’ve heard of a few lenders that tried and one or two said that they succeeded, but we’re not hearing anybody saying that they can use the credit it towards the down payment anymore. If you find somebody, let us know, please.


Q: “DO I HAVE TO FILL OUT PAPERWORK AND GET APPROVED FOR THIS, TOO?“

CAROL ANNE: Nope. Assuming that you fit all of the parameters, just close escrow before December 1, 2009 and remember to tell your accountant to claim it on the new IRS form 5405.


Q: “DO I EVER HAVE TO PAY IT BACK?”

CAROL ANNE: Only in one situation: they call it the anti-flipping rule. If you sell the house before you’ve owned it for three years then the $8,000 must be paid back.

Q: MY WIFE AND I WILL BE CLAIMING INCOME OF $150,000 AND 1 DOLLAR. DOES THIS MEAN THAT WE’RE NOT ELIGIBLE FOR THE TAX CREDIT?

CAROL ANNE: No, you’re OK. If people go over the allowed limits there’s a nifty formula so that you can get at least a portion of the $8,000. It’s only when a single person makes over $95,000 or a couple makes over $170,000 that they’re totally out of luck. Talk to your accountant or the IRS.

Q: SO WHAT DO I DO NOW?
CAROL ANNE: CALL ME! 928.300.9031. December 1st is just around the corner!