Does Anybody At Citizens' Have A Lick Of Sense?

Everybody who reads this blogsite knows that I stay far, far, far away from political commentary. I write about real estate and marketing, and that's about it. I don't even talk politics with my friends ... or religion.

Until now.

The bureaucrats in Tallahassee who operate Citizens' Property Insurance must not be able to generate a clear thought between them. Or, perhaps they just don't give a rat's pahookey about property owners or economic recovery in this state.

I'm sure by now you have heard about the new proposal to increase sinkhole insurance premiums. The news broke on Monday of this week. The average premium increase statewide will be some 429 percent. That proposal was unanimously approved Wednesday by the board that runs Citizens'.

If approved, average sinkhole rates will jump in Tampa from $156 to $3,651 annually. In Pasco County, from $1,270 to $3,598. In Hernando County, from $1,356 to $5,734. Those figures are courtesy of the St. Pete Times; I'm not sure how they calculated them but I assume they are correct.

Don't worry too much about paying these increases. Citizens' is going to make it easy on homeowners. Citizens' CFO, Sharon Binnun, told the board that the agency is working to develop plans so policyholders can pay their sinkhole premiums quarterly or even semiannually. How kind! It will be like getting skinned with a sharper knife.

They're supposed to have some hearings about this increase in Tallahassee during the coming weeks. I assume the public will have a chance to talk. If so, I'm sure policymakers will get an earful. Somehow, I think they better rent a very large hall.

Lest I forget to mention it, these sinkhole increases are on top of the 8.8 percent statewide average premium increase already scheduled for non-sinkhole coverage.

Look, I realize Citizens' lost a lot of money on sinkhole claims last year ... they brought in $32-million in premiums and paid out $245-million in claims. Sure, something has to be done about that kind of financial loss and it can't be allowed to continue. No argument.

But for heaven's sake, does Citizens' have to recover all the loss in one year?

And has anybody at Citizens' given a single thought to the negative impact such premium increases will have on the struggling real estate recovery in this state?

Most financially responsible people buy as much house as they can reasonably afford. That means they are okay financially as long as they do not suffer some kind of financial setback. Raising these sinkhole premiums is just another form of financial setback for many of these homeowners. Just look at the amounts of these increases! Thousands of dollars per year for Pete's sake! Where are people going to find the extra money to pay those higher premiums?

And if they can't pay the premium, what then? I guess foreclosure is the ultimate answer. After all, their mortgage company will likely require the sinkhole insurance be kept in force or the mortgage will be cancelled. So what then? Well, we'll have a whole new bunch of foreclosed properties on the market.

And who in the world is going to buy the homes that have sinkhole insurance premiums costing additional thousands of dollars each year? Nobody. Why would anyone incur such an insurance obligation? So we may have a new bunch of foreclosures sitting vacant and driving down neighborhood appearance and further prolonging the drop in the value of real estate.

I wonder if anybody at Citizens' ever gave that any thought? Probably not. Like a lot of people, I suspect they can't see past their own set of bureaucratic problems.

Don't believe it can happen? Well, a lot of people didn't believe the real estate bubble would ever burst either. That's why they continued to pay supercharged prices for houses through 2006. Today, they are the short sale victims.

Citizens' needs to re-think these sinkhole premium increases. It's unrealistic and puts a terrible burden on middle-class homeowners at a time when these people have plenty to worry about.

In collecting increased premiums, perhaps Citizens' needs to spread out the recovery over a number of years.

Perhaps there needs to be some kind of easily affordable surcharge on all Citizens' policies so every policyholder contributes a little each month toward recovering the loss.

At the risk of hearing outrage from members of the Tea Party, perhaps there needs to be a tiny uptick in the state sales tax that is earmarked for sinkhole shortfalls -- kind of like the "Penny For Pinellas" program that funded so many good things in Pinellas County. Once the shortfall is made up, the tax increase could (and should) be withdrawn.

I don't have the answer, but I sure see the problem.

Now is the time when we need to stop listening to insurance actuaries and government bureaucrats who can't see past the requirements of their own departments and start using a little common sense and humanity in this matter. The great middle class is financially stressed right now. Adding increased sinkhole premiums serves only to compound the problem. Government, remember, is supposed to work for the people, not vice versa.

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Consider This Before Executing A Strategic Withdrawl

I was listening to a special report on CNN on Saturday morning about the current status of real estate in the United States. Very interesting discussion. The panel of experts really were real estate experts this time.

One of the things they discussed was the concept of a Strategic Withdrawl (SW) from home ownership. Strategic Withdrawl is for people who are way underwater on their property; in other words, they owe a whole lot more on their house than it is worth ... perhaps they owe more on the house than it will ever be worth again.

Such people often feel that continuing to make the monthly mortgage payments on such a property is a waste of time and money, so they have an attorney arrange an SW for them. Arranging an SW is very complicated and needs to be done by an attorney, and even then it is a somewhat questionable way to become free of a property.

The panel pointed out that people who are upside down in a mortgage and arranging an SW are quite often the owners of luxury homes that they paid too much for when purchasing it. Apparently you don't see the owners of modestly priced homes contemplating an SW very often. Quite often, people doing an SW have healthy incomes and plenty of assets. They have good credit ratings and pay all their bills on time -- except for the upside-down mortgage.

Therein lies the root of the SW problem.

I'm not going to make comments on the moral, legal or ethical questions concerning a Strategic Withdrawl. That is not for me to decide. But there is a business question that needs to considered before you implement an SW with your attorney's help.

Since many of the people who do an SW have an otherwise stellar credit record, stopping payment on a mortgage is clearly a conscious decision on their part. Most likely, they could pay the mortgage as easily as they pay their other monthly debts. But they choose not to.

So when it comes time to face the music on this decision from a credit rating standpoint at some point in the future, these people should not be surprised to find out that they are treated very harshly by the credit reporting agencies. Punitively, as a matter of fact.

And why not?

After all, it's not as if they stopped paying their mortgage because of some financial setback that was no fault of their own ... like a lost job, medical bills, or some other money-related disaster. These people simply looked at the value of the property in today's market and decided that the monthly payments no longer matched up with the value of the property. So, they decided to stop paying the mortgage but continued to pay all their other debts. So, why shouldn't the mortgage companies and credit reporting agencies hit them hard? Seems perfectly logical to me.

I'm writing this for anyone out there who is considering the implementation of an SW. Despite what others may say about your future credit standing, don't be surprised if it is a long, long time before you ever get a loan at prevailing interest rates.

My advice? Before you do a Strategic Withdrawl from a piece of real estate, you need to do a lot of in-depth research into the short and long term consequences of such an action.

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June Was Tough On Real Estate In Tampa Bay

After recently reporting that the median price for single family homes in Tampa Bay had jumped 18% in the first few months of 2011, today the St. Pete Times is saying that the median price fell 9% over June of last year.

According to the paper, sales volume fell 11% compared to a year ago, and the median home price dropped to $126,500 as compared to $138,400 from a year past in the Tampa Bay area.

Here are some other interesting factoids that were reported in the paper:

• Buyers are having trouble getting mortgages or meeting the larger down payment requirements now required by lenders. This is making home purchase more difficult.


• Many property sales are being cancelled prior to closing because of lower than contracted appraisals. If the property does not appraise properly, the mortgage is cancelled by the lender. About 16% of home sales were cancelled in June due to appraisal problems.


• Normally, first time buyers make up about half of the market for home purchases, but that number has dropped to only 31% due to high unemployment and the reluctance of banks to lend.


• Declining home values have made people feel less wealthy. This means they spend less when they buy a home, so the median price is falling.


• Buyers are cancelling purchase plans at the last minute after reviewing their appraisals. Many times, these appraisals show that the value of the house was less than the contracted price.

Finally, the paper pointed out that across the country and in Florida, short sales and foreclosures represented about 30% of sales last month. Many foreclosures are being held up because of backlogged courts or lenders awaiting federal and state probes into various kinds of foreclosure practices.

All this combined to bring June's figures down. I guess all you can say is: "it is what it is".

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Bay Area Single Family Home Prices Up In First Half Of 2011

The St. Petersburg Times has reported that the median price of single family homes has risen by 18 percent since the first of the year in the Tampa Bay area. The median price has moved from $107,500 in January to $127,000 in June in Pinellas, Pasco, Hillsborough, Hernando and Citrus Counties according to data from the Multiple Listing Service (MLS).

If we look at prices for only conventional sales (no short sales or foreclosure sales), single family homes sales increased by 8.5 percent during that same time period. The median price for conventional sales in the five-county area rose from $156,000 to $169,400.

This is pretty good news for home sellers, especially those who have wanted to sell but have withheld their home from the market waiting for better times. It appears that the market for single family homes in the Tampa Bay area may have finally bottomed out in the first half of 2011 and may be making a steady recovery. So, this may be the time to list and sell.

For buyers, this increase in median price should be an incentive to buy now before prices begin heating up even more. Right now, there are still good values in the market and buyers should act now to take advantage of them.

Remember, this data is for single family homes only and does not include condominiums, apartment buildings or commercial properties.

Happy House Hunting!

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