Mortgage MD

3 More Signs of a Strenghtening Housing Market

The housing market got another dose of good news yesterday. 

According to the National Association of REALTORS, the number of homes sold in May increased for the third straight month and the national housing supply fell by 5 months.

Furthermore, first-time home buyers are accounting for nearly one-third of the market activity.

But, before we declare a bottom in housing, it's important that we remember the First Rule of Real Estate:

All Real Estate Is Local

National housing statistics like Existing Home Sales are painted with a very broad brush. They lump disparate locales such as San Francisco and Seattle into one sample set and don't account for regional differences, let alone neighborhood ones.

Furthermore, getting down to a city-by-city, or even street-by-street basis, we can always find homes that are selling quickly and home that are languishing.  Real estate is highly local and subject to countless influences.

That said, the national data isn't completely useless.  From the patterns, we can infer that low mortgage rates, ample home supply and available tax credits are providing a quantifiable boost to the broader real estate market. 

And based on recent pending sales data, we can expect June and July's Existing Home Sales figures to be similarly strong to May.

Therefore, if you're in the market for a new home right now -- or plan to be soon -- be conscious of home inventory levels in your target neighborhoods.  Fewer homes on the market usually means less ability for buyers to negotiate and that leads to higher sales prices. 

Plus, the NAR is reporting buyer activity up 10 percent from last year.

The housing market may not be fully recovered in every housing market just yet, but in studying the data, a lot of the pieces appear to be falling into place.

What's Ahead For Mortgage Rates This Week : June 8, 2009

The economy posted stronger-than-expected data last week, reigniting fears of inflation on Wall Street. 

The positive-slanted economic news caused conforming mortgage rates to rise by another 1/2 percent last week.

It marked the second week in a row of soaring mortgage rates and the fifth week out of six that rates have moved higher.

Conforming mortgage rates are now as high as they've been all year and rest at the levels of December 2008.

The biggest news of last week is likely to influence mortgage rates this week, too. 

On Friday, we learned that 345,000 Americans lost their jobs in May.  And while that's an awfully large number, it wasn't nearly as bad as Wall Street had expected.  Furthermore, the Unemployment Rate spiked to over 9 percent.

Now, again, with respect to the Unemployment Rate, the number looks bad, but the data may be a positive.  This is because the Unemployment Rate measures Americans in the workforce versus the unemployed actively looking for jobs.

If the number of people trying to re-enter the workforce starts to surge, it's basic math that Unemployment Rates will rise.  This is what some economists think happened last month and it served as the backdrop for Friday's rate surge.

With fewer Americans expected to be out of work, consumer spending seems poised to rebound in the months ahead, pushing the economy out of recession sooner than expected.  If the sentiment holds this week, mortgage rates should rise even more.

Without much new data this week, markets are likely to trade on emotion -- a difficult situation for rate shoppers.  Conforming mortgage rates have been extremely volatile since May and are changing every few hours.  If you see a rate you like, consider locking it.

Wait around too long, and it'll be gone.

Industry News - A lot is happening out there

Vacancy Rates

The vacancy rate of homeowner housing was virtually unchanged in the first quarter of 2008 compared to the rate in 2007, with vacancies at 2.9 percent and 2.8 percent respectively, according to the U.S. Census Bureau. The vacancy rate in the first quarter of the last two years is about 70 percent higher than it was from 1995 to 2005, when the first quarter home owner vacancy rate never rose above 1.8 percent and generally stood at 1.7 percent or lower. The rental vacancy rate has also remained steady for the last two years at about 10.1 percent.
Source: The U.S. Census Bureau

Fraud Enforcement and Recovery Act

The Senate has passed a bill that expands the bank fraud statutes to cover independent mortgage companies and brokers and increases funding for federal investigations of fraud by $165 million. By a vote of 92-4, the Senate approved the Fraud Enforcement and Recovery Act that also expanded federal fraud laws to cover funds involving the $700 billion Troubled Asset Relief Program that is being used to capitalize banks and deal with problem assets. The bill (S. 386) expands the definition of "finance institutions" to ensure all companies are held fully accountable under the federal fraud laws. It also makes it a crime for brokers and bankers to make materially false statements or to willfully overvalue properties to influence any action by a lending business. The Obama administration supports the bill and the House of Representatives is working on a similar bill. Source: National Mortgage News

1st Time Home Buyers Make Up 50% of Sales

The National Association of Realtors says more than 50 percent of March's home sales were tied to first-time buyers, many of whom snapped up foreclosed homes and other distressed properties. Experts believe getting first-time buyers off the sidelines to take advantage of historically low rates and federal tax credits will reduce the glut of homes on the market and spark a recovery. Some point out that first-time buyers are helping to revitalize communities in Florida, California, and other states hit hard by foreclosures. However, distressed properties often sell for 20 percent less than traditional properties, and the increase in lower-end sales is driving down the national median home price. Source: USA Today

Latest Foreclosure Prevention Plan

The U.S. Senate last week approved a version of the latest foreclosure-prevention plan. The bill shields servicers from lawsuits if they participate in federal loan modification programs, making it potentially easier for home owners with a second lien to refinance. The bill also gives renters of foreclosed properties at least a 90-day grace period before they have to move. Plus, it modifies the Hope for Homeowners program to provide better incentives for lenders to adjust home loans. The bill also extends through 2013 an increase in deposit insurance by the FDIC from $100,000 to $250,000. The Senate version of the bill didn’t include a provision allowing bankruptcy judges to modify primary loans. This cramdown legislation passed the House in March and is considered a key to the Obama administration’s foreclosure prevention plan. Lawmakers consider it dead in the water. The Senate and House versions must now be reconciled before President Barack Obama can sign the bill into law. Source: The Associated Press

Credit Scores

Fannie Mae as made changes to its requirements for using nontraditional credit scores. One of the nontraditional sources used in developing a nontraditional credit report must be housing-related, the secondary lender said in Announcement 09-12. Depending on the sources, a total of four to six sources are required. The change is effective on whole-loan purchases on or after Aug. 1. Scores are either based on the lesser of two scores or the middle of three scores, even when two of the three scores are identical. Borrowers with only nontraditional credit sources should be defined as "high primary risk" in the comprehensive risk assessment for the loan. When one borrower has a traditional score and the co-borrower does not, then the loan will be priced at the lowest score range as if neither borrower had a traditional score. But eligibility in that situation will be determined based on the score of the borrower with the traditional history. Aside from MyCommunity loans, the lowest acceptable score is 580, though most programs have higher minimums. MyCommunity borrowers with insufficient credit histories can supplement the credit file with as few as three nontraditional credit sources. Fannie said Desktop Underwriter should be used whenever one of the borrowers has nontraditional credit and cashout is involved, more than half of the income comes from the borrower with traditional credit or when the security is non-owner occupied. The same goes for properties that are not one-unit and for borrowers who are self-employed Source: Mortgage Daily

Senior Housing

It could be the beginning of the end for over-55 housing, says the National Association Home Builders. Construction of senior housing, which included about 249,000 homes last year, will total only 126,000 this year, according to the trade association. Homeowners older than 55 are about 20 percent of all homebuyers, up from 18 percent in 2005 and 16 percent in 2001, the home builders said. As boomers age, the number buying homes will begin to decline. At that point, it is likely that these buyers will be integrated into broader communities. Source: Orlando Sentinel

Housing Market

The housing market is looking healthier, but U.S. Housing and Urban Development Secretary Shaun Donovan said Wednesday that it is too early to tell if the recovery has taken hold. "We do have some early signs, I think, that the market is stabilizing. Since January, what we've seen is both prices and sales volumes moving up and down around a relatively stable number," Donovan said. Donavan also said he was optimistic that President Obama’s policies are bolstering the market. "I think in particular when you get below the national level what you see is that in markets like California that were the hardest hit, that is where the signs (of recovery) are the strongest," he said. Source: Reuters News

Commercial Office Overview - The last domino to fall

Given the continued economic trubulence playing out on the world stage, one might expect to see our local commercial real estate market in freefall; perhaps a repeat of the 2001 crash which saw rents tumble at warp speed.  Instead, the local market appears to have a "wait and see" stance, with leasing activity slowing to a virtual halt.

The first quarter of 2009 was by all measures the worst for the local commercial real estate market in eight years, with a vacancy rate on the Peninsula of 18.4%. 

Particularly noteworthy in this climate is the low gross absorption rate, down 41% as compared to the first quarter of last year.  The true weakness of the market may not of shown its hand as of yet.

Still, there are reasons for optimism towards the mid and long term prospects for the market.  Available sublease space has remained fairly flat.  The office market on the Peninsula is largely driven by smaller companies, a market that can act quickly to positive changing conditions. 

This market may take a time to rebound.  Stay tuned for Q2 2009.

Some stats - 2nd mortgages, home value's and reverse

Just a few updates on what is happening out there.

2nd Mortgages

Credit crunch alive and well in 2008, 2nd mortgages processed down 70% in 2008.  That really put a crimp on many folks, business out there.  Credit lines frozen, closed, etc.  I think many had to resort to credit cards.  Is the next big crisis credit card debt?  Debt settlement may become very big in 2009/2010.  I know a company that can settle for at least 0.55 cents on the dollar.  It will affect your credit, but some times it is worth lowering your debt, regrouping, and building your credit back up.

Home value's

An article was just released stating that 1 in 5 homes in the US are underwater, in other words the home value is below the mortgage loan.  How can this be?  I guess it can.  Make sure everyone is aware of the potential out there for help.  Either a potential loan mod or an Obama refi.  There are a lot of ways to go, so do your homework. 

Reverse mortgages

Up 17% in March 2009, compared to March 2008.  There are a projected 25,000,000 US residents over the age of 62.  Many are having problems making ends meet due to falling home prices, financial portfolio's down, refinancing programs not available, etc.  The reverse mortgage can be an option but do your research and make sure you know what you are getting yourself into.

That's all for today.

Mortgage Rate Check

Well, here we are, May 2009, even though lenders are increasing guidelines, there are many great programs out there.  Yesterday we discovered a STATED JUMBO program for self-employed borrower's. 

What?  Stated, Jumbo programs.....Yes, your loan to value, or LTV must be 75% but still that is pretty reasonable.  Example of LTV:  $1,000,000 Value, $750,000 loan amount, 75% LTV.  The rate is about 5.75% at one cost, plus 0.5 origination, but still a good program.

Full doc Jumbo programs are at 5% or lower at half a point or less.

Conforming loans, at $417,000 or less loan amount are at 4.375% to 4.625%, pretty great rates now!

And since the indexes are so low, reverse mortgage HECM's tied to the CMT and LIBOR index are at 4% or lower.  Reverse mortgages for ages 62 and up, loan amounts have increased up to $625,000+, so you can get much more money from your home now.   Example of money out for reverse:  Client has a $800,000 home in Belmont, CA.  Has an existing loan for $100,000.  They can get up to $500,000 out from a reverse.  Pay the mortgage off, and end up with $400,000 that they can have access to monthly, lump sum, just like a credit line.

They even have reverse mortgages for purchases now, great for seniors downsizing.

So, lot's of great programs out there, good time to buy, refi, invest, or retire, if possible.

Did you know you can refinance your mortgage up to 105%?

New programs have been released, allowing the qualified homeowners to refinance up to 105% of their loan amount.  This is some of the special programs introduced by the Obama administration.  This is almost like a loan modification.  Loan mods have been a bit difficult to complete, and are mainly targeted towards homeowners that cannot make their payments. 

This new refi program introduced is catering towards the homeowner that is on time with their mortgage payments, but the home value has fallen.  Your loan must be with Fannie Mae or Freddie Mac.  You can check by logging onto http://loanlookup.fanniemae.com/loanlookup/  or  https://ww3.freddiemac.com/corporate/  .

Once you know that your loan is with Fannie or Freddie, then you need to fall into the following criteria:  owner occupied property, current on mortgage, loan amount is close to or slighly less than your home value, and a stable income. 

If you loan is with Freddie Mac you must work with the same servicer who now holds your loan.  For example, if you loan is serviced by Wells Fargo, and is a Wells Fargo loan, and is a Freddie Mac loan, you must go back to Wells Fargo.

If your loan is registered with Fannie Mae, you have more options to work with other lenders, etc.

Please feel free to email me with any questions on how this all works.

What's Up Doc? The week ahead, May 4th, 2009

Mortgage markets faced a broad sell-off last week, sparked by the Federal Reserve and consumer sentiment. 

This caused mortgage rates to spike from Wednesday to Friday and it caused the "lowest rates of all-time" to seem like an opportunity lost.

It's the first time in 4 weeks that mortgage rates rose overall.

Last week was a strange week, to say the least.  Aside from the large docket of economic data, there was also:

• A Federal Reserve meeting
• 160 of the S&P 500 firms reporting earnings
• A global public health emergency

It all combined to make for a volatile week in mortgages and the biggest losers were the people that hadn't yet locked a mortgage rates.  Based on the current market, each quarter-percent that mortgage rates rose added $32 per month per $100,00 borrowed.

This week, the market should be similarly jumpy. 

Early in the week, there's not much data to sway markets, nor is there much in the way of public policy.  Therefore, expect external factors like the Swine Flu to dictate the market's path.  If the outbreak's intensity grows, look for Safe Haven to lower rates much like it did last Monday.

Also, be aware and listen for Stress Test rumors.

Thursday, the government is expected to release its bank Stress Test results.  However, history shows that markets often make large movements before news is ever official -- mostly on rumors. As a result, expect mortgage markets to carve out wide ranges on Tuesday and Wednesday in advance of the reports, making it very hard to "time" low mortgage rates.

And lastly, Friday brings us April's employment data.  There's nothing the report can show us that we don't already know so the biggest risk here is that employment is not as bad as we all expect it to be. 

If that's the case, stock markets will rally and mortgage rates will rise.

Like always, mortgage markets can change in an instant -- especially when there's outside influences on "normal" trading like we're seeing with Swine Flu and the Stress Test.  If you're offered a rate and it fits your budget, consider locking right away.  It may not last long.

Loan Modifications for 2nd Mortgages

The Obama administration unveiled an expansion of its $75 billion foreclosure prevention plan yesterday, providing new subsidies to mortgage lenders and investors.

Under the expanded plan, some homeowners could see their payments fall significantly and the interest rate on their second mortgage pushed down to 1 percent. The announcement comes nearly two months after the administration launched the housing program, called Making Home Affordable. While officials said some borrowers have already received help, the foreclosure rate is rising and it could be months before the program begins to have an impact.

The new efforts address, in part, criticisms from consumer advocates that the administration's housing plan did not go far enough and that borrowers still face too many barriers to receiving help.

The administration's housing plan pays lenders to help borrowers stay in their homes by modifying their mortgages to an affordable level. But, the plan as first announced in February applied only to primary mortgages. Now, lenders will be eligible for payments when they modify the terms of a second mortgage, including a home-equity line.

About 50 percent of at-risk borrowers have a second mortgage, which can make it difficult for them to afford their homes even after payments are cut on their primary mortgages. Second mortgages were popular during the housing boom for buyers who could not afford big down payments.

Under the new plan, lenders would receive $500 for modifying the second mortgage, plus $250 a year for three years if the loan remains current. The borrower would be eligible for $250 a year for five years to lower their principal balance. The borrower could have the interest rate lowered to 1 percent, depending on the type of loan, with the government sharing the cost of the rate reduction.

Senior administration officials said they expect the second-mortgage program to help 1 million to 1.5 million of the up to 4 million households expected to be covered by the wider loan-modification program. The program, which will take several weeks to get running, will be paid for through bailout funds already allocated to the program, officials said.

The Treasury Department also is attempting to breathe new life into another government foreclosure prevention program, called Hope for Homeowners. That program, launched last year, refinances homeowners into more affordable mortgages. But lenders have balked at requirements that they cut some of the principal that borrowers owe. Only one homeowner has received a government-backed loan under the program so far.

Now, lenders will receive $2,500 to refinance a borrower into Hope for Homeowners and $1,000 a year for up to three years as long as the borrower stays current.

The Return of the Jumbo Mortgages

 

Jumbo mortgages became more expensive and harder to come by as the nation's credit crisis deepened. That might be starting to change.

"Jumbo" refers to mortgages that are too large to be bought by Freddie Mac or Fannie Mae. The "conforming loan limit" for those government-backed entities is $417,000 in many parts of the country, but goes up to $729,750 in high-cost areas of the continental United States.

Bank of America recently began trumpeting its jumbo program, offering 30-year fixed-rate jumbo mortgages with rates in the high-5% range. More lenders may soon join in.

Bank of America appears to have lower jumbo rates than its giant banking competitors Wells Fargo, J.P. Morgan Chase and Citibank.

Big Drop in Rates

The rates on 30-year fixed-rate jumbo mortgages averaged 6.5% for the week ended March 27 -- the lowest since May 2007, according to HSH Associates, a publisher of consumer loan information. On Oct. 31, a recent high point, the average rate on a 30-year fixed-rate jumbo mortgage was 7.9%, according to HSH data.

GMAC also has been pricing its jumbos aggressively.  Has seen rates in the high-5% to the low-6% range for 30-year fixed-rate jumbo mortgages, and the low-5% range for five-year adjustable-rate jumbos.

ING Direct, has been offering jumbos in the 5% range for several months -- even back when average rates were higher.

Lenders no longer have many institutional buyers for their jumbo loans, forcing them to keep the loans they write on their books. Banks held back when cash was tight. But banks have more money to lend these days, as consumers have taken money out of the stock market and put it into safer investments.

Banks have gotten assistance from the federal government, and record-low conforming mortgage rates have inspired more people to refinance loans -- giving banks some more liquidity, he says.

For financial institutions, the return on a jumbo mortgage is also starting to look appealing. Banks are taking a look at what investment alternatives there are and they "are saying 'we wouldn't mind a 6% to 7% asset on the books.' "

Cheaper But Not Easy

Borrowers in the market for this kind of loan, however, shouldn't expect a simple process. Mortgage shoppers will find differences in price and availability from lender to lender.  Jumbo programs vary greatly from one side of town to the other, and lenders will sometimes originate a higher volume of loans for a while, then slow down.

"To be honest, I'm not certain if [the low rates] will be around for a while.

What You Need to Know

If you think you're in the market for a jumbo mortgage, consider the following:

Do you really need a jumbo? Don't automatically assume that your mortgage will exceed the conforming loan limits.  As home prices have fallen and the U.S. has raised loan limits in some areas, more home buyers probably need conforming mortgages.

Some people who are looking to refinance and who originally needed jumbo loans may also fall within increased loan limits.

With a conforming mortgage, you will likely get a better rate.

Availability may be increasing, but requirements are still stiff. Bank of America jumbo loans, for example, require at least a 720 credit score and a 20% down payment (or 20% home equity on a refinancing). And borrowers need to have at least six months worth of reserves in the bank. ING Direct requires 25% down.

Search widely for good deals. Borrowers need to shop around for any mortgage, but particularly for jumbos, A small local lender or credit union may have a good deal, but you won't know unless you do your homework. Ask your professional mortgage broker.  They have access to all or most of the lenders mentioned today and they can compare programs.  Also check with real-estate agents, your friends, or anyone who might have a lead on a good jumbo lender.

Compare apples to apples. Lenders often talk about their products in terms that don't allow you to easily compare with other lenders.   Make sure to draw fair comparisons that consider mortgage fees and costs.

Buying a Condo? Make Sure You Check Out Your HOA

There are a lot of great buys out there, especially for people looking for condominium's.  I  have recently closed two separate condo purchases, both in San Mateo, California.  One bedroom, one bath condo's selling for $200,000 to $250,000.  But before you sign on the dotted line, make sure you review with a professional your HOA(homeowner's association) specifics.  Due to the mortgage and credit crisis, lenders have been changing guidelines across the board.  Some recent changes include requirements regarding non-owner or investment owned condo versus owner occupied as a percentage of the total units in the complex.  And other requirements relate to the percentage of units in the complex deliquent on there HOA monthly due's. 

Non-owner versus owner occupied - Make sure you confirm how many units in your complex are owner occupied.  I recently had a situation in a 990 unit complex, 36% of the units were investment properties.  Well, the lender is changing guidlines and in the future, the maximum non owner units in the complex allowed are 30%. We were right in the middle of our loan processing for this purchase, so we did get an exception.  This is something you must be aware of if shopping for a condo.

The other issue that came up is regarding existing homeowners or rentals who are late with their HOA due's.  I was in the middle of another purchase, and we ordered a condo certification, and we discovered that over 15% of the condo owners and renters were late on their HOA dues.  My client had a great record and high credit scores and was an excellent potential borrower, but due to other people's action's, we also had to get an exception on this approval to complete the purchase. 

All went well, but both lead to some wrestless nights.  The moral of the story, there are great buys out there, but do your research on the condo complex. 

What's Up Doc? The Week of March 23rd

Mortgage markets scored big gains last week, sparked by the Federal Reserve's pledge to buy $750 billion more mortgage-backed bonds in 2009. 

Conforming mortgage rates fell on the week, overall.

But Federal Reserve intervention wasn't the only good news for rate shoppers last week.  New evidence showed -- for the time being, at least -- that the U.S. economy may be reversing direction:

• Homebuilders are breaking ground on new homes again
• First-time jobless claims are falling
• Inflation is present and, therefore, deflation is not

Should the economy continue trend stronger through the summer, it will likely fuel stock market gains, drawing cash away from mortgage bonds.  This would lead mortgage rates higher -- perhaps for good. 

Today's levels are artificially low, after all, supported by government intervention more than economic fundamentals. After the Fed's Wednesday afternoon announcement, rates fell to all-time lows before recovering sharply into the weekend on economic optimism and fears of inflation.

This week, the trend higher may continue. 

In addition to the economic data set to be released this week, the U.S. government is expected to unveil its "toxic asset" plan Monday.  If the plan includes issuance of new federal debt, inflation concerns will grow and that should lead mortgage rates up once more.

Some of the week's key events include Monday's Existing Home Sales report, Wednesday's New Home Sales report and Friday's consumer spending report, as well as President Obama's Tuesday evening address to the nation.

Rates can make huge changes from day-to-day and even from hour-to-hour.  If you're shopping for a new home loan and find a mortgage offer that "fits", consider locking it right away.  With so much news hitting the wires this week, the rate quote is likely to expire quickly.

Ben Bernanke Speaks

I do not know if you caught Ben Bernanke speak last night on 60 minutes but it was pretty interesting.

See his talk on the link below.

http://www.cbsnews.com/video/watch/?id=4866969n

First Question:  When is this, the recession, going to end?  He feels by end of this year, with a recovery coming in 2010. 

There are many factors involved, especially the financial markets, banks recovering, creating jobs/unemployment.

Will interest rates remain low?  It appears to be true for most of 2009. If a recovery does begin in 2010, get ready for a slow rise in rates.

 

I have been working with clients and reviewing their existing mortgages.  One client came to me with   his mortgage statement, stating that his 5 year adjustable mortgage was resetting in May and he did not know what to do.  I took a look at the NOTE and mortgage statement to get an idea of what margin and index the loan was tied into.  I discovered that his mortgage was in a One Year LIBOR with a margin of 2.75% and that it will reset to a 25 year amortized period.  His existing rate is 4% interest only, with a payment of $1700.  

So what does this all mean?  Well, what it means is that he is not in that bad of shape.  The One Year LIBOR right now is at 0.50%, so when his loan resets in May, 2009, the rate fixed for one year is going to be 3.25%!  Not bad.  His payment on a $500,000 loan will be a little over $2400, and he will be paying principal and interest.  In this situation, the borrower can let the loan reset, begin paying the new payment, and not be pressured with a refinance.  We can keep an eye on the market and if anything great comes up on a 30 year fixed program, we can jump on it.  But all in all, the borrower is not in a really bad position because they are in a 5 year interest only loan that is adjusting this year.  Something to think about when looking at your existing loan.  If you want me to look at your adjustable loan and analyze the index, margin, etc., please do not hesitate to ask.

Obama plan to offer extraordinary refi chance

Although the final operational guidelines of the Obama administration's foreclosure-avoidance programs won't be released until Wednesday, key details have begun surfacing on the extraordinary refinancing opportunities that will be available to an estimated 4 million to 5 million homeowners whose mortgages are owned or guaranteed by Fannie Mae and Freddie Mac.

Under the Obama plan, borrowers who have made their monthly payments on time but are saddled with interest rates well above current prevailing levels in the low 5 percent range may be eligible to refinance - despite decreases in their property values.

Neither Fannie Mae nor Freddie Mac typically can refinance mortgages where the loan-to-value ratio exceeds 80 percent without some form of credit insurance. That insurance can be difficult or impossible to obtain in many parts of the country that insurers have labeled "declining" markets, with high risks of further deterioration in values.

In effect, large numbers of people who bought houses several years ago with 6.5 percent or higher 30-year fixed rates cannot qualify for refinancings because their LTVs exceed Fannie's and Freddie's limits.

Using an example supplied by the White House, say you bought a home for $475,000 in 2006 with a $350,000 mortgage at 6.5 percent that was eventually acquired by Fannie Mae. In the three years following your purchase, the market value of the house has dropped to $400,000, and you've paid down the principal to $337,460.

If you applied for a refinancing to take advantage of today's 5 percent rates - which would save you several hundred dollars a month in payments - you'd have difficulty because your LTV, currently at 84 percent, exceeds Fannie's 80 percent ceiling.

But under the Obama refi plan, Fannie would essentially waive that rule - even for LTVs as high as 105 percent. In this example, you'd be able to qualify for a refinancing of roughly $344,000 - your present balance plus closing costs and fees - at a rate just above 5 percent.

In a letter to private mortgage insurers Feb. 20, Fannie and Freddie's top regulator confirmed that there would be no requirement for refinancers to buy new mortgage insurance, despite exceeding the 80 percent LTV threshold.

James B. Lockhart III, director of the Federal Housing Finance Agency, described the new refinancing opportunity as "akin to a loan modification" that creates "an avenue for the borrower to reap the benefit of lower mortgage rates in the market." Lockhart spelled out several key restrictions on those refinancings:

-- No "cash outs" will be permitted. This means the new loan balance can only total the previous balance, plus settlement costs, insurance, property taxes and association fees.

-- Loans that already had mortgage insurance will likely continue to have coverage under the existing amounts and terms, thereby limiting Fannie's and Freddie's exposure to loss. But loans where borrowers originally made down payments of 20 percent or higher will not require new insurance for the refi, despite current LTVs over the 80 percent limit.

-- The cutoff date for the entire program is June 10, 2010.

Lockhart said that although Fannie and Freddie would be refinancing portions of their portfolios into lower interest-rate, higher LTV loans, he expects their exposure to financial loss should actually decline.

"In fact," he said, "credit risk would be reduced because, after the refinance, the borrower would have a lower monthly mortgage payment and/or a more stable mortgage payment." This, in turn, would lower the probability of loss-generating defaults and foreclosures by those borrowers.

Since Fannie and Freddie both operate under direct federal control - technically known as "conservatorship" - any additional losses to the companies would inevitably be borne by taxpayers.

How it all works out may well depend on whether the Obama administration's broader efforts to stabilize housing prices, reduce foreclosures and push the economy out of recession are successful.

If large numbers of beneficiaries of these special refinancings ultimately cannot afford to pay even their cut-rate replacement rates and go into foreclosure, red ink could flow in rivers from Fannie and Freddie.

But because that's an unknown and the refi program is an immediate, here-and-now money-saving reality, homeowners ought to make the most of it. If you know that Fannie or Freddie owns or guarantees your mortgage - your loan servicer can tell you - and you've got an on-time payment record and an interest rate above today's prevailing levels, start assembling your financial records and get ready to refi.

Mortgage Rescue Plan Holds Little For Bay Area Homeowners

Fewer homeowners in the Bay Area qualify for help under President Obama's housing rescue plan that anywhere else in the country, a new analysis shows.

Less than 10 percent of mortgage holders in the region because the loans they hold are non-conforming (made for more than $417,000) and they are "underwater" by more than 5 percent, said real estate service Zillow.com.

Obama's plan would help qualified homeowners refinance into lower-cost mortgages. It is only available for borrowers whose loans were less than $417,000. What they owe also must not exceed what the home is worth by more than 5 percent.

Zillow said that in the Bay Area only 8.4 percent of all mortgaged homes meet those criteria. In Santa Clara County, that drops to just 6.9 percent of mortgaged homes.

Across the country, more than one-quarter of all U.S. mortgaged homes meet the two qualifications and in some low-cost parts of the country that number is more than 44 percent, Zillow said.

Do Not Fall For the Property Tax Reduction Offers

The San Mateo County Assessor's Office asked the San Mateo County Sheriff's Office to send out the following cautionary note regarding unsolicited property tax reduction offers. In the past week, San Mateo County property owners have been blanketed with solicitations from private companies that are luring people to spend money to reduce their property taxes. These companies cannot guarantee a reduction in property taxes to anyone. The law establishes which properties are eligible for this property tax relief program known as a "Decline in Value." A "Decline in Value" request is FREE to any homeowner. We need your help to get the word out--tell your constituents, employees, friends, neighbors and family NOT to get ripped off--do NOT pay for these services. If anyone should ask, this is how the Decline in Value program works: First, a property owner requests a Decline in Value review by filling out a simple form and sending to the Assessor's office (online, by fax, mail or in person). It only takes a couple of minutes to complete. Second, our offices review the request. If a property's assessed value is more than its market value as of Jan. 1, the property owner will be eligible for a temporary reduction in assessed value. We will start the process that will lower their property tax bill or earn them a property tax credit. Third, if the property is ineligible for relief, we will advise the owner as to why their property did not qualify for a reduction. Where can someone get a form? Decline in Value request forms are available online and in downloadable paper formats from our web site at www.smcare.org. We will also mail them to a property owner and forms are available in our office if a person stops by. And lastly, properties that are reduced are reviewed by the office on an annual basis. If the property continues to qualify, it will remain on the program in future years until the property's value is regained. Please help us spread the word. I've attached the press release that we sent to the media and samples of the solicitations. You will note that is very professional looking and that is why it may snare unsuspecting property owners into this scam. Thank you, Warren Slocum

How To Sell Your Home For 17% More, 40% Faster This Spring

Super Bowl Weekend traditionally marks the start of the Spring Buying Season in real estate.  Anecdotally, real estate agents will tell you that buyer activity tends to tick higher at this time of the year.

Meanwhile, with mortgage rates still trolling near all-time lows and Congress debating a first-time homebuyer tax credit, 2009 may bring out even more buyers than we've seen in the past.

Just having your home on the market may not be enough to attract an offer, though -- the home has to have appeal.  That brings us to home staging -- the process by which a homeowner re-organizes and re-presents his home to appeal to as many potential buyers as possible.

Home staging is part-science, part-art, and part-psychology.  Homebuyers tend to judge homes within the first 8 seconds of seeing them so making a quality first impression can mean the difference between getting multiple bids, and just getting a lot of foot traffic.

The 4-minute video gives some quick-and-easy tips, including:

• Create more light in the home
• Clean up the closets and thin them out
• Remove the clutter from every room in the house

Even though home inventories are falling, supplies are still higher than in previous years.  Home sellers wanting to stand out in a crowd may want to consider staging their homes to help them sell more quickly. 

Staged homes sell for as much as 17% more money and as much as 40% faster than non-staged ones.

What's Up Doc? First Week in February

Consumer confidence reached an all-time low and 100,000 Americans were issued layoff notices last week, each playing a role in the mortgage market's relative worsening.

For the third consecutive week, mortgage rates rose and average loan fees increased, too.

Amid all of the negative economic news, however, there were two bright spots worth identifying and discussing.  They show that country may be closer to economic recovery than expected.

First, the supply of "used" homes for sale fell from 11 months to 9 months nationwide.  This suggests that homebuyers are re-entering the housing market in force, a signal that home prices are nearing equilibrium.

And, second, the nation's GDP -- a measurement of the country's complete economic footprint -- didn't fall by nearly as much as what the experts had predicted.  A positive surprise like this makes us wonder about what else the Doomsday Economists may be wrong.

We won't have to wonder long. 

With this week comes copious amounts of data, legislation and rhetoric to influence mortgage rates.  Some of the news-bites that mortgage markets will digest this week include:

• The Personal Consumption Expenditures Index report.  PCE is a preferred inflation measurement and inflation is the enemy of mortgage rates. A high reading will pressure mortgage rates up.
• Retail stores report on same-store sales.
• The Pending Home Sales report.  This notes the number of "homes under contract" and is a good gauge for buyer interest and the general health of housing.
• 20% of the S&P 500 firms will report earnings.
• Congress is expected to vote on the Stimulus package.

The biggest impact on rates, however, could come on Friday with the release of January's jobs report.  Employment data is always market-mover and with the press giving so much attention to layoffs lately, expect Wall Street to be extra jittery it.

Markets expect the economy to have lost a half-million jobs last month.

(Image courtesy: Wall Street Journal Online)

What's Up Doc? The Week of January 26th

Mortgage Markets In Review : January 26, 2009

Mortgage markets deteriorated last week on the heels of weak economic data and uninspiring corporate earnings.

Mortgage rates rose for the second week in a row.  They're now measurably higher than the low point set 3 weeks ago.

For mortgage rate shoppers, though, last week's most important stories weren't necessarily last week's most reported stories; the most obvious of which was soon-to-be Treasury Secretary Tim Geithner's assertion that China may be manipulating its currency.

This assertion poses risks to mortgage rates because China is one of the largest buyers of U.S. mortgage-backed bonds.  Its ongoing bond buys helps keep mortgage rates down.  But an angry China is less likely to buy U.S.-backed debt and that would pressure mortgage rates hgiher.  Said China of the Geithner remarks, we're angry.

Other mortgage rate-altering stories included:

• Corporate weakness at GE, Microsoft, and nearly every U.S. bank
• Concerns that political in-fighting could derail a stimulus plan
• Mounting job losses in nearly every economic sector

In addition, just to show how backwards markets are right now, in "ordinary" times, economic weakness often leads mortgage rates lower.  In this market, however, it's having the opposite effect.  Whenever the economy looks sour, mortgage rates seem to rise. 

Americans in want of a mortgage have been at the mercy of Wall Street's fickle sentiment lately.  It's a nerve-racking place to be.

This week, markets hope to be calmed.  There's a handful of news releases including Existing Home Sales, New Home Sales and consumer confidence surveys that will help paint a clearer picture of the economy, but the Federal Reserve's 2-day meeting should steal the spotlight.  The Federal Reserve is expected to hold the Fed Funds Rate at its current range of 0.000-0.250 percent.

However, the Fed Funds Rate is somewhat of an afterthought this week.  Markets are more concerned with what the Fed will be doing to loosen bank lending nationwide.

Markets will evaluate the Fed's response and if they deem the stimulus to be too large (or too small), mortgage rates should rise.  If the Fed's moves are "just right", look for rates to fall.

The Federal Open Market Committee adjourns at 2:15 P.M. Wednesday.

(Image courtesy: The Wall Street Journal Online)

Real Estate Review

What's Up Doc? - the Final Week of 2008

In a week defined by low volume and lack of conviction, mortgage markets idled ahead of the holiday last week.  Friday's post-holiday action was even slower.

After falling for two consecutive weeks, mortgage rates held flat last week.

It's somewhat surprising that mortgage rates didn't rise considering the flow of negative economic news last week:

• Joblessness appears to be worsening
• Consumer spending sputtered
• The U.S. dollar is showing weakness

Lately, each of these elements has played a role in mortgage rate movement but it's the last bullet point that could throw home buyers and refinancing Americans for fits. 

It's because of the relationship between mortgage rates and the strength of the U.S. Dollar. 

All things equal, a strong dollar pressures mortgage rates lower whereas a weak dollar pressures mortgage rates up.  And, because the dollar's recent beat-down has been swift, it wouldn't be unexpected to see similar mortgage market movement at any time.

This week, like last, is interrupted for the holiday.  Regardless, there's much going on.  Aside from two economic reports, there is nothing else for markets to digest and no planned speeches by members of the Fed.

Expect just a small number of traders to show up for work this week.  This means volume will be especially light.  But don't be lulled into taking your eyes off the market -- low volume on Wall Street is sometimes accompanied by high levels of volatility.

For now, mortgage rates are hovering near their 2008-lows.  Given the path of the dollar and low-volume trading, that could all change in a flash.

What's up Doc? With Loan Mods

Earlier this year and under pressure from the government, mortgage lenders made more than 200,000 loan modifications to delinquent homeowners.

The modifications came in one of three forms, or a combination:

1. Interest rate reduction
2. Loan term extension
3. Principal forgiveness

But despite the modifications, as of October 1, more than half of the homeowners that received assistance were already two months behind on their modified monthly payments. 

This late-pay statistic was a focal point on Capitol Hill yesterday as the government admitted delinquencies "were larger than [they] thought they'd be".  Loan modifications are proving inadequate at slowing foreclosures and yesterday's session opened the door to more effective foreclosure prevention measures.

However, of all of the statistics published, there was one of particular interest.   

Based on its loan modifications to-date, the FDIC has found that modified borrowers default far less when new monthly payments are less than 38 percent of monthly household income.  This is important because Freddie Mac guidelines for ordinary mortgage applicants currently cap that rate at 45 percent.

If the 38 percent figure holds up long-term, it may lead mortgage lenders to permenantly reduce maximum debt-to-income allowances.  Already, mortgage insurers have taken this step so it's not out of the question for lenders.  Tighter guidelines mean fewer mortgage approvals.

If you're unsure of whether now is a good time to buy a home, consider that mortgage rates are low, mortgage guidelines are tightening, and foreclosure prevention efforts reduce the supply of available homes.

Prices may not have bottomed, but the market is giving everyone a lot of reasons to consider buying now.

(Image courtesy: The Wall Street Journal)

Proposal could drop mortgage rates to 4.5%

Silicon Valley mortgage brokers could barely contain their enthusiasm as news leaked from Washington of a proposal to reignite the dormant housing market by driving down mortgage rates to the 4.5 percent range.

The plan, which reportedly could be announced as early as next week, has the potential to dramatically boost the housing market and the faltering economy by stimulating stagnant home sales and significantly lowering monthly mortgage payments for millions of Americans.

"It would be a dream come true," said Cathy Warshawsky of Bay Area Loan in San Jose, the president of the Silicon Valley chapter of the California Association of Mortgage Brokers.

At rates of 4.5 percent for a fixed, 30-year loan, "We would have everybody and their brother who had equity in their homes coming to refinance. That would be an amazing influx of loan applications. It would keep things going for a long, long time."

The Treasury Department is reportedly considering several plans, including one proposed by the Financial Services Roundtable, a lending industry trade group, that could drop mortgage rates on 30-year loans by about 1 percentage point. Under that group's plan, the Treasury Department would buy mortgage-backed securities from the government-sponsored entities Fannie Mae and Freddie Mac, which own or guarantee almost half of U.S. home mortgages.

The idea is to restore confidence in mortgage-backed securities, which would encourage banks to make more loans, knowing that they will be able to sell them to the federal government. That should lower the rates on mortgage-backed securities, which in turn should lower mortgage rates.

The lower rates would benefit people buying homes, refinancing existing loans and perhaps even some people who owe more on their homes than they are worth, according to a Roundtable spokesman. It also addresses a widespread concern that the Treasury Department's $700 billion bailout plan helps only financial companies, not consumers.

But there may be a hitch for some California borrowers because of home values that remain high compared with the rest of the country. Loans here often go over the limits beyond which the two government-sponsored companies can buy or back mortgages. The limit is $729,750 through Dec. 31 and $625,500 in 2009.

"It isn't going to help jumbo borrowers," said Greg McBride, analyst with Bankrate.com. He said borrowers who owe more than their homes are worth would be helped by a halt in declining home values, but it would be up to banks to decide whether to offer them new loans.

The Treasury Department, Fannie Mae and Freddie Mac would not comment.

But in a speech Monday, Treasury Secretary Henry Paulson said: "The most important thing we can do to mitigate foreclosures and progress through the housing correction is to reduce the cost of mortgage finance, so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages."

The Federal Reserve announced a similar plan last week, and it drove down interest rates almost immediately to the range of 5.25 percent to 5.375 percent, sparking a surge of interest from homeowners wanting to refinance their mortgages.

The Roundtable sent a letter outlining the proposal to Treasury officials "weeks ago," said Scott Talbott, a Roundtable spokesman. "It's something we strongly support," he said, adding that he didn't know why news of the plan was coming out now.

It was first reported Wednesday on The Wall Street Journal's Web site. The Associated Press quoted sources who said a decision could be announced Monday. Details of how the plan would work, and its potential cost to taxpayers, were vague and conflicting; the Journal reported that the plan would help only home buyers.

Talbott said a mortgage rate of 4.5 percent — a level not seen in decades — is the "working plan."

'Limited impact'

Although that could potentially help millions of consumers, Kevin Stein of the California Reinvestment Coalition said — based on the sketchy information available — it might have "limited impact" on people in trouble with their loans, and on Californians with large mortgages.

"That said, if it helps some people refinance into lower-cost loans, that is a good thing," Stein said.

James Liptak. president of the California Association of Realtors, said the plan would be only a first step. Congress needs to shore up confidence in the economy, he said, and lenders need to "promote sound and prudent underwriting standards so investors again will feel confident investing in the mortgage capital market."

John Holmgren, a Bay Area mortgage broker and spokesman for CAMB, called it "a welcome development on a number of levels," making homes more affordable and shrinking the inventory of unsold homes.

Demand for new mortgages could create a new problem. McBride worried that the lending industry may not be staffed to handle the volume of loan applications triggered by the plan.

"Are we staffed for a huge surge in applications and loan volume?" McBride asked.

WHAT WOULD IT MEAN TO YOU?

What would a 4.5 percent mortgage interest rate mean for the monthly payment on a $500,000 mortgage currently at 6 percent?*

$2,998 Old payment
- $2,533 New payment
$465 Monthly savings

* Both for 30-year fixed-rate mortgages

The Bright Side Of The Credit Crisis

 

A credit crisis, also known as a "credit crunch" or "credit shock", occurs when there is a rapid reduction in the availability of loans from banks. This is caused by loans going sour, forcing the banks to tighten up lending standards.

Credit shocks create both positive and negative effects in the economy. By examining these effects carefully, we can gain a greater understanding of how credit shocks work and what we can learn from them. Read on to find out more.

The Downside of a Credit Crisis
Credit shocks have several negative effects on both consumers and businesses. Some effects are felt right away, while others take time to be seen.

Consumers cut spending
As a credit crunch runs its course, the economy continues to slow. This creates a situation where consumers are less optimistic about the future prospects for the economy and cut back dramatically on their spending. Since consumer spending accounts for 70% of economic activity, even a slight cutback in spending can cause the economy to slow dramatically. (Learn what consumer spending can indicate about the market in Using Consumer Spending As A Market Indicator.)

Banks fear making loans
Credit shocks can create a situation where banks are afraid to make new loans. This fear causes many businesses and consumers to cut spending dramatically or even close their doors. This causes a ripple effect in the economy as more businesses have trouble surviving and consumer wealth erodes.

Businesses lose access to capital
When businesses do not have access to the capital they need to expand, pay expenses or pay bills, a liquidity squeeze can occur. This squeeze can force many businesses that have been thriving for years to shut their doors and let their employees go. (Find out how this economic cycle affects both small and big businesses in The Impact Of Recession On Businesses.)

Rising foreclosures may bring property values down for communities
If banks are forced to foreclose on too many borrowers, this can have dire consequences on communities. Not only do property values decline in communities where foreclosures are high, but there are several untold economic consequences as well. These include a loss of property tax revenues for both state and local governments, economic blight for areas being affected by waves of foreclosures and the failure of local businesses that are dependent on the community to survive. (Learn what you can do if your home is at risk in Saving Your Home From Foreclosure.)

The crisis may force the government to take emergency measures
As the economy becomes weaker and the credit shock spreads from Wall Street to Main Street, a cycle of economic weakness spreads throughout the country, creating rising unemployment and negative growth. This forces the government to take drastic measures to break the cycle once and for all by spending hundreds of billions of dollars to revive the economy. (Learn what measure the Federal Reserve takes in this situation in The Federal Reserve's Fight Against Recession.)

A falling stock market eats away at wealth
The credit shock and uncertainty about future earnings cause many investors to sell their stock holdings and move into safer investments. This causes the equity market to go into a free fall that eats away the values of 401(k) plans, IRAs and pension plans. Diminished nest eggs force many who were planning on retiring to work longer. (Learn how understanding the business cycle and your own investment style can help you cope with an economic decline in Recession: What Does It Mean To Investors?)

Consumers and businesses feel panic and fear
Left unchecked, the credit shock can create a loss of confidence in the nation's financial system. This causes many people to assume the worst and take drastic steps to protect what little wealth they have left. It is at this point that bank runs become more common and even more financial institutions collapse. (Learn how the SIPC and FDIC insure against personal financial ruin when banks or brokerages go belly up in Bank Failure: Will Your Assets Be Protected?)

The Upside of a Credit Crisis
Credit shocks can create many lasting, positive changes. These changes can be seen in the aftermath of the crisis. Some of the positive effects of a credit shock include the following:

The economy cleans out excessive debt and spending
During good economic times, many businesses and consumers increase their overall debt. This behaviour is fuelled in part by businesses needing to expand and in part by consumers who are feeling good enough about the economy to make large purchases without worrying about what will happen in the future. (Read Five Signs That You're Living Beyond Your Means to learn whether you're in this risky group.)

But while the economy will continue to expand and debt levels consistently rise for a while, at some point the economy will slow down and many who overextended themselves during the good times will be forced to live within their means or may even fall behind. As businesses and consumers are forced to cut back, some will stop making payments on their debts, forcing financial institutions to write the bad loans off. These forced write-offs, either by the banks themselves or through government intervention, will cleanse the financial system so that businesses can have strong balance sheets and consumers who were once tapped out can increase their spending without being burdened by large amounts of debt.

Corporations clean up their balance sheets
Businesses can use debt to expand and increase their overall profits. However, debt can be a double-edged sword: during recessionary times, the amount of overall debt that businesses took out during the last expansion can cause the company to face liquidity problems. By writing off the bad debt on their balance sheets, businesses become leaner, can weather the slowdown and can expand even more when positive growth returns to the economy. (Learn about the role of debt in determining corporate health in Debt Reckoning.)

Transparency and regulation in the financial sector improve
A financial crisis can expose the loopholes in regulations that people were taking advantage of - loopholes that may have contributed to the crisis. The government then reacts by creating new regulations to address the situation. Over time, these laws bring confidence back to the U.S. financial system and investors feel secure again. (Learn about the role of confidence in the economy by reading Understand The Consumer Confidence Index.)

Hard times force consumers to regain control of their spending
During times of expansion, many consumers try to keep up with the Joneses by living a lifestyle beyond their means and accumulating more debt than they can handle. Credit shocks force consumers to rein in their spending and lead lifestyles that are more appropriate to their incomes. People then regain control of their finances and cause the national savings rate to increase. (Learn how to keep your spending under control every day in Squeeze A Greenback Out Of Your Latte and Nine Reasons To Say "No" To Credit.)

Declines in stock prices create great long-term valuations.
During the crisis, when everyone is panicking and selling both good and bad investments, many smart investors are buying those good investments and holding them long-term. Once the crisis is over and the chaos has died down, they make tremendous profits. Some of the more well-known investors that have employed this strategy, include Warren Buffett, Sir John Templeton and Benjamin Graham. (Bear markets can terrify even seasoned investors. Learn how to invest safely in Four Tips For Buying Stocks In A Recession.)

Conclusion
Credit shocks have many negatives, but they also create opportunities. During times of economic crisis, it is important to keep a clear head and not get caught up in the fear. Left unchecked, large-scale fear can wreak havoc on the world economy. But over time, the crisis will end and the economy will begin to expand once again.

For further reading, see Five Strategies For Surviving Tough Times, Taking Advantage Of Corporate Decline and How does a credit crunch occur?
Provided by Chris Seabury,

How Big Can a Mortgage Be and Not Be Considered "Jumbo"

For the 4th consecutive year, the government has set the conforming mortgage loan size limit at $417,000.

A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.

The 2009 conforming loan limits, as released by the government, are:

• 1-unit properties : $417,000
• 2-unit properties : $533,850
• 3-unit properties : $645,300
• 4-unit properties : $801,950

Loans in excess of conforming loan limits are more commonly called "jumbo", or "super jumbo" home loans, depending on their size. 

Out-sized mortgages like these are often more costly than their conforming-mortgage counterparts because jumbo loans are not guaranteed by the U.S. government like Fannie Mae loans are. 

There are loan limit exceptions, however.

Left over from the Economic Stimulus Act of 2008, specific, "high-cost" areas around the country have their own conforming loan limits, not to exceed $625,500.  There are 59 designated high-cost regions in the U.S., most of which are in California.

Loan limits are re-assigned each year, based on "typical" housing costs around the country.  Since 1980, as home prices have increased, so have conforming loan limits.  As home prices have fallen in recent years nationwide, however, the conforming loan limit has not.

How the Presidential Election May Impact Mortgage Rates

 

More than a handful would-be home buyers stayed on the sidelines this year, waiting for Election Day to pass. 

The prevailing thought was that once the new President-Elect was identified, credit markets will systemically unfreeze and housing markets will return to normal.

If history is a guide, this is an unlikely scenario.

Election Day doesn't figure to alter markets any more in 2008 than it did after the four previous presidential elections. 

If anything, post-Election Day market reaction has been muted:

• 1992 : Dow closes down 0.9 percent the day after Election Day
• 1996 : Dow closes up 1.6 percent the day after Election Day
• 2000 : Dow closes down 0.4 percent the day after Election Day
• 2004 : Dow closes up 1.0 percent the day after Election Day

But just because the stock market has a history of idling on the day after the election doesn't mean that mortgage rates will rest easy this week.  The likely outcome is the opposite, actually. 

If investors believe the President-elect will successfully stimulate the economy, stock markets would likely rally, causing mortgage bonds to sell off and mortgage rates to rise.

Or, if investors think the winning candidate will fail to revive the economy, money would flock to government bonds as a place of safety.  This dollar flow would occur at the expense of the mortgage market, causing rates to rise in this scenario, too.

Of course, it's as difficult to predict post-Election market conditions as it is to predict the election itself but one thing is for certain -- rates may rise and fall before the week is out, but credit guidelines will remain extra-tight.  Getting approved for a mortgage won't be any easier -- no matter which party wins the Presidential Election.

Source
Will the election drive the Dow?
Eamon Javers
Politico
http://news.yahoo.com/s/politico/20081022/pl_politico/14826

What's Up Doc?: November 3, 2008

 

As global credit markets deteriorated in October, mortgage markets displayed an unnerving amount of volatility.

Last week was no different. 

But, unlike in previous weeks in which rates improved on some days and worsened on others, mortgage rates were mostly higher last week, finishing the month on a surge.

The biggest reason why mortgage rates rose last week is that hedge funds and other investors are still hard-pressed for cash and are dumping their mortgage-backed bond portfolios into the market. The excess mortgage bond supply drove prices lower last week, which, in turn, caused rates to rise.

However, forced selling by hedge funds wasn't the only force working against mortgage rate shoppers last week.

In a move meant to stimulate the economy, the Federal Reserve cut the Fed Funds Rate to 1.000 percent -- the same level widely attributed to starting the global credit crisis several years ago.  Low interest rates may stimulate the economy in the short-term, but long-term, they can lead to runaway inflation. 

This is terrible for home buyers because inflation causes mortgage rates to rise.

Looking ahead to this week, mortgage markets have a lot of information to digest. 

First, there will be four separate speeches from members of the Federal Reserve, plus one appearance by Treasury Secretary Paulson.  In each speech, each mention of the word "inflation" will cause mortgage markets to flinch and rates to tick higher.

In addition, Friday is the first Friday of the month which means that the Employment Report hits the wires. 

Because markets expect to see high unemployment rates, they're also predicting a slow holiday shopping season.  If the jobs data is stronger-than-expected, expect stock markets to gain and mortgage markets to lose, pushing rates higher.

And, lastly, Tuesday is Election Day.  Presumably, markets already priced in the likelihood of either candidate winning the election.  However, as the voter's President-elect becomes clearer throughout the day, expect volatility in rates as traders rush to change their positions. 

Mortgage markets should move lot Tuesday -- we just won't know in which direction until it happens.

(Images courtesy: The Wall Street Journal Online)

Summary of Key Provisions of H.R. 3221 - The Housing Stimulus Bill (as of 8/22/2008)

H.R. 3221, the “Housing and Economic Recovery Act of 2008,” passed the House on July 23, 2008, by a vote of 272-152. On Saturday, July 26, 2008, the Senate passed the bill by a vote of 72-13. The President signed the bill on July 30, 2008. The bill includes the following provisions:

·     GSE Reform– including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).
View 2009 FHA and GSE loan limit estimates (PDF: 1.9M)

·     FHA Reform– including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program.The downpayment requirement on FHA loans will go up to 3.5% (from 3%). The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008).
View 2009 FHA and GSE loan limit estimates (PDF: 1.9M)
FHA Reform Chart (PDF: 112K)

·     Homebuyer Tax Credit - a $7500 tax credit that would be would be available for any qualified purchase between April 9, 2008 and June 30, 2009. The credit is repayable over 15 years (making it, in effect, an interest free loan).
First-time homebuyer tax credit chart (PDF: 98K)
Frequently asked questions about the first-time homebuyer tax credit (PDF: 161K)

·     Additional Property Tax Deduction – HERA provides a one-year benefit that will be available to all homeowners. Under current law, property taxes are deductible only if an individual itemizes his/her deductions on Schedule A of their tax return. The new provision will permit a deduction of up to $500 ($1000 on a joint return) for all individuals who utilize the standard deduction and do not itemize. Instructions will be provided on the 2008 tax return when it is distributed at year-end.

·     FHA foreclosure rescue– development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 90% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.
FHA Foreclosure Rescue Chart (PDF: 87K)

·     Seller-funded downpayment assistance programs– codifies existing FHA proposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.
More about the seller-funded downpayment assistance provision
Tips to finding downpayment assistance programs (PDF: 39K)

·     VA loan limits– temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

·     Risk-based pricing– puts a moratorium on FHA using risk-based pricing for one year. This provision is effective from October 1, 2008 through September 30, 2009.

·     GSE Stabilization– includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

·     Mortgage Revenue Bond Authority – authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.

·     National Affordable Housing Trust Fund– Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of any defaulted loans in FHA foreclosure program. In out years, the Trust Fund would be used for the development of affordable housing.

·     CDBG Funding – Provides $4billion in neighborhood revitalization funds for communities to purchase foreclosed homes.
More about the CDBG funding provision

·     LIHTC – Modernizes the Low Income Housing Tax Credit program to make it more efficient.

·     Loan Originator Requirements– Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. The purpose is to prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator.

·     Modification of $250,000/$500,000 Exclusion – The sole real-estated related "pay-for" among the tax incentives modifies the $250,000/$500,000 exclusion of gain on the sale of a principal residence. Beginning in 2009, the exclusion, as it applies to a second home (or rental property) that is converted to a principal residence will be allocated. When the second home is sold, any gain attributable to use as a second home (or rental property) will be taxed at capital gains rates. Any gain attributable to use as a principal residence will remain excludable, up to the $250,000 and $500,000 limits. A formula is provided for computing the proper treatment of these gains.
View some examples that illustrate the application of this new rule (PDF: 27K)

 

Important Deadline Approaches! Loan Limits to Expire 12/31/08

In February when the 2008 Economic Stimulus Plan was enacted, one of the major provisions of the legislation temporarily increased the size of mortgage loans that Fannie Mae, Freddie Mac and FHA could purchase. In expensive markets like California, and in certain counties,  Fannie Mae, Freddie Mac and FHA were allowed to buy loans worth as much as $729,750 - a dramatic increase over the previous $417,000 “conforming” limit. Conforming pricing carries a significantly lower interest. Over the ensuing months it has enabled many home owners to purchase or refinance properties and obtain “conforming” pricing on loan amounts as high as $729,750. It has also allowed high-income buyers who may not have a large down payment to buy a home. On December 31, 2008 these temporary stimulus limits end. All mortgage loans using this stimulus pricing must close by December 31, 2008. Effective January 1, 2009 loan limits will be determined pursuant to a provision in the American Housing Rescue and Foreclosure Prevention Act which sets both conforming and FHA loan limits to 115% of the local median home price, not to exceed $625,500. This is a significant reduction from today’s limits of $729,750.  We have a unique window of opportunity. In addition to the historic high loan limits, mortgage interest rates are near historic lows. Now is the time to act…it is the perfect storm…high loan limits, low rates, and an inventory of well-priced homes!

Why Homeowners with Adjusting Adjustable Rate Mortgages My Be In For A Surprise

 

For homeowners with soon-to-adjust adjustable rate mortgages, the recent banking turmoil worldwide may lead to budgetary pain.

This is because most conforming ARMs made since 2003 are based on a borrowing cost called LIBOR and LIBOR is up an uncharacteristic 2 percent since September.

LIBOR stands for London Interbank Offered Rate and is the rate at which banks lend money to each other. 

Historically, LIBOR has tracked the U.S. treasury market, plus a half-percent increase.  This suggests that banks are only slightly less likely to default versus the U.S. government.

Today, that spread is close to 4.5 percent.

Since Lehman Brothers failed in September 2008, banks are fearful that their peers will meet a similar fate.  Looking at the chart, we can see how LIBOR has responded. 

The LIBOR spike is harming homeowners with adjustable-rate mortgages because adjusted rates on conforming mortgages are often calculated by adding 2.250 percent to the current 12-month LIBOR rate. 

On sub-prime mortgages, the adjustments are even more steep.

In general, though, as LIBOR rises, household payments rise, too, so if your home loan is adjustable and is due to reset soon, call or email your loan officer to talk about how LIBOR may impact your adjusted mortgage rate and payment.

For many homeowners, it's less expensive to refinance into a new home loan that to just let the adjustment happen.

(Image courtesy: Wall Street Journal Online)

How Falling Gas Prices May Stave Off Recession

Given the stock market's recent performance, it's not surprising that gasoline's falling prices are garnering very little attention. That doesn't make it any less relevant, however.

Since peaking in July, gas prices are off by 20 percent.

Falling gas prices are an important positive for the U.S. economy because less money spent at the pump means that more money is saved per household for everyday items including food and other staples.

In addition, consumer spending makes up two-thirds of the economy. 

Therefore, falling gas prices may lessen the impact of a forecasted recession.  Because Americans are notoriously poor savers, the extra cash-on-hand is likely to get spent which will, in turn, push the economy forward through the upcoming holiday shopping season.

So, just as inflation can bad for mortgage rates, so can recession.  And while recession won't always cause mortgage rates to rise, right now, it's one of the factors driving rates higher.  Falling gas prices may help keep that scenario at bay.

The Impact of the Federal Reserve's Emergency Cut

 

The Federal Reserve made an "emergency rate cut" this week, dropping the Fed Funds Rate by one half-percent to 1.500 percent.

The move is meant to stimulate the U.S. economy.

When the Federal Reserve changes the Fed Funds Rate, it often takes 9 months for the changes to work their way through the economy. 

On a broad scale, therefore, we won't know if the cut truly "worked" until Summer 2009.

But, as it relates to Americans in general, the rate cut spurred two immediate changes.

First, because Prime Rate is directly tied to the Fed Funds Rate, Prime Rate fell by 0.500 percent today, too.  That means that interest rates on credit card debt and home equity lines of credit are now lower, reducing monthly interest costs for the majority of American households.

The second change is that mortgage rates are rising today.

The Fed's actions today sparked optimism in some corners of Wall Street and money is now flowing into the stock market at the expense of bonds.   Because mortgage rates move in the opposite direction from bond demand, mortgage rates are higher this morning. 

As always, mortgage markets and mortgage rates remain on edge.  Therefore, rates are subject to change.  And quickly.  If you see a rate and payment you like, be ready to commit to it because it likely won't last long.

Mortgage Rates Are Headed Higher AND Lower - Quickly

Monday, after the House of Representatives defeated the Emergency Economic Stabilization Bill of 2008, the stock market fell in historic fashion.

The Dow Jones Industrial Average closed down 777.68 points, its largest one-day point loss ever.

By Tuesday, however, optimism had returned to Wall Street.

Assuming that the bill would pass in some form, investors poured back into the stock market, driving prices up.  Again, in historic fashion -- Tuesday's gains were the third-largest on record.

The stock market activity is highly relevant to mortgage rates right now because when investors flee the stock market, they're often parking their money in bonds. 

In general, that causes mortgage rates to fall.

But, by contrast, when investors regain their appetite for stocks, as they did Tuesday, they move back into the market, "unparking" their bond money.  This causes mortgage rates to rise.

Both Monday's and Tuesday's dramatic action points to the speed at which market conditions can change, taking mortgage rates with them.  Wall Street's back-and-forth mentality has been one of the reasons why mortgage rates have bounced so wildly since July.

We can't predict if rates will fall or rise going forward, but if the stock market is any sort of a clue, in whichever direction rates go, they're going to go there quickly.

Mortgage Rates Decrease, But Borrower's Beware

Mortgage rates have plummeted, but that hasn't made getting a home loan any easier for most borrowers.

In the wake of the government's takeover of Fannie Mae and Freddie Mac last weekend, the 30-year fixed rate has dropped from 6.26% last Friday to 5.79%. But only buyers with a credit score of 740 of above - and a 20% down payment - can qualify for such a low rate. During the boom, borrowers only needed scores of 640 to land the lowest rates available. Even a 580 score would get them very close to the best rate.

During the credit crisis, Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) have become virtually the only source of funding for banks and other home lenders looking to make home loans. Their ability to lend is crucial to the housing market. To that end, the Treasury will buy mortgage-backed securities from the two firms, and lend them money if necessary, all in an effort to make credit more available to home buyers.

But that doesn't mean that lenders won't continue to subject borrowers to strict criteria, according to Keith Gumbinger of HSH Associates, a tracker of mortgage loan information. The aim is to make mortgages more available, but only to the most qualified borrowers.

"All the emphasis on credit scores is not going to go away," he said.

High score, low rate

As the housing market has imploded, lenders have battened down the hatches on mortgage underwriting, consistently raising the credit scores necessary to qualify for the most favorable terms, and adding to borrowing costs to compensate for any extra risk factors they find. That's not going to change.

"Credit score affects your rate more than they ever have before," said Steve Habetz, a mortgage broker with Threshold Mortgage in Connecticut who has more than 20 years experience in the business.

An individual's credit history is scored between 300 to 850, with 300 very low and 850 perfect. The median score, in which half of the borrowers have a lower score and half have a higher one, is about 720. Only those with very high credit scores are getting the best mortgage deals.

And Fannie and Freddie have raised fees for borrowers with lower credit scores as the housing crisis worsened - they've increased twice this year alone. The lower the score, the larger the fee.

For example, Fannie charges a 1% up-front fee (raised from 0.75% this summer) for borrowers with a credit scores of 680, even when they're paying 20% down on their homes.

Even people with the very favorable scores, between 720 and 740, pay a small fee equal to an up-front charge of a quarter point. That's a big change from the past. Habetz had a client recently with a 735 credit score putting down 20% -a very solid applicant -and the client still didn't qualify for the best rate.

"You tell people with 730 credit scores paying 20% down that you have to charge them a quarter point extra and they look at you like you're crazy," he said. That comes to an extra $30 a month on a $200,000 loan.

Borrowers with scores below 600 may have to pay a fee of a full percentage point or more, adding $120 to the monthly costs of the average loan.

Nervous investors

Investors in mortgage-based securities are simply demanding that they be compensated for any extra risk that a borrower represents, according to Jon Kaempfer, a loan officer with Vitek Mortgage Group in Sacramento, Calif.

Kaempfer had a client with a 635 credit score recently who wanted to do a cash-out refinancing, a deal in which an existing homeowner takes out a loan for more than the mortgage is worth. The homeowner gets a bundle of cash, which this client wanted to use to pay for some home improvements.

The lender wanted to charge 1.5% of the mortgage principal up front simply because it was a cash-out deal, plus 2.5% more because of the home owner's modest credit score. Those fees, folded back into the mortgage, added about a percentage point to the client's interest rate.

"You have to be golden, have at least a 680 score or a 720 if you're making a smaller down payment, to qualify for the best rates," said Kaempfer.

Gumbinger expects lending standards to remain tight for the foreseeable future, as long as home prices continue to fall. The risk of foreclosure is of course much higher in a falling market, and lenders need to shield themselves.

If and when prices do improve, says Gumbinger, borrowers with less than perfect credit scores may get some breathing room.  

Provided by CNN Money

Fannie Mae and Freddie Mac - We Got Your Back??

This weekend, the government announced a bailout of both Fannie Mae and Freddie Mac. This is an important event in our industry. I want to be sure I connect with you on some of the details, and answer any questions you may have.

What is Fannie Mae & Freddie Mac

In simple terms, Fannie Mae and Freddie Mac buy mortgages from banks, savings and loans, credit unions, and other lenders to ensure that mortgage funds are consistently available for institutions to keep lending. Both government-sponsored and shareholder-owned, Fannie and Freddie do not have contact with consumers but instead work directly with lenders. Together, they hold or guarantee about half of the country's outstanding home loans.

What Prompted Yesterday’s Bailout

Steep home price declines and a rise in mortgage delinquencies and foreclosures have badly damaged the two entities. The companies recorded combined losses of $14 billion in the last year and their stocks have plunged in that same timeframe — each from the mid-$50s to the mid-single digits. “The capacity of their capital to absorb further losses while supporting new business activity is in doubt,” said James Lockhart, head of Federal Housing Finance Agency, which will now oversee the two companies.

…if they had failed, the damage to the mortgage and housing markets could have had a catastrophic effect on the economy and could have hurt Americans' ability to secure home loans, auto loans, and other consumer credit, Treasury Secretary Henry Paulson said in a press conference yesterday.

“The government’s rescue plans are necessary steps to help strengthen the U.S. housing market and promote stability in our financial markets,” Federal Reserve Chairman Ben Bernanke said in support of the government takeover.

What is the Plan

The plan is a “time out” to stabilize the two companies. The two companies will be run by the government, indefinitely. The two current chief executives have been replaced and the government will invest up to $100 billion in each firm to keep them solvent. In addition, to improve the availability of mortgages, the U.S. Treasury will start buying Fannie and Freddie’s mortgage-backed debt in the open market.

Beginning at the end of the first quarter of 2010, the two firms will start repaying the U.S. Treasury on a quarterly basis. In addition, Fannie and Freddie’s retained mortgage and mortgage-backed securities portfolio may not exceed $850 billion as of the end of 2009 and must decline 10% per year until it reaches $250 billion.

What’s Next

It’s clear that the bailout will prevent catastrophic results in the mortgage market but the long-term benefits remain to be seen.

We know that the 30-year fixed mortgage rate fell today as a result of this weekend’s actions. We know that bringing Fannie and Freddie under government control “is a necessary step in maintaining liquidity in the housing finance sector and hopefully improving affordability via a much-needed reduction in mortgage rates,” writes David Rosenberg, Merrill Lynch North American economist. We don’t know how this effort will affect housing prices.

As more information comes available I will certainly share it with you. In the meantime, please call or reply to this email if you have questions or would like to discuss this development further.

Mortgage Rates Fall As The Unemployment Rate Rises

On the first Friday of every month, the government releases its Non-Farm Payrolls report. 

More commonly called the "jobs report", the two-page analysis examines the nooks and crannies of the U.S. economy to see which industries are hiring and which are firing. 

The August jobs report was released this morning and it shows that the U.S. economy shed 81,000 jobs in August. 

This marks the eighth straight month in which payrolls declined and puts the annual job loss total at 605,000. The Unemployment Rate jumped to 6.1% -- its highest level in 5 years.

For American workers, this is bad news.   But, for American home buyers, the news couldn't be better.

Mortgage rates are improved this morning on weak jobs data.

If this seems counter-intuitive, remember that earlier this year, lingering concerns about inflation in the U.S. economy caused mortgage rates to rise to their highest levels in more than 5 years.

Lately, however, those fears are subsiding and as today's jobs report shows worse-than-expected weakness, it's one more reason for markets to put inflation concerns to rest.  With fewer Americans working, there are fewer dollars are available to propel the economy forward, after all.

So, today's jobs data is good for mortgage rates because it reduces inflationary pressures on the economy and as inflation levels fall, mortgage rates tend to do the same.

(Image courtesy: USA Today, The Wall Street Journal)

What's Up Doc? The week of August 25th, 2008

 

Don't let the word "unchanged" fool you,

however.

From day-to-day last week, mortgage rates covered a huge range and it was only coincidence that Friday ended where Monday began. 

And it's the second week in a row that that happened.

Lately, mortgage rates have been highly sensitive to both inflation data and to the U.S. dollar.  Lucky for rate shoppers, both were given a boost of support last week by high-profile Americans:

1. Ben Bernanke said that inflation should moderate in 2009
2. Warren Buffett said that he has no bets against the U.S. dollar

Comments from both of these men attracted buyers to the mortgage market, propping up prices and offsetting those that fled because of lingering trouble at Fannie Mac and Freddie Mac and skyrocketing wholesale prices.

But, for Americans in need of a home loan, know this: As long as there is uncertainty about the U.S. economy, mortgage rate volatility will continue. 

And, this week, volatility will get an extra boost because of Labor Day. 

Starting mid-day Thursday, trading volume will start to thin and will lead to larger-than-normal movements in mortgage bond pricing.  This should cause fits for mortgage rate shoppers because rates will jump heading into weekend.

If you're currently comparing lenders, consider getting your rate locked in early in the week instead.

 

Don't let the word "unchanged" fool you,

however.

From day-to-day last week, mortgage rates covered a huge range and it was only coincidence that Friday ended where Monday began. 

And it's the second week in a row that that happened.

Lately, mortgage rates have been highly sensitive to both inflation data and to the U.S. dollar.  Lucky for rate shoppers, both were given a boost of support last week by high-profile Americans:

1. Ben Bernanke said that inflation should moderate in 2009
2. Warren Buffett said that he has no bets against the U.S. dollar

Be Careful Who You Listen to About the Real Estate Market

Stories on TV about the national real estate market are misleading to Americans. 

This is because there is no such thing as a "national real estate market".

Consider the latest American Housing Survey.  It found that there are 124,377,000 homes in America spread across:

• 50 states, with
• More than 30,000 incorporated cities, and with
• An innumerable number of neighborhoods

And yet, the media repeatedly groups all 124 million homes into one giant lump and then gives an analysis.  No matter how you slice and dice the data, a home in Oregon can't be compared to a home in Mississippi. 

This is why national real estate statistics are somewhat useless.

To get real estate analysis that matters, look local instead.  And I don't mean stats from your state -- I mean stats from your neighborhood.  It's the only way to know what's driving home prices on your street.

Unfortunately, finding local data like this isn't easy; it's far too narrow to be covered by the press.  So, the best place to get local real estate data is from a local real estate agent or from somebody else with access to raw real estate data in and around your neighborhood.

By talking to "in the market" professionals that know your backyard, you'll get a much clearer picture of your local market -- good or bad -- than the national media could ever provide.

Real estate is a local market so your real estate data should be local, too.

What's up Doc? The Week of August 18th

Mortgage rates overcame a terrible Monday last week, climbing back to unchanged by Friday.  And like most weeks this year, rates were volatile.

Most interesting about last week, though, was that there a ton of news that should have dragged mortgage rates down, but it didn't seem to happen.

• A popular inflation measure reached a 17-year high
• A petropolitical war erupted in Eastern Europe
• Whispers of more credit problems surfaced on Wall Street

Instead, a soaring U.S. dollar attracted global funds to Wall Street and a renewed demand for all things denominated in U.S. dollars, helping drive up prices in the mortgage bond market.

When mortgage bond prices move higher, mortgage rates move lower.

Like last week, the path of the dollar will likely determine in which direction mortgage rates move between today and Friday.  If the dollar increases in value, mortgage rates should fall.  And conversely, if the dollar decreases in value, mortgage rates should rise.

Of all the economic data hitting the wires this week, the only one of major importance is the Producer Price Index -- a "Cost of Living" reading for American businesses. 

Normally, we'd pay attention to the inflation-predicting PPI because inflation causes mortgage rates to rise.  This month, however, we're ignoring it.  Oil prices have fallen 20-plus percent since July highs and the PPI reading from last month doesn't reflect the "current marketplace".

So, in the absence of hard data, mortgage rates should move with momentum this week.  To follow along at home, keep your eyes on Bloomberg and stay close to your loan officer. 

It's during weeks like this that rates can really move.

(Image courtesy: The Wall Street Journal Online)

TIC Lending Grows in Popularity

Tenant In Common (TIC) Financing

How long does it take to close a TIC loan?

The loan process (escrow period) usually is longer than that of non-TIC properties. Some sellers prefer to close all units at once, which could indicate a longer escrow period. Every seller’s situation is different, and if you are representing a buyer, it is important to have clarity around this issue. In #4 below, I address the issue of a more closing process.

Are the Closing Costs Higher for TICs?

TIC properties generally have higher closing costs for a number of reasons. There is no rebate pricing available, so origination fees must be charged, and there are attorney fees for providing and reviewing the TIC documents. TIC agreements are often customized to a certain degree for each transaction. Therefore legal reviews are necessary as certain language is often inserted to make it compliant with both the bank and the title insurance company, and to address any particular needs of the TIC group. Also, the appraisal process involves additional steps and information.These costs will be outlined in the Good Faith Estimate.

What is the cost differential between a TIC unit and a condo?

There is no standard in this area. There are multiple factors to consider when comparing condos to TIC’s. If you could make a side by side comparison of a condo to a TIC unit, where both properties are exact carbon copies of each other in every respect (location, layout, view, finish, amenities, # of units in the building, operating costs and every other variable imaginable, etc.) then the TIC unit should cost less…but how much less? Assuming that you could make such a carbon copy comparison of a TIC unit to a condo, and you hold constant the buyer’s out-of-pocket expenses (down payment amount and monthly mortgage expenditure), then the increase in buying power provided by the lower cost conventional FNMA financing must be taken into account. A 10 to 15% differential has been typical. If the TIC property is a better product and is being sold at a lower price point, then it is arguably a value-added proposition. Another factor to consider is Market Acceptance. In San Francisco, CA, there is very high market acceptance of TIC’s. As you move away from San Francisco, the familiarity of TIC’s to buyers, real estate professionals, appraisers, and lenders diminishes, and thus their market acceptance declines, indicating a larger discount of TIC to Condo price in these areas. As familiarity and acceptance increases, the differential in price should decrease.

When can you close TIC sales one unit at a time (sequentially)?

Closing fractional loans one by one (vs. simultaneously) is known as ‘sequential’ closing. If the Bank has made a loan in first position to the TIC Converter, then the seller can close buyers one at a time. In this case, we ‘partially release’ our blanket loan and it moves from encumbering all units to collateralizing the remaining unsold units as the loan is progressively reduced with sales. This is the only circumstance by which a blanket loan and an individual loan can co-exist on the same APN, as the individual buyers are not obligated on the blanket loan. When the Bank does not hold the first loan on the TIC building, then the first closing occurs when there are enough units in escrow to sell and provide sufficient net proceeds for paying off the underlying debt.

When can individual TIC sales not close sequentially?

If a TIC Converter has underlying financing from a lender other than the Bank, then the seller must have a simultaneous closing with as many buyers as it takes to provide enough net proceeds to pay off that loan.

What if a TIC Converter has minimal debt on a property?

If a seller does not need a loan from the Bank, the TIC Converter must have an agreement in place with The Bank so as to accomodate the Seller with sequestial closings.

What is the Maximum Loan to Value on a Fractional Loan?

85% of the purchase price.

Can a TIC loan be refinanced?

Can one TIC owner refinance his/her portion of a group loan into an individual loan while the other Co-Tenants keep the remainder of the group loan?

No! TIC lending is an all-or-none experience. A group loan from one lender cannot co-exist with a fractional loan

 

 

 

What's Up Doc? August 11th, 2008

In a week packed with mortgage news and economic data, mortgage rates swung hard in both directions last week before settling into the weekend slightly higher across the board.

Adjustable-rate mortgages worsened more than their fixed-rate counterparts and both broke a two-week streak in which mortgage rates had improved.

But, if we look at all of the big stories of last week, there was a dramatic overweight of news that is usually "good for rates". 

Those stories included:

• The Federal Reserve saying that inflation should moderate soon
• Oil prices falling 20 percent from July's highs
• Home buyers propping up home sales levels
• Foreign investors wanting to buy long-term U.S. debt
• The U.S. dollar strengthening versus foreign currencies

In the end, it turned out that the news was so good, investors decided to jump back into the stock market, propelling the Dow Jones 3.6 percent to a 6-week high.  This fevered trading action drew investor money away from the bond market -- including bonds of the mortgage-backed variety -- and that pressured mortgage rates higher.

And, of course, it didn't help rates when the two biggest insurers of mortgage-backed debt posted large quarterly losses and warned of more delinquencies ahead.

Turning our attention to this week, make note that it is back-heavy on data.  Therefore, expect the positive momentum of Thursday and Friday to carry through Monday and possibly Tuesday.

By Wednesday, however all bets are off -- that's when July's Retail Sales data is released.  Furthermore, Retail Sales is backed up Thursday by the Consumer Price Index, a Cost of Living measurement. 

Both data points are correlated with inflation so higher-than-expected readings may cause mortgage rates to rise.

Regardless, given that mortgage rates are now moving more in a hour than they used to in a day, be prepared to get your mortgage rate quotes quickly and be ready to act on them. 

Just 90 minutes later, the quote could be expired.

(Image courtesy: Press of Atlantic City)

Changing Mortgage Guidelines Impact Buyers of Second Homes and Investment Properties

Conforming mortgage guidelines are the Home Loan Rule Book, delineating between applicants that approved for a mortgage and those that do not.

Effective today, the rule book just got a little bit tougher.

According to Fannie Mae, homeowners converting their primary residence into a second home or investment property will be subject to additional underwriting scrutiny.  Fannie Mae is leery of lending to people that may be over-extended.

The complete underwriting update is available at the Fannie Mae Web site but some of the more important points are summarized below, divided into Second Home and Investment Property.

Second Home Guideline Changes

• Without 30 percent equity in the second home, mortgage applicants must have 6 months worth of PITI reserves for both properties in their bank accounts. 
• With 30 percent equity, the PITI reserve can be reduced to 2 months.

Previously, there was no minimum reserve requirement.

Investment Property Guideline Changes

• With 30 percent equity in an investment property, 75% of the monthly rental income can be applied toward the applicant's monthly household income.
• Without 30 percent equity, rental income may not be applied to the applicant's monthly household income and 6 months PITI is required for both properties.

Previously, 75% of the rental income was allowable regardless of equity, and minimum reserve requirements were 2 months.

Even though just a small percentage of Americans own second homes or investment properties, the conforming mortgage guideline changes impacts homeowners everywhere.

This is because more restrictive guidlines lead to two separate, but concurrent, outcomes:

1. The demand for homes reduces because fewer buyers qualify for mortgages
2. The supply of homes increases because fewer sellers can refinance into more affordable home loan

Less demand and more supply places downward pressure on home prices.

Now, remember that mortgage guidelines continuously evolve and what's accurate as August 1, 2008, may not be accurate six months down the road.  In other words, confirm what you're reading about mortgages online with your loan officer before making any real estate-related decisions.

Hard Times? Ever Look at Hard Money? What is Hard Money?

With the change in the economy and the credit crisis, investors are always looking for other ways to leverage money.  Hard Money can be a great tool for investors and small business owners who find themselves in a bind becasue maybe the equity line they had in place for business is now frozen.  Hard money or Private money may be a solution.

 

Hard Money loans are non institutional loans funded by private real estate investors, companies and funds - using their own money - secured by a first, second, or third Trust Deed against the subject property.

These types of loans are referred to by many different names, such as private money, private equity, equity, equity only, equity-based, equity-driven, or asset based.

Equity-driven mortgage loans typically require 25-50% equity in the property and/or collateral in another piece of real estate, although some lenders will accept other assets such as stocks and bonds as collateral for the loan.

These types of loans also carry a heavier burden and interest rate for the borrower for the simple reason that they also pose higher risk for the lender and are often a temporary solution that opens doors for a more permanent financial solution or exit strategy.

Equity based loans offer an alternative to strict and narrow traditional bank (institutional, conventional) financing, thereby eliminating many of the usual qualifying, credit and income underwriting guidelines and delays of banks, mortgage companies or institutional lenders for traditional mortgage loans.

Equity lenders base their decisions on the unencumbered property value, its marketability, the borrower's exit strategy and his or her ability to repay the loan. They generally do NOT calculate debt ratios and usually do NOT take into account the borrower’s credit and income. Funding is very fast; sometimes within days of receipt of the application - a true advantage over traditional bank financing.

Mortgage Modifications Can Be the Key

Mortgage industry coalition Hope Now says it helped a record number of homeowners last month, but 82,000 homes were still lost to foreclosure.

A record number of American homeowners are seeking - and getting - help to solve their mortgage woes.

According to the Hope Now coalition of mortgage lenders, servicers, investors and community advocacy groups, more than 76,000 at-risk mortgage borrowers had their loans permanently modified in June to make them more affordable, with lower interest rates, reduced principal or both. That's up about 9% from May and 26% from January.

Another 105,000 homeowners were given repayment plans, which means that they'll have extra time to make up missed payments. Repayment plans, which don't reduce a borrower's debt load and are generally considered to be less effective at helping homeowners, made up about 58% of all the mortgage work outs in June.

"The industry continues to accelerate the pace at which it is helping homeowners and expects this positive trend to continue," said Hope Now's Executive Director Faith Schwartz.

Hope Now says it has helped a total of 1.9 million homeowners since its program launched in July, 2007.

But all this has still failed to stem the rising foreclosure tide. The coalition reported that more than 82,039 people lost their homes to foreclosure during the month, up 12% from May. This flood of vacant homes on the market is pushing prices down further. On Tuesday, the S&P/Case-Shiller 20-city Home Price Index showed that in May home prices dropped a record 15.8% from a year ago.

A new law

The Hope Now report was released just hours after President Bush signed the massive housing rescue bill, which allocates $300 billion to help at-risk borrowers refinance their unaffordable old mortgages into new low-cost fixed-rate loans insured by the Federal Housing Administration.

That will give Hope Now's 26 members another means to help homeowners. Under the bill, lenders and servicers must voluntarily lower borrower's mortgage balances to 90% of current market value, and pay the FHA a fee equal to 3% of the new principal.

The group also reported the results of a survey of its members it conducted to determine the extent of the industry's exposure to subprime ARM resets.

It found that about 928,000 of these loans had been scheduled for reset during the first half of 2008. Of that total, some 382,000, or 41%, have been refinanced, while 57,000, or 6% of them, have been modified and given more favorable loan terms. Less than 1% of these borrowers who were current with their payments when their loan reset went into default.

Better guidelines

Hope Now recently introduced a number of revised policies in order to help more delinquent borrowers stay in their homes.

It has pledged faster response times to borrowers seeking work outs. That means its members will acknowledge work out requests within five days, keep borrowers informed on the status of the work outs and give them either an approval or denial, within 45 days.

Hope Now has also stepped up its outreach efforts, making sure at-risk borrowers are aware of work out options. Its members are sending letters to subprime adjustable rate mortgage (ARM) borrowers 120 days before their loans reset warning them that their payments will go up soon, and offering credit counseling.

Additionally, the coalition has teamed with community groups to participate in 14 massive foreclosure prevention work shops around the country, which put borrowers together with credit counselors and lenders to quickly reach workable solutions to mortgage payment problems. 

Mortgage Insurers tightening rules

CHANGES ONE MORE BLOW TO REELING HOUSING MARKET

Prices of some homes may be falling, but one piece of the mortgage transaction is getting more expensive, not to mention impossible for some buyers to obtain: mortgage insurance.

That means buying a California home using a small down payment will get tougher. Companies that sell mortgage insurance - a part of the process that many home buyers don't think about - have been tightening their guidelines for months, and most have raised rates.

On Aug. 4, one of the companies, MGIC, will increase premiums and no longer offer insurance for California properties if borrowers have down payments of less than 10 percent. Other insurers have already made the change.

With the surge in defaults and foreclosures, "insurance companies behind the scenes have been suffering and taking losses," said Brendon Riordan, an executive with Los Gatos-based mortgage bank and brokerage Princeton Capital. "As a result they are having to change their guidelines and increase their premiums."

For example, on a mortgage of $400,000 where the borrower puts down 10 percent, monthly mortgage insurance premiums from one insurer Princeton Capital works with will soon cost $206.67, up from $173.33, Riordan said. That's a difference of about $400 more a year.

While not a huge sum, for some buyers it's another problem in an already inhospitable mortgage market.

Mortgage insurance protects mortgage lenders, not homeowners. In the event that homeowners

stop paying their loans, mortgage insurance covers some of the lenders' financial losses. The policies are also known as "private mortgage insurance" to differentiate from government-insured loans available from the Federal Housing Administration (FHA) or the Veterans Administration.

Changing landscape

Lenders usually require anyone buying a home with a down payment of less than 20 percent of the home's purchase price to pay for mortgage insurance. Until the past several years, nearly one-fifth of mortgages made in the United States had such insurance, said Michael Zimmerman, senior vice president for investor relations at MGIC, one of the country's seven mortgage insurance companies.

But in recent years, lenders often allowed borrowers to side-step the insurance by getting "piggyback" loans. In a typical scenario, the borrower who could only come up with a 10 percent down payment would get one loan for 80 percent of the price, and another for 10 percent. Even though the down payment was only 10 percent, lenders required no mortgage insurance - one of many ways they exposed themselves to risk in recent years. Piggybacking took away about half of mortgage insurers' normal business between 2004 and 2006, Zimmerman said.

Borrowers favored piggyback loans in part because the interest paid on both mortgages is tax deductible. Mortgage insurance premiums only became deductible as of 2007 (the deduction is set to expire in 2010).

Piggyback mortgages now are out of favor because of their high default rates, and mortgage insurers are once again a crucial part of the lending landscape.

But they're also in trouble.

MGIC alone has paid out hundreds of millions this year to cover obligations to lenders. Companies have posted huge losses and watched their stock prices dive. The result is an industrywide need to raise rates and tighten standards, Zimmerman and representatives for some of his competitors said. Other U.S. mortgage insurers include AIG United Guaranty, CMG Mortgage Insurance, Genworth Financial, PMI Group, Radian and Republic Mortgage Insurance Company.

On top of that, housing values have fallen. That has mortgage insurers anticipating that even more homeowners will default if they're in trouble, because many will not be able to sell their homes for enough money to pay off their mortgage debts.

Tighter underwriting

Of the industrywide exposure to losses, "I would equate it to not unlike Allstate Insurance in Florida after a hurricane," Zimmerman said. "We'll still insure loans in . . . the markets that have had trauma; however, we're going to change our underwriting."

MGIC's new maximum "loan-to-value" ratio of 90 percent means that borrowers with less than 10 percent down have only a slim chance of getting a loan from a conventional lender. Remaining options include FHA-insured loans and loans available through the California Housing Finance Agency (visit www.hud.gov or www.calhfa.ca.gov for lists of approved lenders).

What's Up Doc? The Real Estate Market

 There's Suddenly Good Value In Real Estate.

Statistics won't always tell the whole story, but they often provide good perspective.

The graph at right shows Existing Home Sales data going back three years.  An "existing home" is one that can't be called new construction; a "used home", so to speak.

Note the steep decline from 2005 through late-2007.

Since November, however, Existing Home Sales have remained within a very tight range and appear to have reached a flattening point. 

The Existing Home Sales data supports the word-on-the-street from real estate agents nationwide that buyers are returning to the housing market in search of good values.

But let's not forget -- demand is only half of the story.  There is the supply factor, too, and the supply side of the housing market is showing the same leveling signs as the demand part.

Looking at the national inventory at left, the number of existing homes for sale has hovered near 4.5 million for the last several months.  No change suggests strength.

Now again, statistics won't tell the whole story but there are plenty of positive signals from the real estate market right now, just like there are negative ones, too. 

This is one reason why real estate data causes so much debate -- people want to take an either/or proposition about the state of the real estate and it doesn't work like that.  Real estate can be simultaneously strong and weak and when it is, buyers look for value.

Perhaps this is why the national housing data is beginning to level off after a 3-year slide.  There's good values to be had, and today's home buyers know it.

(Images courtesy: Wall Street Journal Online)

Navigating the Turbulent Mortgage Marketplace

What exactly is the problem today with banks, financial institutions and the financial markets? Problem #1 – Over-Leverage During the last several years, financial institutions borrowed more money to engage in their business activities than at any point in the history of the United States banking industry. As you can see from the illustration, if asset prices fall by just 3% ($1 in this case) the financial institution's equity in the investment asset is wiped out and they need to raise more funds to restore their 30:1 leverage ratio! When you hear about "capital requirements", that is exactly what it means. In other words, financial institutions need to raise more funds in order to meet their minimum capital requirements of having $1 of equity for every $29 of leverage. Every time asset prices fall, financial institutions need to raise more money to maintain their minimum capital requirements. Now here's the billion dollar question: where are the financial institutions going to get the money from?! Yep. You guessed it! They are forced to sell even more of their investment assets!! If they sell off their investment assets, prices decline even further due to supply and demand. After all, prices always decline when there are more sellers than buyers in any marketplace. This creates a downward spiral in prices, causing the financial institution to sell even more assets into an already depressed market. A bad situation quickly becomes even worse and that is exactly what has been happening among financial institutions since July 2007. For the rest of this article, click on link: http://www.cmpsinstitute.org/exchange/pdf/preview/8065?name=navigating_turbulance_series1

The Week in Review, June 21st

Mortgage rates soared last week as mortgage markets experienced a 4-day freefall. By the end of the trading week, conforming mortgage rates had jumped by as much as 0.500 percent. The spike in rates can't be pinned on any one factor, but 3 contributing factors include: The lingering impact of high energy prices on inflation The ongoing weakness of the U.S. dollar A rally in the financial sector, marking a return to risk-taking Inflation and a weak dollar both devalue mortgage repayments, a well-chronicled relationship on this Web site. In short, when mortgage bond investors find that their repayments are worth less, they demand a higher return. This causes mortgage rates to rise. But, it wasn't inflation or the dollar that caused the majority of the damage to mortgage rates last week -- it was the rally in the financial sector. Rates had edged higher Tuesday on the inflation data but it wasn't until Wednesday's morning stronger-than-expected announcement from banking leader Well Fargo that mortgage rates really started to spike. In its quarterly report, Wells Fargo said that its balance sheet was strong and that it planned to increase shareholder dividends. The rosy announcement sparked a strong demand for all things financial and -- by day's end -- the sector scored a 12.3 percent gain on Wall Street. It was the largest one-day gain in financial stocks ever. Then, following Wednesday's rally, financials picked up additional momentum and ended up closing out the week higher by 21 percent. Unfortunately for mortgage rate shoppers, a large chunk of the money that fueled the rally came out from the mortgage bond market. As investors looked for cash to buy financial stocks, many chose to sell mortgage bond holdings, creating excess supply. More supply leads prices lower and, in the mortgage world, when prices fall, rates go up. Because mortgage bond prices fell a lot last week, mortgage rates rose by a lot. This week, expect momentum to be The Big Story. There is little data beyond Thursday and Friday's Existing Home Sales and New Home Sales, respectively, and Friday's Consumer Sentiment Index. And only a few members of the Fed will be speaking in public. The one bright spot last week was falling oil prices. After an 11 percent decline, Americans are waking up this morning to lower gas prices. This is anti-inflationary and could help tug mortgage rates lower.

What's Up Doc? Foreclosure Activity

Foreclosure Activity Up 53 Percent From June 2007

RealtyTrac(R) (http://www.realtytrac.com/), the leading online marketplace for foreclosure properties, today released its June 2008 U.S. Foreclosure Market Report(TM), which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 252,363 U.S. properties during the month, a 3 percent decrease from the previous month but still a 53 percent increase from June 2007. The report also shows one in every 501 U.S. households received a foreclosure filing during the month.

RealtyTrac publishes the largest and most comprehensive national database of foreclosure and bank-owned properties, with over 1.5 million properties from over 2,200 counties across the country, and is the foreclosure data provider to MSN Real Estate, Yahoo! Real Estate and The Wall Street Journal’s Real Estate Journal.

“June was the second straight month with more than a quarter million properties nationwide receiving foreclosure filings,” said James J. Saccacio, chief executive officer of RealtyTrac. “Foreclosure activity slipped 3 percent lower from the previous month, but the year-over-year increase of more than 50 percent indicates we have not yet reached the top of this foreclosure cycle. Bank repossessions, or REOs, continue to increase at a much faster pace than default notices or auction notices. REOs in June were up 171 percent from a year ago, while default notices were up 38 percent and auction notices were up 22 percent over the same time period.”

Nevada, California, Arizona post top state foreclosure rates

Despite slight monthly decreases in foreclosure activity, Nevada, California and Arizona continued to document the three highest state foreclosure rates in June.

Foreclosure filings were reported on 8,713 Nevada properties during the month, up nearly 85 percent from June 2007, and one in every 122 Nevada households received a foreclosure filing — more than four times the national average.

One in every 192 California properties received a foreclosure filing in June, the nation’s second highest state foreclosure rate and 2.6 times the national average.

One in every 201 Arizona properties received a foreclosure filing during the month, the nation’s third highest state foreclosure rate and nearly 2.5 times the national average. Foreclosure filings were reported on 12,950 Arizona properties, down less than 1 percent from the previous month but still up nearly 127 percent from June 2007.

Other states with foreclosure rates ranking among the top 10 were Florida, Michigan, Ohio, Colorado, Georgia, Indiana and Utah.

California, Florida, Ohio report highest foreclosure totals

Foreclosure filings were reported on 68,666 California properties in June, down nearly 5 percent from the previous month but still up nearly 77 percent from June 2007. California’s total was highest among the states for the 18th consecutive month.

For the rest of the article, click on link below:

http://www.growingwealthmag.com/?p=1984%20-%20more-1984

The Week in Review: July 14th, 2008

Mortgage rates fell slightly in a week that included a bank failure, more oil price spikes, and questions about the health of the nations' mortgage market. 

Rates would have fallen more if not for a late-Friday sell-off that added 0.125 percent to most products.

As financial markets fell under stress, most people missed the strong points that emerged about the U.S. economy last week:

• Fewer Americans filed for unemployment benefits
• Wal-Mart reported stronger-than-expected sales
• Consumer confidence rose for the first time in 7 months

And, also worth noting: homes under contract slipped but remained above the lowest levels of the year, suggesting a potential housing floor.

But, the biggest story of last week was the stock-price collapse and subsequent pressure on Fannie Mae and Freddie Mac.  It should be the biggest story of this week, too. 

So far, Fannie and Freddie's issues appear to be more psychological in nature than fundamental, but to an already roiled market, negative perception can quickly become reality.  This is one of the biggest reasons why both the Federal Reserve and the U.S. Treasury made public statements Sunday in support of Fannie and Freddie, and in advance of the Asian markets' opening.

Other events that may move markets this week include Retail Sales data on Tuesday, consumer inflation data on Wednesday and Ben Bernanke's two-day testimony to Congress which takes place over both Tuesday and Wednesday.

It's unclear in which direction mortgage rates will go, but because the markets are on-edge, expect rate movements to be sharp and quick.  In other words, if you're in the market for a mortgage this week and you see a rate and payment you like, don't mess around with it -- just get it locked.

(Image courtesy: Wall Street Journal Online)