Monday, December 29, 2008

Mortgage Applications Surge on Falling Rates

Bankers are seeing a wave of mortgage-loan applications triggered by falling interest rates, and are reassigning scores of workers to handle the crush of would-be borrowers.
A large percentage of the applications are for refinancings rather than purchases, and the phenomenon is so new it isn't yet clear how many of the borrowers will actually receive loans. But some bankers say it could be the beginnings of a possible turning point in a battered lending sector and a still-weak housing market.
Borrowers "are starting to say, 'Wow, I can get this piece of property at this price, which is a fair amount lower than I could have gotten a year ago,"' said Todd Chamberlain, head of the residential mortgage division at Birmingham, Ala.-based Regions Financial Corp.
The nation's largest mortgage provider, Bank of America Corp., is among the most optimistic. Chief Executive Kenneth Lewis has predicted that housing prices will stabilize by mid-2009. The Charlotte, N.C., bank recently told 300 loan processors in Richmond, Va., and Tampa, Fla., to switch from home-equity loans to mortgages starting Monday. Mortgage applications nearly doubled through the first half of December as compared to the same period in November, said Bank of America spokesman Dan Frahm.
Because of its acquisition this year of California home lender Countrywide Financial Corp., Bank of America was No. 1 in mortgage originations during the third quarter, with $51.5 billion. It also provided $7 billion in home-equity loans during the same period, but those lines of credit aren't as popular now that many U.S. borrowers owe lenders more than their home is worth.
The uptick in potential mortgages may help mitigate government pressure on banks to increase lending after receiving billions in U.S. aid. But it's too early to tie the wave to the larger economy or a potential housing recovery, as the requests are largely refinancings.
How many of the new applications wind up as actual mortgages remains to be seen, and some borrowers may not qualify. Loans may also take longer to process now that lenders are more careful about documentation and appropriate credit standards. Also, some borrowers may pull their applications, thinking rates could still go lower.
"We don't know now what the approval rate will be," said Tom Kelly, a spokesman for J.P. Morgan Chase & Co. The New York lender isn't adding any new employees to deal with the increase in applications, which had doubled prior to the Fed rate cut last week. After the Fed cut, volume went up another 20% to 25%, Mr. Kelly said.
Still, the application frenzy has been one of the first bright spots for banking in months.
Borrowers flocked to take advantage of falling rates following the Federal Reserve's commitment to stabilize the market by purchasing mortgage bonds and possibly Treasury bonds. The moves drove mortgage rates down by roughly three quarters of a percentage point. After this past Tuesday's move by the Fed to cut its benchmark rate to near zero, mortgage rates briefly fell to their lowest level since the 1960s, according to HSH Associates. And rates ended the week with an average 5.17% for a 30-year loan, the lowest average since Freddie Mac began its weekly rate survey in 1971. A year ago the 30-year-loan averaged 6.14%.
Thus far, though, borrowers have been more interested in refinancing existing home mortgages than making new purchases, which are typically less sensitive to interest-rate movements.
Whether Bank of America, which intends to cut 30,000 to 35,000 companywide positions over the next three years, hires new workers to handle the rising mortgage-application volumes "has not been determined," Mr. Frahm added.
In the Southeast, Regions is also shifting employees who process loans from home equity to mortgages. At a Nashville, Tenn.-based processing center, Regions recently added seven workers to a 50-person operation, five of them taken from other areas of the company, one a new hire and one a contract employee. Applications are up almost triple from November, said Regions's Mr. Chamberlain.
In the Midwest, Minneapolis-based U.S. Bancorp also will likely add to its mortgage work force via temporary hires, said Dan Arrigoni, head of the bank's mortgage division.
"We are trying to do all we can to handle the volume," he said, noting that applications for home loans jumped from 11,000 during a 13-day stretch in November to 30,000 during the same period this month.
At Atlanta-based SunTrust Banks Inc., purchase applications rose only "slightly" in December, while refinancing applications more than quadrupled, said spokesman Hugh Suhr.
Home-purchase requests were just 24% of the total application volume so far this month at Bank of America and 25% at Regions. But such requests are still well above their usual levels for this time of year, bankers said.December is "horrible normally," said Mr. Arrigoni. "People are out Christmas shopping. They have everything on their mind but home buying." For people waiting

By Dan Fitzpatrick of The Wall Street Journal/Real Estate

Thursday, December 18, 2008

Streamlined Modification Program (SMP) Now Available to Borrowers

Program Part of Ongoing Effort to Prevent Foreclosures

Fannie Mae today said that the Streamlined Modification Program (SMP) announced by the Federal Housing Finance Agency (FHFA) in November is now available to Fannie Mae servicers and borrowers as an option to help prevent foreclosures. Fannie Mae on December 12, 2008, provided information and guidelines to its servicers regarding the implementation of the SMP.
The SMP is designed to be a streamlined process for modifying the loans of a large number of borrowers who are delinquent in their mortgage payment and may be able to avoid a foreclosure through the program. As FHFA has indicated, SMP was intended to help set standards in the mortgage servicing industry for conducting loan modification programs on a large scale as a foreclosure prevention measure.
Fannie Mae has been working with FHFA and 27 lenders and servicers in the HOPE NOW alliance to implement the SMP. Under the program, borrowers who meet certain eligibility criteria and demonstrate financial hardship may be eligible for a loan modification that reduces their monthly principal and interest payment. The streamlined process allows a borrower to sign a single document at the outset of the workout process that both establishes a new monthly payment during a three-month trial period, and sets forth the modification terms that will take effect if the borrower makes the new payments during the trial period. The program is available to borrowers who have missed at least three monthly payments on their existing mortgages.
"By bringing the collective efforts of FHFA, Treasury, HOPE NOW, Fannie Mae, Freddie Mac and other mortgage industry participants together through the SMP to confront the foreclosure challenge, we'll be able to help more families across America stay in their homes," said Herb Allison, Fannie Mae president and CEO. "Along with other recently announced initiatives by Fannie Mae to reach and help financially troubled borrowers earlier, including our Early Workout program, the SMP is a critical component of our company's foreclosure prevention efforts. These efforts are helping more than 10,000 delinquent borrowers every month get back on track."
Modification Options
Through the SMP, servicers may change the terms of a loan to reduce a borrower's first lien monthly mortgage payment, including taxes, insurance and homeowners association payments, to an amount equal to 38 percent of gross monthly income. The changes in terms may include one or more of the following:
-- Adding the accrued interest, escrow advances and costs to the principal balance of the loan, if allowed by state law;
-- Extending the length of the mortgage loan as appropriate;
-- Reducing the mortgage loan interest rate in increments of 0.125 percent to an interest rate that is not less than 3 percent. If the new rate is set below the market interest rate, after five years it will step up in annual increments to either the original loan interest rate or the market interest rate at the time of the modification, whichever is lower;
-- Forbearing on a portion of the principal, which will require the borrower to make a balloon payment when the loan matures, is paid off, or is refinanced.

Highlights of the SMP's eligibility requirements communicated to servicers include:
-- Conforming conventional and jumbo conforming mortgage loans originated on or before January 1, 2008;
-- Borrowers who are at least three or more payments past due and are not currently in bankruptcy; -- Only one-unit, owner-occupied, primary residences; and -- Current mark-to-market loan-to-value ratio of 90 percent or more.

Servicers will be sending modification solicitation letters beginning this month to thousands of borrowers believed to be eligible for the program. It is critical that eligible borrowers respond to these letters and reach out to their servicers to determine if they can receive SMP assistance. Also, borrowers who don't receive a letter are encouraged to contact their servicer to see if they may be eligible for SMP help. Fannie Mae will be working with servicers to monitor and improve implementation of the program as necessary.
Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. In 2008, we mark our 70th year of service to America's housing market. Our job is to help those who house America.



By: PRESS REALEASE (Source: Fannie Mae)

Thursday, December 11, 2008

"Pay Option" Loans Could Swell Defaults

New wave defaults likely as risky loans reset to sharply higher payments

Some time after Sharren McGarry went to work as a mortgage consultant at Wachovia’s Stuart, Fla., branch in July 2007, she and her colleagues were directed to market a mortgage called the “Pick A Pay” loan. Sales commissions on the product were double the rates for conventional mortgages, and she was required to make sure nearly half the loans she sold were "Pick A Pay," she said.
These “pay option” adjustable-rate mortgages gave borrowers a choice of payments each month. They also carried a feature that came as a nasty surprise to some borrowers, called "negative amortization." If the homeowner opted to pay less than the full monthly amount, the difference was tacked onto the principal. When the loan automatically “recasted” in five or 10 years, the owner would be locked into a new, much higher, set monthly payment.
While McGarry balked at selling these pay-option ARMs, other lenders and mortgage brokers were happy to sell the loans and pocket the higher commissions.
Now, as the housing recession deepens, a coming wave of payment shocks threatens to bring another surge in defaults and foreclosures as these mortgages “recast” to higher monthly payments over the next two years.
“The next wave (of foreclosures) is coming next year and in 2010, and that is primarily due to these pay-option ARMS and the five-year, adjustable-rate hybrid ARMS that are coming up for reset,” said William Longbrake, retired vice chairman of Washington Mutual. The giant Seattle-based bank, which collapsed this year under the weight of its bad mortgage loans, was one of the biggest originators of pay-option ARMs during the lending boom.
The next wave may be even more difficult to handle than the last one.
“It’s going to get tougher to modify loans as these option ARMs come into their resets," Federal Deposit Insurance Corp. Chairwoman Sheila Bair told msnbc.com this week. "Those are more difficult than the subprime and traditional adjustable rates to modify because there is such a huge payment differential when they reset."
Monthly quota: 45 percent

With 16 years of experience in the mortgage business, McGarry didn’t believe the “pay option” loan was a good deal for most of her customers, so she didn’t promote it.
“I looked at it and I thought: I’m 60 years old. If I were in these peoples’ situation 10 years from now, where would I be?” she said. “Do I want to be in a position that 10 years from now I can’t make this higher payment and I’m forced to make this payment and be forced out of my home? So I wouldn’t do it.”
Her job description included a requirement that she meet a monthly quota of Pick A Pay mortgages, something she said wasn’t spelled out when she was hired. Still, she said, she continued to steer her customers to conventional loans, even though her manager “frequently reminded me that my job requirement was that I do 45 percent of my volume in the Pick A Pay loan.”
In June 2008, her manager wrote a “Corrective Action and Counseling” warning, saying she wasn’t meeting the bank’s “expectation of production.” McGarry soon left Wachovia after finding a job with another mortgage company. On June 30, the bank stopped selling mortgages with negative amortization. In October Wachovia, suffering from heavy mortgage-related losses, agreed to be acquired by Wells Fargo.
A spokesman for Wachovia said that generally the bank doesn't comment on internal marketing policies. But he said commissions on Pick A Pay mortgages were higher because the loans were more complicated and required more work to originate. He also noted that when Wachovia's Pick A Pay loans recast, the payment increase is capped for any given year, which helps ease borrowers' burden of meeting a higher payment.
The first wave of home foreclosures that hit in late 2006 and early 2007 followed the resetting of subprime adjustable mortgages with two- and three-year "teaser rates" written during the height of the lending boom earlier in the decade. But pay-option ARMs — which often don't "recast" for five years — have a longer fuse. Unless defused by aggressive public and private foreclosure prevention programs, the bulk of these loans will explode to higher payments in 2009 and 2010.
The scope of the problem was highlighted in September in a study by Fitch Ratings, one of the bond rating agencies that assesses the risk of defaults on mortgage-backed investments. Of the $200 billion in option ARMs outstanding, Fitch estimates that some $29 billion will recast in 2009 and another $67 billion in 2010. That could cause delinquencies on these loans to more than double, Fitch said.
To make matters worse, only 17 percent of option ARMs written from 2004 to 2007 required full documentation. Many of the borrowers who took out these loans also took out a second mortgage, which means they likely have little or no equity in their home, according to the report. That means many could owe more than their house is worth when the loan recasts to unaffordable payments.
Heavy losses from investments backed by pay option ARMs were a major cause of the demise of Wachovia and Washington Mutual, one of the largest originators of option ARMs during the height of the lending bubble. (Washington Mutual was seized by the FDIC in September, which arranged for the sale of its assets to JPMorgan Chase. Wachovia was acquired in October by Wells Fargo, which outbid Citibank after it arranged a deal with the FDIC to acquire Wachovia.)
Since the housing bubble began to deflate in 2006, roughly 3 million homes have been lost to foreclosure. Over the next two years, another 3.6 million are expected to lose their homes, according to Moody’s Economy.com chief economist Mark Zandi.
Many of the most problematic loans — those sold with a two- or three-year low “teaser” rates — have already reset to higher levels. Those resets have been a major force in the first wave of foreclosures, which rose from 953,000 in 2006 to nearly 1.8 million last year and are on track to hit 3.1 million this year, according to First American CoreLogic, which tracks real estate data.
And the pace of foreclosures is still climbing. More than 259,000 U.S. homes received at least one foreclosure-related notice in November, up 28 percent from the same month last year, according to RealtyTrac.
Though the pace dropped slightly from the previous month, there are indications "that this lower activity is simply a temporary lull before another foreclosure storm hits in the coming months," said RealtyTrac CEO James Saccacio.
Mortgage delinquencies — homeowners who have fallen behind but not yet been hit with foreclosure — are also on the rise, according to the latest quarterly survey from the Mortgage Bankers Association. A record one in 10 American households with mortgages was overdue on payments or in foreclosure as of the end of September.
The impact is being felt unevenly across the country. Foreclosures are clustered in states that saw the biggest expansion in lending and home building. In Nevada, one in every 74 homes was hit with a foreclosure filing last month. Arizona saw one in every 149 housing units receive a foreclosure filing, and in Florida it was one in every 157 homes. California, Colorado, Georgia, Michigan, New Jersey, Illinois and Ohio have also been hard hit.
“In the neighborhoods that have concentrations of subprime loans you already have concerns about crashing neighborhoods with too many vacant houses and crime rises,” said Longbrake. “The same thing will be true for these option ARMs. They are concentrated in particular neighborhoods and particular locales around the country."
Developed in the late 1980s, pay-option ARMs were written at first only for borrowers who showed they could afford the full monthly payment. But during the height of the lending boom, underwriting standards were lowered to qualify borrowers who could only afford the minimum payment, according to Longbrake.
College savings made easy

McGarry says she was encouraged to promote the idea that with a Pick A Pay loan the borrower could pay less than the full monthly payment and set aside the difference for savings or investment. The pitch included sales literature comparing two brothers. One took the Pick A Pay loan, made the minimum payment and put money in the bank. The second brother got a conforming loan. Five years later, both brothers needed to pay their children’s college tuition.
“(The brother with the conforming loan) didn’t have the money in the bank,” said McGarry. “And the brother that had the pay-option ARM could go to the bank and withdraw the money and didn’t have to refinance his mortgage. That’s how they sold it.”
McGarry said the sales pitch downplayed the impact of negative amortization. When the loan principal swells to a set threshold — typically between 110 and 125 percent of the original loan amount — the mortgage automatically “recasts” to a higher, set monthly payment that many borrowers would have a hard time keeping up with.
Fitch estimates that the average potential payment increase would be 63 percent, or about $1,053 a month — on top of the current average payment of $1,672.
The impact on the millions of American families losing their homes is devastating. But the foreclosure fallout is being felt around the world. As the U.S. slides deeper into recession, foreclosures are the root cause of a downward spiral that threatens to prolong and widen the economic impact:
-As the pace of foreclosures rises, the glut of homes on the market pushes home prices lower. That erodes home equity for all homeowners, draining consumer spending power and further weakening the economy.
-The overhang of unsold homes also depresses the home building industry, one of the major engines of growth in a healthy economy.
-As home values decline, investors and lenders holding bonds backed by mortgages book steeper losses. Banks holding mortgage-backed investments hoard cash, creating a credit squeeze that acts as a bigger drag on the economy.
-The resulting pullback in consumer and business spending brings more layoffs. Those layoffs put additional homeowners at risk of defaulting on their mortgages, and the cycle repeats.
"Foreclosures are going to mount and the negative self-reinforcing cycle will accelerate," said Zandi. "It's already happening, but it will accelerate in a lot more parts of the country."
As pay-option ARMs put more homeowners under pressure, other forces are combining to increase the risk of mortgage defaults. As of the end of September, the drop in home prices had left roughly one in five borrowers stuck with a mortgage bigger than their house is worth, according to First American CoreLogic. In a normal market, homeowners who suffer a financial setback can tap some of the equity in their home or sell their home and move on.
“That’s a big issue,” said Mark Fleming, First American CoreLogic’s chief economist. “As equity is being destroyed in the housing markets, more and more people are being pushed into a negative equity position. That means that they’re not going to have the option for sale or refinance if they hit hard times."
“Negative equity” is also a major roadblock in negotiations between lenders and homeowners trying to modify their loan terms.
After over a year of debate in Congress, and private efforts by lenders, no one has come up with the solution to the thorniest part of the problem: Who should take the hit for the trillions of dollars of home equity lost since the credit bubble burst?
“(Customers) keep calling and saying ‘With this bailout, this isn’t helping me at all,’” said McGarry, who is now working with clients trying modify or refinance their loans. “It really and truly is not helping them. If their lender will not agree to settle for less than they owe — even though those lenders are on the list of lenders that will work with you — they still are not working with (the borrower).”
It’s a monumental undertaking that was never anticipated when servicers took on the task of managing these mortgage portfolios. These companies are already struggling to keep up with the volume of calls, and defaults are projected to keep rising. They’re also swamped with calls from desperate homeowners who are falling behind on their monthly payments.
“We have never seen anything this large before; we make 5 million phone calls a month to reach out to borrowers,” said Tom Morano, CEO of Residential Capital, the loan servicing unit of GMAC. “The volume of calls that’s coming in is much higher than it has ever been, and everybody is struggling with that.”
Now, as the spiral of falling home prices is exacerbated by rising unemployment, millions of homeowners who were on a solid financial footing when they signed their loan face the prospect of a job loss that would put them at risk of foreclosure. Some servicers say that’s the biggest wild card in projecting how many more Americans will lose their homes.
“The concern I have is if we have an economy where unemployment gets to 8 or 9 percent,” said Morano. “If that happens the amount of delinquencies is going to be staggering.”
With the latest monthly data showing more than half a million jobs were lost in November, some economists now believe the jobless rate could rise from the current 6.7 percent to top 10 percent by the end of next year.



By John W. Schoen MSNBC.com

Tuesday, December 9, 2008

The Million-Dollar-Home Dream goes POOF!

If you paid seven figures, it probably isn't worth that anymore; for buyers, $500,000 is the new $1 million.
Half a million dollars is, by almost any standard, a lot of money. But during the past few years, when credit was easy and regulations were loose, for many Americans it didn't seem like all that much.
That's because they were able to borrow huge amounts of money to buy new homes, often with little or nothing down. And while most homes sold in the United States, even at the height of the housing bubble, were $500,000 or less, rising prices in many major cities and affluent suburbs around the country pushed the cost of a three-bedroom home into seven figures or more.
But the gap between $500,000 and $1 million is more than monetary. It is also psychological. And during the recent boom years, Americans became reckless consumers, buying cars, houses, clothes and much more that they couldn't really afford. The dream of a $1 million home, once so distant, became tantalizingly reachable.
Now that has all changed. While certain pockets, such as Manhattan, San Francisco and Boston, remain high, real-estate prices around the country have fallen dramatically. The downside to this, of course, is that many people now owe more money on their home than their home is worth. The upside is that valuations are much more realistic — and affordable.

Pain is spreading
That's because homes priced at half a million — and higher — are now also beginning to shrink in value. Initially, the properties hit hard by the subprime crisis were lower-priced dwellings more often than not bought by people with poor credit. But now, as too many people are experiencing, the pain is spreading even to people with good credit and higher incomes.
Until recently, sellers in wealthy neighborhoods were somewhat protected from the subprime credit crisis and were still drawing buyers with high salaries, good credit scores and a cushion of savings. But the problems worsened after global financial-services giant Lehman Brothers collapsed on Sept. 15. Credit markets froze, corporate giants laid off thousands of highly paid workers, and the stocks that padded the portfolios of the wealthy plummeted.
Even once seemingly impervious markets such as New York City, Florida and California, which had attracted well-heeled international buyers looking to take advantage of a weak dollar, began to struggle as the global economic slowdown washed over Europe, Asia and even the Middle East.
Asking prices for luxury homes nationwide have fallen 5.4% since Jan. 4, and such homes now stay on the market for 148 days, compared with 125 days at the beginning of the year, according to The Institute for Luxury Home Marketing's Luxury Market Report, which tracked prices through Nov. 7. The data — compiled by Altos Research — look at prices in the top 10 wealthiest ZIP codes in 30 large metro areas around the country.

Watching and waiting
"The entry level of the upper tier — the $500,000 price point and up — has been softening for a while," said Laurie Moore-Moore, founder and CEO of the Institute for Luxury Home Marketing, a Dallas-based group that trains high-end agents. "What we've also seen in the last month is huge uncertainty at the very top of the market. People want to know where are we headed, how serious [the downturn] is going to be, and what is the duration. There are enough questions that even at the top of the market, people are waiting and watching."
BusinessWeek.com put together a sampling of homes selling for about $500,000 in 17 of the most affluent communities across the nation. A few years ago, those homes would have likely commanded much higher prices.
Art Tassaro, a real-estate agent with Friedberg Properties in the wealthy New York suburb of Cresskill, N.J., said buyers have all but disappeared in the past few months. Sellers who want their home to move quickly need to be aggressive about pricing. One method is to average the three lowest sales prices in a given neighborhood during the past year and then discount that price by an additional 5%, he said.
"If it was bad before, it's worse now," he said.

Of course, if you’re buying …
Grim times for sellers can be full of opportunity for buyers, especially those with cash, Tassaro said.
John Marcell, president of Better Mortgage Brokers in Upland, Calif., said sellers are discounting prices significantly in order to make a sale. Most sales are so-called short sales, where the lender agrees to accept less than the outstanding loan amount to avoid a foreclosure.
High-end homes are just sitting on the market in his area, he said. Entry-level homes now make up the market's strongest segment, because first-time purchasers can take advantage of low prices without having to worry about unloading their existing homes, he said.
"The only sales of million-dollar homes are foreclosures," Marcell said.



By Prashant Gopal, BusinessWeek.com

Monday, October 6, 2008

The $700 Billion Rescue passed....but will it work???

The $700 billion rescue bill that Congress finally passed will limit panic in the markets, since it gives the government vast new authority to take over sclerotic securities that have clogged the credit system and already brought down some of America's biggest companies. With the feds stepping into the bloodbath, the hemorrhaging should stop. But the economy is still in precarious shape, and unrealistic expectations about the bailout could end up disappointing consumers hoping for some kind of immediate relief.Here are some likely developments for which consumers should prepare:

Less volatility. One thing the bailout will do is give investors some clarity and predictability, which will help calm the financial markets. With a clear plan for handling troubled companies--instead of the ad hoc approach applied to Bear Stearns, Lehman Brothers, and others--the government will abide by a consistent set of bailout rules, which will prevent the wild swings in the stock markets that made September a heart-stopping month.

But beware a sucker's rally. With the congressional melodrama over and the bailout in place, the markets will be reacting once again to ordinary economic forces--which are weak, at best. A few other big financial firms, and a lot of regional banks, are expected to take a hit next, especially if the credit crunch persists. Even if the government manages those problems smoothly, shareholders could get wiped out or of suffer deep losses. The global economy is cooling, too, which means less demand for American exports--a rare economic bright spot until lately--and lower profits for American multinational firms. All of those factors are likely to weigh down stocks.

Safe banks. There will probably be more bank failures, but the bill makes it clear that depositors don't need to worry about their money. The bill raises the amount of deposits covered by the FDIC from $100,000 to $250,000. That makes an implicit guarantee explicit: Until now, the FDIC has covered all deposits, including those over $100,000, to prevent "walks" on banks by people withdrawing everything over the insured limit. Now, the government will guarantees that higher amounts will be covered, even if banks fail.

A recession. Unfortunately, a more stable financial system probably won't prevent a sharp economic downturn, which already seems to be underway. Economists will probably continue to argue about whether it's technically a recession. But for many consumers and a lot of big industries, it doesn't matter what you call it: Times are tough, and getting tougher.
Job cuts in September--159,000--were the most in five years. Most economists are betting that additional jobs are going to be cut in coming months as companies hunker down. Worried consumers are likely to cut spending, deepening the dismal cycle.
There's already a recession in the auto industry, for example, which accounts for a big chunk of Americans' economic activity. Sales in September plunged to the lowest levels in 15 years. Deep worries--and profit-crunching discounts--are spreading to other sectors of the retail economy, too.
The bailout might help contain the damage. Theoretically, the feds' shock therapy will lessen the risk that a lot of companies will go bankrupt, which should motivate nervous bankers to start lending once again, with less fear that their money will vanish. If that actually happens, it will help big and small businesses alike continue to meet their payrolls. But there's nothing in the bill that forces banks to lend money, and they could just keep sitting on their cash for a while. And even if money loosens up, that's still no guarantee that consumers will spend. So any economic boost from the bailout will be indirect and probably take a while.

Minimal tax relief. A tax increase to pay for the bailout seems unnecessary, since many analysts think that the eventual sale of troubled securities could cover the government's costs. But added short-terms costs means that tax cuts anytime soon look less likely. Both Barack Obama and John McCain are pushing tax breaks, a perennial campaign promise. Obama wants to cut taxes for most Americans earning less than $250,000. McCain's plan calls for cutting capital gains taxes and corporate income taxes and extending other tax cuts that are set to expire soon. But don't bank on much relief: With the soaring costs of the federal bailout--plus added expenses, like up to $50 billion in loans for the Detroit automakers--anything that adds to the federal deficit next year is going to be hard to slip past budget hawks in Congress. A smaller set of tax cuts might be possible, though.

Scarce consumer loans. Banks have cut back on virtually every kind of loan to consumers, whether it's for cars, homes, vacations, or small credit-card purchases. One new government provision may help some homeowners who are at risk of defaulting, through a program that allows certain homeowners to renegotiate their loans with the bank. But it's not clear how effective that program will be.
While the bailout is supposed to ease the "credit crunch," it will probably be a while before relief reaches consumers. For one thing, the government will focus first on freeing money for banks and businesses so they are able to keep their operations humming and meet payroll expenses.
If banks do loosen up, the money flow may eventually trickle down to consumers. But stringent lending standards are likely to be in place well into next year, because banks are still digesting defaults on mortgages, car loans, and credit cards. And default rates are rising, not falling. Until those losses are covered, banks are going to say no more often than yes. For the next year or two, many Americans may have little choice but to save for a sunnier day.

Story by: Fadwa Knox

Thursday, October 2, 2008

The Consumer Bailout That Nobody Knows About

As congress considers the $700 Billion bailout for the financial system, there is a little known "bailout" for home owners that has already been enacted into law, according to Gibran Nichols, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers. Section 1403 of the new housing bill that was signed into law on July 30, 2008 (HR 3221) requires mortgage servicers to modify loans for homeowners and help them avoid foreclosures as long as three requirements are met:

A.) Default on the mortgage either has already happened or is "reasonably foreseeable"
B.) The homeowner is living in the property as his or her primary residence.
C.) The lender is likely to recover more through the loan modification or workout than by forcing the homeowner into foreclosure

"The fact is that this law is effective immediately, and most distressed homeowners are simply not aware that they have this option," Nicholas said. Borrowers make their monthly payments to mortgage servicers, and servicers keep a portion of the payment as their profit while sending the rest to the Wall Street investors who actually own the mortgage. "This law requires services to act in the best interest of their investors and obligates them to modify your loan if you can afford the modification loan terms and if they are likely to recover more for their investors by working with you than by going all the way through the foreclosure process." Nicholas said.

While negotiating loan modification with your mortgage lender, it is advisable to follow these four steps:

1.) Make sure you are dealing with your lender's loss mitigation and/or work out department
2.) Write a hardship letter demonstrating job loss, serious medical condition, balloon payment coming due, adjustable rate reset or some other financial calamity that will make it impossible for you to continue making your mortgage payments as scheduled. Unless you are in imminent danger or default as required by this new law, lenders are not likely to work with you.
3.) Send the lender you financial statements, employment records, tax returns and bank statements demonstrating how you would be able to afford the modified loan terms under your present financial circumstances.
4.) Send the lender a current appraisal of your home or some documentation on recent comparable sales in your neighborhood demonstrating the current value of your home. "The key to demonstrating how the lender is likely to recover less money through foreclosure than they would by working with you in your purposed loan modification plan," Nicholas said.


It is advisable that you speak with a professional mortgage consultant. Give us a call! We want to help you!!

By: Artcle written by Paige of RISMedia.com

Tuesday, September 9, 2008

RATES ARE LOW!!

RATES HAVE GONE DOWN!! GIVE US A CALL RIGHT NOW!!!

Monday, September 8, 2008

Government Takes Control of Fannie Mae and Freddie Mac: Possible Benefits to the Consumer

The government takeover of Fannie Mae and Freddie Mack is designed to put downward pressure of mortgage rates and to ensure that home loans remain available.
Those goals are made crystal clear in the statements made by public officials.
The primary mission of the two mortgage giants "now will be to proactively work to increase the availability of mortgage finance," says James Lockhart, who will temporarily govern Fannie and Freddie.
Lockhart, head of the Federal Housing Finance Agency, adds that his agency will examine Fannie's and Freddie's fees" with an eye toward mortgage affordability."
Treasury Secretary Henry Paluson says the government has three objectives: "market stability, mortgage availability and taxpayer protection." That's another signal that the government wants mortgages to remain available, at good rates, to borrowers with low risk to default.
Jim Sahnger, a mortgage broker with Palm Beach Financial Network in Stuart, FL, says, "The good news for the consumer is that money will still continue to flow, provided you have the ability to qualify."

Rate Reduction Expected
Dean Baker, an economist with the Center for Economic and Policy Research, a think tank in Washington, D.C., says, "I think that the immediate impact will be somewhat positive. You'll see some drop in mortgage rates because it'll decrease the uncertainty" that had pushed mortgage rates up this summer.
Baker says he can imagine a drop in mortgage rates of around a quarter of a percentage point, give or take about 5 basis points. A basis point is one-hundredth of a percentage point. "It's something," he says. "It's not going to make a huge difference."
It's hard to guess the timing of such a rate decrease. Baker says it might happen as soon as today, but possibly later. "Probably we're talking the inside of two weeks," Barker says.
Sahnger agrees that rates will fall soon. "there will be an immediate impact as far as rates," he says. " I think rates are going to improve modestly at the beginning."

Why Rates Should Fall
Mortgage rates are expected to fall because the Treasury Department will buy mortgage-backed securities. Here's why rates would fall as a result of the Treasury buying mortgage-backed securities:
When investors buy bonds, they have a wealth of choices. They can buy U.S. Treasury bills and notes, or corporate debt, or bonds from state and local governments. Or they can buy mortgage-backed securities, which behave much like bonds. Mortgage-backed securities are known as MBS in industry shorthand.
Fannie and Freddie guarantee the mortgage-backed securities that they issue, and those securities are deemed quite safe as investments. Not as safe as Treasury notes, but relatively safe. Fannie and Freddie are government-sponsored enterprises, or GSEs and for decades they had implicit government backing. That backing is now explicit.
In the past few months, investors have rushed to the safety of Treasury notes and haven't been as eager to buy mortgage-backed securities. The lessened demand caused the prices of mortgage-backed securities to go down. When bond prices fall, bond yields rise, and that's what happened with mortgage-backed securities. As yields went up, so did mortgage rates. The difference, or spread, widened between Treasury yields and mortgage-backed securities.
Now that the Treasury will buy mortgage-backed securities, their prices should rise because of the greater demand. (The same thing would happen if the federal government bought, say, boxcar loads of sugar. You would expect sugar prices to go up.) When bond prices rise, yields drop -- so mortgage rates should follow.
Lockhart, whose department will run Fannie and Freddie, describes this succinctly when he says, "As the GSEs have grappled with their difficulties, we've seen mortgage rate spreads to Treasuries widen, making mortgages less affordable for homebuyers. While the GSEs are expected to moderately increase the size of their portfolios over the next 15 months through prudent mortgage purchases, complementary government efforts can aid mortgage affordability. (The) Treasury will begin this new program later this month, investing in new GSE MBS."

Jumbo Rates Stay Up
The government's action will have a beneficial effect on some mortgages, but not all. It will have little or no impact on jumbo mortgages -- home loans for large amounts. (The definition of a jumbo loan varies, depending on house prices in each metro area. A jumbo is a loan of more than $417,000 in much of the country, and is higher in more expensive housing markets -- up to $729,750 in places such as Los Angeles.)
Because they are perceived as riskier, rates on jumbo mortgages have been unusually high for the last year. Historically, jumbo rates had hovered about a quarter of a percentage point above the rates for mortgages backed by Fannie and Freddie. Now they're about a full percentage point higher, and that gap is unlikely to fall soon.
The government's bailout of Fannie and Freddie won't affect rates on home equity loans or home equity lines of credit, either.

By: Holden Lewis Bankrate.com

Tuesday, August 26, 2008

'Hints of a Bottom' in Sight

Though home prices continued to fall in July, there are growing signs that — in some regions at least — the market may be stabilizing as lower prices lure some buyers off the sidelines. But a broad housing recovery faces stiff headwinds in the form of rising unemployment, tighter credit for borrowers and a huge inventory of unsold homes.
The widely watched Standard & Poor's/Case-Shiller national home price index fell by a record 15.4 percent during the second quarter compared to the same period a year ago.
Still, the report offered a glimmer of hope that the slide in home prices may be easing: The rate of price drops slowed from May to June, and regional price data showed that nine of the 20 cities tracked by the index posted slight month-to-month gains.
"If you look at the year-over-year numbers they are still going down but not accelerating to the downside quite as much as they had been in a number of cities,” said David Blitzer, chairman of the index committee at Standard & Poor’s. “So we are seeing hints of bottoms.”
Other housing news this week also gave reason for cautious optimism. Sales of new homes posted an unexpected gain of 2.4 percent in July, and sales of existing homes rose 3.1 percent, more than expected.
But in both cases, the reports were mixed. Median prices for existing homes are still falling, and the number of unsold homes on the market hit an all-time high.
“The question is 'Where is the economy going?'” said Robert Brusca, chief economist at Fact and Opinion Economics. “If the economy gets weaker, this stability we see in housing will give way and we’ll get traditionally weakness in housing that will come from the economy itself. So we have to be concerned about that."
Even the usually optimistic White House was extremely cautious in its reaction. "The data today paint a mixed picture, but it's clear it will still take some time to work through the downturn in housing," White House spokesman Tony Fratto said in Crawford, Texas, where President Bush was spending time at his ranch. "Once housing prices stabilize that will signal a return to a housing industry that can contribute to economic growth."
Like discounted merchandise in a department store, lower home prices should eventually spur sales. Buyers who were priced out of the market during the peak of the housing boom have a better shot at homeownership as prices fall.
The national “affordability index” — which tracks incomes, mortgage rates and home prices —fell a bit in July, meaning houses became a bit less affordable, mainly due to rising mortgage rates. But overall, homes are generally more affordable than they were at the height of the boom.
The recovery in the housing market is being slowed by the availability of credit, now that lenders have substantially tightened up guidelines on approving loans. The supply of mortgage money has also been crimped as the two government-sponsored mortgage finance companies, Fannie Mae and Freddie Mac, struggle to cope with mounting losses from foreclosures.
The heavy pace of foreclosures has also been a major force pushing home prices lower, as lenders aggressively price their backlogs of repossessed real estate, hoping to unload them before prices fall further. Once the pace of foreclosures begins leveling off, the pressure on prices will ease.
“I anticipate seeing price support probably sometime in the first or second quarter of next year when the foreclosure market stabilizes back to more normal numbers,” Damian Kassab, CEO of Warren Bank in Clinton, Mich., said on CNBC.
Foreclosure filings continued to rise in July — up 8 percent from June and 55 percent higher than last July. Last month, the White House signed housing legislation designed to head off foreclosures by allowing an estimated 400,000 homeowners swap their mortgages for more affordable loans.
But homeowners can only participate if their lender agrees to take a loss on the loan. Even if the plan works as intended, some 2.8 million U.S. households will either face foreclosure, turn over their homes to their lender or sell the properties for less than their mortgage's value by the end of next year, according to estimates by Moody's Economy.com.
Signs of a bottom in the housing market are further clouded by the recent rise in the unemployment rate. Homeowners who might have otherwise managed to keep up with their mortgage payments will have a harder time doing so if they’re out of a job.
Consumer budgets are also being squeezed by higher food and energy prices, though household budgets have recently gotten something of a reprieve as gasoline prices have eased. That helped lift overall consumer confidence a bit in July, though the outlook for jobs turned bleaker, according to the latest monthly survey from The Conference Board.
“We are not out of this," said Ken Goldstein, an economist at the Conference Board. “We still have months to go before the economy and the housing market will be improving. That's not going to happen until 2009, maybe not until the summer of 2009.”


By: John W. Schoen MSNBC.com

Monday, July 14, 2008

Imagine Housing Without a Secondary Market

In 1974, the United States was reeling from Watergate and the Vietnam War and stuck in a vexing recession. Inflation was out of control and President Gerald Ford was struggling to get control of the country and its economy. A collectible from those days is a "WIN" button, which stood for "Whip Inflation Now" -- a promotional device that the desperate Ford administration ginned up.

At the time, I was fresh out of college, living in Peoria, Ill., and working as an urban planner. One distinct memory I have was passing the downtown office of Peoria Savings with a sign on the window that read "No Home Loans."
A moratorium on home loans -- can you imagine?
Get ready.
In the early 1970s, the housing market had no meaningful secondary mortgage market. When passbooks savings -- which capitalized most mortgages -- shrank, money for home loans dried up.
In 1968, Fannie Mae and Freddie Mac were re-chartered by Congress as shareholder-owned companies funded solely with private capital raised from investors on Wall Street and around the world. But it was not until the 1980s that they found their footing and their growth mushroomed. Mortgage-backed securities got traction in the early part of this decade with the national push for home ownership. New mortgage instruments were invented to capture global interest in U.S. home loans.
In this period, a secondary market came onto the scene with brute force. By 2005, the size of the market had ballooned to $3 trillion.
And today? It has collapsed. Even Fannie Mae and Freddie Mac are poised for a government bailout. Today, Fannie Mae's stock has tumbled 45 percent and Freddie's has fallen 20 percent. This is after steep declines all week.
So, imagine a return to a housing market without a robust and functional secondary housing market. In other words: a severe credit crunch.
Here are 10 things that I predict will flow from its collapse (many of which have already hit the beleaguered housing market):

1. The capital that exists from direct lenders such as community banks, savings institutions and large commercial banks will fall short of potential demand and focus on bread-and-butter loans, leaving most borrowers out in the cold.

2. Exotic loans of any kind will be completely out of favor, leaving many borrowers and many properties unfundable.

3. Home sellers will become active lenders, but only those who have equity. Seller financing will help some transactions.

4. Second homes, expensive houses and certain types of investment property will be penalized and difficult to fund.

5. Small boutique lenders will enter the business, capitalizing on market voids, funding specialized but secure niches.

6. Investment banks will take care of unleveraged high-net-worth customers, but terms will be unfavorable so this market will further shrink.

7. Sovereign wealth funds are not the solution, because many were burnt on mortgage-backed securities.

8. Those that do lend will revert to back-to-basics underwriting: perfect credit, large down payments, proof of income, personal character and good family upbringing.

9. Housing industry lobbyists will make the mortgage liquidity problem their number one policy issue in the next two years. They will argue that the sky is falling and it is.

10. The trend will keep the housing market starved for capital, prolonging the slump.

Like so many parts of our American culture, the accessibility to unlimited and poorly scrutinized debt helped turn Americans into a sloppy group of consumers, which spawned greedy Wall Streeters, out of control lenders and starry-eyed investors.



By: Brad Inman is founder and publisher of Inman News

Tuesday, July 8, 2008

Fed Adopts Plan to Curb Shady Mortgae Practices

Federal Reserve gives home buyers more protection against shady lending practices.
The Federal Reserve has adopted rules to give home buyers more protection from the types of shady lending practices that have contributed to the housing crisis and propelled foreclosures to record highs.
Chairman Ben Bernanke and his central bank colleagues approved a plan Monday that would crack down on dubious lending practices that have hurt many of the riskiest "subprime" borrowers -- people with tarnished credit histories or low incomes.
In that regard, the plan would:

-- bar lenders from making loans without proof of a borrower's income.

-- require lenders to make sure risky borrowers set aside money to pay for taxes and insurance.

-- restrict lenders from penalizing risky borrowers who pay loans off early. Such "prepayment" penalties are banned if the payment can change during the initial four years of the mortgage. In other cases, a penalty can't be imposed in the first two years of the mortgage.

-- prohibit lenders from making a loan without considering a borrower's ability to repay a home loan from sources other than the home's value. The borrower need not have to prove that the lender engaged in a "pattern or practice" for this to be deemed a violation. That marks a change -- sought by consumer advocates -- from the Fed's initial proposal and should make it easier for borrowers to lodge a complaint.

"Rates of mortgage delinquencies and foreclosures have been increasing rapidly lately, imposing large costs on borrowers, their communities and the national economy," Bernanke said.
"Although the high rate of delinquency has a number of causes, it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high-cost loans, that were inappropriate for or misled the borrower," he added.
For all mortgages, the plan would require advertising to contain additional information about rates, monthly payments and other loan features, and it would curtail certain deceptive or misleading advertising practices.
Other practices also would be clamped down on. Lenders, for instance, have to credit a mortgage payment to the homeowner's account on the day it is received. And, brokers and others are forbidden from "coercing or encouraging" an appraiser to misrepresent the value of a home.
Consumer groups initially complained that the new rules are not strong enough. Lenders worry they are too tough, could limit mortgage options for people and made it harder for some to obtain financing.
The new lending rules may not get a test for some time because there are fewer home buyers these days, given all the problems in the housing and credit markets. Also, some of the shady practices -- along with some lenders -- have not survived, felled by the mortgage meltdown.
"Clearly this is closing the barn door after the fact," said Susan Wachter, a professor of real estate and finance at the University of Pennsylvania's Wharton School of Business. Yet, she said, "this is a very important move. It absolutely will make a difference going forward."
Much will hinge on effective enforcement.
The plan would apply to new loans made by thousands of lenders, including banks and brokers. It would not cover current loans.
Those different lenders fall under a patchwork of regulators at the federal and state levels. So it will be up to each of these authorities to enforce the new provisions.
Fed Governor Randall Kroszner, the central bank's point person on the new rules, said the Fed's goal was to protect borrowers from unfair or deceptive practices while also not impeding the flow of credit.
The Fed's rules, he said, should "better protect consumers, while preserving their access to credit as they make some of the most important financial decisions of their lives."

By: AP Business Writer Alan Zibel contributed to this report.

Wednesday, June 25, 2008

California Attorney General Sues Countrywide Financial

California's attorney general has filed a civil lawsuit against Countrywide Financial Corp. , claiming the mortgage lender used misleading advertising and other unfair business practices to trick borrowers into taking on risky home loans they didn't fully understand.
The Los Angeles County Superior Court lawsuit comes on the same day Countrywide shareholders are scheduled to vote on the company's takeover by Bank of America Corp. The AG started gathering information last fall, when it started investigating the troubled company's business practices as foreclosures began to skyrocket nationwide.
The attorney general in Illinois is filling a similar lawsuit there

Thursday, June 12, 2008

5 Rules and Secrets you MUST Know

First, IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS
But you didn’t really need us to tell you that, did you? Mortgage money and interest rates all come from the same places, and if something sounds really unbelievable, better ask a few more questions and find the hook. Is there a prepayment penalty? If the rate seems incredible, are there extra fees? What is the length of the lock-in? If fees are discounted, is it built into a higher interest rate?

Second, YOU GET WHAT YOU PAY FOR
If you are looking for the cheapest deal out there, understand that you are placing a hugely important process into the hands of the lowest bidder. Best case, expect very little advice, experience and personal service. Worst case, expect that you may not close at all. All too often, you don’t know until it’s too late that cheapest isn’t BEST. But if you want the cheapest quote – head on out to the Internet, and we wish you good luck. Just remember that if you’ve heard any horror stories from family members, friends or coworkers about missed closing dates, or big surprise changes at the last minute on interest rate or costs…these are often due to working with discount or internet lenders who may have a serious lack of experience. Most importantly, remember that the cheapest rate on the wrong strategy can cost you thousands more in the long run. This is the largest financial transaction most people will make in their lifetime. That being said – we are not the cheapest. Of course our rates and costs are very competitive, but we have also invested in the systems and team we need to ensure the top quality experience that you deserve.

Third, MAKE CORRECT COMPARISONS
When looking at estimates, don’t simply look at the bottom line. You absolutely must compare lender fees to lender fees, as these are the only ones that the lender controls. And make sure lender fees are not “hidden” down amongst the title or state fees. A lender is responsible for quoting other fees involved with a mortgage loan, but since they are third party fees – they are often under-quoted up front by a lender to make their bottom line appear lower, since they know that many consumers are not educated to NOT simply look at the bottom line! APR? Easily manipulated as well, and worthless as a tool of comparison.

Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND
This means that you can have any interest rate that you want – but you may pay more in costs if the rate is lower than the norm. On the other hand, you can pay discounted fees, reduced fees, or even no fees at all – but understand that this comes at the expense of a higher interest rate. Either of these balances might be right for you, or perhaps somewhere in between. It all depends on what your financial goals are. A professional lender will be able to offer the best advice and options in terms of the balance between interest rate and closing costs that correctly fits your personal goals.

Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY
This means that if you are comparing lender rates and fees – this is a moving target on an hourly basis. For example, if you have two lenders that you just can’t decide between and want a quote from each – you must get this quote at the exact same time on the exact same day with the exact same terms or it will not be an accurate comparison. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

Again, our advice to you is to be smart. Ask questions. Get answers.
As you can imagine, we wouldn’t be encouraging you to shop around if we weren’t pretty confident that we feel that we can give you a great value and serve you the very best.
Please call us with any further questions you may have at this time – we are ready to work for your best interest!

Wednesday, June 4, 2008

BUY ONE HOUSE, GET ONE FREE!

As though Southern California's fine weather and beaches weren't attractive enough, a San Diego developer desperate to clear inventory is offering potential home buyers a buy-one-get-one-free scheme.
In a market beset with foreclosures and plummeting sales following the mortgage meltdown in 2007, Michael Crews Development will give away a row home valued at $400,000 with the purchase of a $1.6 million luxury estate home in the upscale city of Escondido in northern San Diego County.
"We are targeting a niche market of investors who are interested in the opportunity to buy a new home for themselves and get a free rental property or second home for family members," developer Michael Crews said in a statement.
The developer claims the row homes are not shoddy townhouses that are being given away with luxury estate homes. The two-acre Royal View luxury homes with four bedrooms, four baths, up to six car garages, swimming pools would be paired with 2,000 square-foot upscale row houses.
"People don't expect to get what they are getting with the row-homes," said marketing director Dawn Berry. "These are well appointed luxury houses."
Originally the offer was to run for two weeks in May but the developers decided to extend it through June to give potential buyers more time to mull over it.
Since the first advertisement went up nearly two weeks ago, one man has made an offer to buy a Royal View estate home, but chose not to take the free row-home. The developers have a solution for that as well.
"If you don't know what to do with your free home, you could always give it away," Berry said.
That would be welcome help for many a young buyer struggling to get a loan amid tightening credit rules that require larger down payments and established credit histories.
Home sales in San Diego County were down 18 percent in April from a year-earlier, while the number of homes going into foreclosure rose 130 percent in the first quarter from a year earlier, according to DataQuick Information Systems.




By Mike Blake REUTERS

Wednesday, May 28, 2008

5 new rules for home buyers

Rule 1: You can't time the bottom
Face it: The house you buy today will more than likely be worth less next year. That could get you thinking about trying to time the bottom. Resist. It's harder to do than you think, and this is the best buyers have had it in two decades, with inventories up and mortgage rates low.
Pace yourself, find the perfect place and drive a hard bargain: Ignore the seller's asking price and bid 10% below what comparable homes are selling for. If the seller balks, move on. Remember that if you're trading up, your home could sit. So sell before you buy.
Real Estate Survival Guide

Rule 2: One reason to buy now - mortgage rates
Homes are plentiful and will remain so, but financing will be getting more expensive. True, the Federal Reserve has slashed interest rates, but fixed mortgages don't directly follow the Fed. They reflect the bond market's expectations about inflation, which remains a concern. The 30-year, now at 6.1%, will likely reach mid-6% by December and 7% in 2009, says Celia Chen of Moody's Economy.com.
That means there could be a penalty for waiting to buy even if prices fall more. Today a $250,000 loan would set you back $1,500 a month. At 7%, a $1,500 payment gets you only a $225,000 mortgage. As for variable-rate loans, the spread between conforming ARMs and fixed loans is too narrow to do you much good.


Rule 3: Another reason to buy - rates on big mortgages
Mortgages in amounts greater than $417,000 - the limit for buying by federally sponsored mortgage agencies - usually run a fifth of a percentage point above conventional products. But investors are shunning jumbos, which now average 7.2% and are unlikely to drop much this year, according to HSH Associates.
Certain jumbo borrowers could get relief, however. A new law allows Freddie Mac and Fannie Mae to buy loans as large as $729,750 in 71 high-priced areas. So far "jumbo conforming" loans average 6.6%. The program has gotten off to a slow start; you'll need to shop around. And unless Congress acts, this bargain will disappear at year-end.


Rule 4: Don't buy cheap; buy good schools
By now you've heard from somebody who knows somebody who got a great deal on a foreclosed property. But when you buy a house, you're also buying into a neighborhood. And foreclosures tend to be bunched in areas where residents and speculators alike took out exotic mortgages to get into homes they subsequently found they couldn't afford. That's not a recipe for stability. Prices and quality of life could both decline further.
Similarly, avoid developments that popped up in the past few years. They too likely have a lot of owners with risky loans and little equity, says Mike Larson of Weiss Research. Instead, go for areas with highly rated schools. They generally fare better during downturns, and that pattern is holding today, according to a recent study by real estate site Trulia.com.


Rule 5: Make sure your agent has your interest at heart
The real estate game has a built-in conflict of interest, since the listing agent and your agent both get paid by the seller. And these days more sellers are offering extra cash to buyer's agents.
So make sure you're not being steered to a house that's better for your agent than for you. Agree up front on his commission (typically 3%) and that any extra payments will go to you, says Jon Boyd, past president of a buyer's agent trade group.
As a professional agent I have your best interest at heart. So give me a call with all you mortgage financing needs.








By Amanda Gengler, Money Magazine

Tuesday, May 20, 2008

Senate Deal Struck on Mortgage Aid

Plan would let government back loans for at-risk borrowers. Key lawmakers reach compromise: Taxpayers will not be on the hook if loans go bad.
Senate Banking Committee leaders said Monday that they have come to a deal on a housing bill that would prevent foreclosures, create affordable housing and revamp oversight of two of the mortgage market's biggest players: Fannie Mae and Freddie Mac.
A major part of the legislation would allow the Federal Housing Administration to insure $300 billion in new loans for at-risk borrowers if lenders agree to write down loan balances below the appraised value of borrowers' homes.
The deal came as pressure has been building in Washington to respond to the huge increases in foreclosure filings. It was struck between the top Democrat and Republican on the Banking Committee: Chairman Christopher Dodd, D-Conn., and Ranking Member Richard Shelby, R-Ala.
"This legislation is good news for both the markets and homeowners," Dodd said in a statement. "The bill addresses the root of our current economic problems - the foreclosure crisis - by creating a voluntary initiative at no estimated cost to taxpayers which will help Americans keep their homes."
Dodd and Shelby had been in prolonged negotiations over the bill.
A key sticking point has been Shelby's push to shield taxpayers if borrowers default on their payments after getting government-backed loans. He has said that he wants the FHA plan funded by redirecting money that Dodd's original bill earmarked for a new affordable housing trust fund. The funds would be paid by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).
"My primary consideration ... has been to protect the American taxpayer, and I believe we've made significant progress toward that goal," Shelby said in a statement.
Dodd said Monday that the compromise bill would still create a fund to spur affordable housing but would use the funding for that program in the first year to backstop the FHA mortgage program.
The new FHA program could benefit an estimated 500,000 people. It could cost as much as $500 million, which would be paid for by Fannie and Freddie. If it turns out the costs fall below that level - that is, should few if any borrowers default on their new FHA loans - the funds from Fannie and Freddie would be redirected back to the affordable housing trust fund.
Regulating the big boys
Another big issue in the legislation is a measure that would provide for stricter oversight of Fannie and Freddie. The two government-sponsored enterprises guarantee the purchase and sale of home mortgages in the secondary market.
Shelby had been campaigning for more stringent safeguards than Dodd's original bill provided. Both Fannie and Freddie have experienced accounting scandals in the past and both saw steep first-quarter losses.
The Banking Committee is scheduled to debate and vote on the bill Tuesday. The measure is certain to pass at the committee level and Dodd said he is hopeful he can get the votes he needs to pass the bill through the full Senate in time to go to President Bush before the July 4 congressional recess.
It remains an open question whether Bush would support the bill. He has threatened to veto a similar bill sponsored by Rep. Barney Frank, D-Mass., and passed by the House on May 8 by a 266-154 vote. But Dodd said that while the White House hasn't endorsed his bill yet, "there's been some positive reaction out of the White House."
A spokesman for Frank said the congressman was pleased a compromise had been reached. "We look forward to working with them," he said.

By Jeanne Sahadi, CNNMoney.com senior writer

Thursday, May 15, 2008

10 Fastest-Growing Real Estate Markets

Yes, even amid the housing crisis, parts of the U.S. are still expected to post price gains in the coming year, according to Money Magazine. Here's where to look.

1.) McAllen, Texas
12-month forecast: 4%
Median home price: $109,000
One year price change: 2.1%
Five year price change: 23.3%
Change in foreclosure rate: 23%

2.) Rochester, N.Y.
12-month forecast: 2.7%
Median home price: $121,000
One year price change: 3.4%
Five year price change: 20.1%
Change in foreclosure rate: 5%

3.) Birmingham, Alabama
12-month forecast: 2.7%
Median home price: $156,000
One year price change: 2.9%
Five year price change: 29.4%
Change in foreclosure rate: 20%

4.) Syracuse, N.Y.
12-month forecast: 2.6%
Median home price: $126,000
One year price change: 0.8%
Five year price change: 29.5%
Change in foreclosure rate: 27%

5.) Buffalo/Niagara Falls, N.Y.
12-month forecast: 2.4%
Median home price: $105,000
One year price change: 1.6%
Five year price change: 24.5%
Change in foreclosure rate: 14%

6.) New Orleans, La.
12-month forecast: 2.2%
Median home price: $158,000
One year price change: 1%
Five year price change: 43.7%
Change in foreclosure rate: 49%

7.) Scranton, P.A.
12-month forecast: 2.2%
Median home price: $128,000
One year price change: 7.2%
Five year price change: 41.1%
Change in foreclosure rate: 8%

8.) Grand Rapids, Mich.
12-month forecast: 1.9%
Median home price: $124,000
One year price change: -3%
Five year price change: 8.3%
Change in foreclosure rate: 37%

9.) Baton Rouge, La.
12-month forecast: 1.9%
Median home price: $170,000
One year price change: 5.7%
Five year price change: 38.3%
Change in foreclosure rate: 14%

10.) El Paso, Texas
12-month forecast: 1.8%
Median home price: $134,000
One year price change: 6.9%
Five year price change: 51.9%
Change in foreclosure rate: 32%


Taken from Money Staff provided by Money on CNNMoney.com

Tuesday, May 6, 2008

NEHEMIAH

What is the Nehemiah Program?
The Nehemiah Program is the nation's largest privately funded downpayment assistance program, helping thousands of people achieve their dream of homeownership. The Nehemiah Program provides gift funds to qualified homebuyers who purchase participating homes using an eligible loan program, such as a Federal Housing Administration (FHA) loan. The Nehemiah Program is approved to provide gift funds by the FHA, which allows charitable organizations to provide gift funds toward downpayment and closing costs.
The Nehemiah Program gift funds are monies offered by Nehemiah to qualified homebuyers, requiring no repayment, no silent second mortgage, and no re-capture penalties. The gift funds are offered toward the purchase of a participating home anywhere in the United States-with no income limitations and no geographical restrictions. The money given to the homebuyer is a true gift. Nehemiah charges a nominal processing fee that may be paid by the seller, lender or homebuyer.

Who is Eligible?
The Nehemiah Program offers gift funds to any qualified homebuyers, not just to first-time homebuyers. A qualified homebuyer is anyone who:
* Purchases a Nehemiah participating home to be owneroccupied (non-occupant co-borrower(s) may assist owneroccupant to qualify for mortgage).
*Uses an eligible loan program, such as an FHA loan or a conventional loan product that allows gifts from charitable organizations.

What is Recommended for the Homebuyer?
Nehemiah recommends that homebuyers seriously consider (1) homeownership education courses and (2) home inspections.
(1) Homeownership Education Courses: Nehemiah strongly encourages, but does not require, all homebuyers to complete a homeownerhip education course.
(2) Home inspection: Nehemiah strongly encourages, but does not require home inspections. Home inspections provide the homebuyers with an impartial evaluation and important information about the property's overall condition. An inspection may provide homebuyers with a list of items that need to be repaired to replaced.

Harnan Financial Group, Inc. can help you to purchase your home. Please give us a call!!
(310) 649-2221
nancy@harnanloans.com


For more information on the Nehemiah Program please go to www.getdownpayment.com



Excerpts taken from The Nehemiah Program Guidelines at getdownpayment.com

Wednesday, April 30, 2008

Fed Trims Rate to 2%

(Bloomberg) -- The Federal Reserve lowered the main U.S. interest rate by a quarter of a percentage point to 2 percent and indicated it's ready to take a break after seven cuts since September.

``The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time,'' the Federal Open Market Committee said in a statement after meeting today in Washington.

``The committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.''

While a nine-month contraction in credit and soaring fuel prices have pushed the economy to the edge of a recession, confidence has begun to return to financial markets. Inflation expectations are also picking up, driven by near record prices for oil and higher food expenses. Stocks pared gains after the decision, while the dollar and Treasury notes were little changed.

``The Fed is buying extra insurance against a deeper recession,'' said Arun Raha, vice president and senior economist at Swiss Re. ``The Fed will be reluctant to cut any further.''

The central bank added that ``financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.''

For the remainder of this story, visit Bloomberg News.

Monday, April 28, 2008

THE FACTS!

Considering all of the negative press the housing market received in late 2007, it's more important than ever for buyers to separate fact from fiction when deciding on a time to buy a home. This is intended to help home buyers assess the facts of the real estate market objectively.


FACT: The housing market is undergoing a natural cyclical correction. It's impossible to ignore the ongoing news surround the downturn of the housing cycle.
The recent "housing boom", which lasted from 2001 to 2005, was caused by low interest rates and a rapid increase in property valuations, resulting in high numbers of renters opting to buy. Three factors caused this decade's housing boom to spiral upward:

1) A run up in home-price valuations that spurred a high sense of urgency in home buying and selling


2) Poor lending practices, which caused many home buyers to secure loans that they ultimately couldn't afford over the long term.


3) Speculative purchases of homes also increased, with buyers investing in real estate with the hope of a quick return on investment.


Like the dot-com bust, the housing market has begun to correct itself after a number of years of unwise purchasing, but unlike what the media would have us believe, a correction in the housing market doesn't equate to a crash. Unfortunately, the ongoing negative news about the troubled areas in the U.S. has caused a ripple effect, with home buyers and sellers on a national level exercising caution before making a decision. This has caused an overall slowdown in the marketplace.
With homes taking longer to sell, the number of homes on the market has grown. In markets like California and Arizona where homes are taking much longer to sell than the national average, this has caused a glut in the marketplace. This equates good news for buyers who have more homes at more prices ranges from which to choose.

FACT: Low mortgage rates give buyers more house for their dollar.
With the 30-year fixed rate hovering between 6-7% - a 45-year low - qualified buyers continue to have access to incredibly low interest rates. This means that although housing prices have risen, monthly mortgage payments remain reasonable for those who look at real estate as a long-term investment. For example, today if a buyer secured a 6.5% interest rate on a 30-year fixed loan for a $300,000 home (with no money down), the monthly mortgage payment would be $1,896.20. In 1991, the same monthly mortgage payment would have bought a house worth only $230, 492 when mortgage rates were 9.25%. In 1982, when the 30-year fixed rate was 14.6%, the same payment would have bought a house worth only $151,657.

FACT: Heavy speculation and overbuilding result in an increase in foreclosures when prices go down.
The media has been focusing on the hardest-hit areas of the country that have seen a dramatic downturn in the market: California, Nevada, Florida, and Arizona. Over the past five years, these markets have experienced an abundance of new housing, a rise in investment properties and a rise in prices that was high above the national average.
Now that home prices are starting to drop and stabilize, the areas that went through a building frenzy and experienced the largest price increase are suffering a heavy devaluation in home prices, which in turn has caused homeowners to foreclose on loans.
Those suffering the most in California, Nevada and Florida are far above the national average of foreclosure with one out of every 325, 152 and 282 homes in foreclosure, respectively. Washington, Oregon, and Idaho are well below the national average of one in very 617 homes in foreclosures because fewer home buyers in the Pacific Northwest opted for subprime mortgages and because home values have continued to steadily appreciate. Washington has seen one in 1,072 homes in foreclosure, and Oregon and Idaho have one in 1,275 and 893, respectively.

FACT: Subprime borrowers get a reality check.
Then there are the problems that are affecting subprime borrowers: those who are considered at a high mortgage risk due to a past history of bankruptcy, delinquent loan payments and low credit scores. During the last number of years, some buyers n the U.S. qualified only for these riskier subprime loans to fund the American dream.
But, again, unlike the media's portrayal, the reality is that subprime loans comprise of only 9% of total loan nationwide and of those 9%, less than 11% of those subprime ARM and fixed borrowers have defaulted on their loans. The Pacific Northwest stands apart as its own micro-market, with more home buyers qualifying for prime loans. Homeowners in the Northwest have been able to successfully sell their homes for a profit or refinance to pay off their subprime loans.

FACT: Over the long-term, real estate has always appreciated in value.
The continuing appreciation of homes in the Northwest is not an anomaly. Real estate has always been on of the most solid investments in the U.S., because, after all, people always need a place to live. Real estate has less volatility than the stock market and over the historical long-term it remains a guaranteed return-on-investment. Take this example form NAR's Yun: If a buyer were to put down $10,000 for a down payment on a "typically priced home in a the United States at a typical appreciation rate of 5%...(he/she) would see a return of $110,300 after 10 years. The same $10,000 invested in the stock market appreciating 10% annually will result in $23,600."
As history has shown, for those who choose to keep their home for six to 10 years (and not flip for a quick profit) real estate investments do pay off, and pay off well. In fact, what we're seeing now is a repeat of a housing cycle we've seen before. In the early 1980s and 1990s, some areas of the country experienced the worst downturn they had seen in the last 25 years, which were caused by localized economic weaknesses and loss of jobs while on a nationwide average, others, including the Pacific Northwest were barely affected at all. But even those areas that were hit the hardest in the past experienced a historic uptick in prices, and then a continuing long-term appreciation.





Taken from RISMedia REAL ESTATE March 2008 pg 79-81

Friday, April 25, 2008

8 IMPORTANT QUESTIONS TO ASK IF YOU ARE PURCHASING PROPERTY

This morning on the Today Show, there was a segment on buying real estate. The guest's topic focused on important questions to ask when purchasing property. I took notes and want to share with you......


1) Why is the seller moving?

2) How long has property been on the market and how many price reductions have there been?

3) Please provide me a list of similar houses that have sold in the area.

4) What is the price per square foot for the neighborhood?

5) Are the owners behind on their property taxes?

6) Is this the most expensive house in the neighborhood?

7) What is the 3-5 year outlook for the neighborhood?

8) Ask about school test scores and proximity to transportation.

Know what you're getting yourself into!!! Due your due diligence!!!
And don't forget to call or e-mail us with questions, concerns and if you are ready to purchase or refinance.
(310) 649-2221 or nancy@harnanloans.com

NEW AND EXISTING HOME SALES DROP TO RECORD LOWS

Let's just get the uncomfortable news out of the way.....the sale of new homes dropped by 8.5% nationwide last month. The slowest sales pace since October 1991. Existing home sales fell by 2%. The median price of a home dropped by 13.3% compared to March 2007. the biggest year over year decline since July 1970!!!

All regions were down in March with the Northeast down 19.4%. Sales fell in the West 12.9%, 12.5% in the Midwest and 4.6% in the South.

Yes I know, this makes you want to go get in the bed and assume the fetal position, but we are SAVVY!!! OPPORTUNITY IS UPON US. Review your personal situations, make the neccessary adjustments and let's buy some property!!! Call us......we'll help you make it possible.

Tuesday, April 22, 2008

Spotlight on Los Angeles

Those who've gained the most often have the most to lose. Nowhere is that more clear than Los Angeles' housing market.

The price of the average L.A. home appreciated by more than 140 percent between 2000 and 2007, the nation's largest gain in that time.
Echoing their rise, however, home values in the city dropped more than in any other U.S. market between 2006 and '07.
Although prices are making their way back to earth, market stability might be a ways off. L.A. remains the least-affordable housing market in an English-speaking country, according to research firm Demographia. L.A. County also has seen a striking slide in home sales -- a decrease of about 50 percent between January '07 and '08.
At the end of 2007, lender apprehension toward jumbo loans also hurt selling chances for the city's midrange homes, which are priced similarly to high-end properties in other markets. A bill passed in February, however, temporarily increased the conforming limit for loans purchased by Fannie Mae and Freddie Mac and could aid this Southern California market in coming months.



Vitals
Population: 3.85 million



  • Population in 2000: 3.69 million

  • Rank (U.S.): 2nd-largest

  • Metropolitan-area population: 13 million

  • Metropolitan-area rank: 2nd-largest

↓ Average commute: 29.2 minutes



  • Average commute in 2000: 29.6 minutes

  • U.S: 25 minutes

↑ Median household income: $44,445



  • Median household income in 2000: $36,687

  • U.S.: $48,451

↑ Median age: 33.4 years



  • Median age in 2000: 31.6 years

  • U.S.: 36.4 years

↑ Inflation (Consumer Price Index): 3.9 percent



  • Inflation (January 2007): 3.2 percent

  • U.S.: 0.4 percent

↑ Unemployment: 5.6 percent



  • Unemployment in December 2006: 4.5 percent

  • U.S.: 4.7 percent

Market


↑ National foreclosure-volume rank (state): 1st (out of 51)



  • Rank in 2006: 2nd

↑ Foreclosure volume (state): 53,292



  • Foreclosure volume in December 2006: 12,623

↓ Median Los Angeles County home price: $458,000



  • Median home price in January 2007: $520,000

  • U.S.: $222,000

↑ Median monthly housing costs: $2,313



  • Median monthly housing costs in 2000: $1,598

  • U.S.: $1,295

↑ Housing inventory: 22,165



  • Housing inventory (January 2007): 16,155

↓ Homeowner-vacancy rate: 1.4 percent



  • Vacancy rate in 2000: 1.8 percent

  • U.S.: 2.7 percent

↓ Total home sales: 3,379



  • Total home sales (January 2007): 6,805

↓ Single-family-residential building permits (December): 123



  • Permits in December 2006: 159

↑ Housing units (including one-unit, two or more units, and mobile homes): 1.36 million



  • Housing units in 2000: 1.34 million

Industry


Licensing: Brokers are regulated by either the California Department of Corporations, under the California Finance Lenders Law, or the California Department of Real Estate (DRE).



  • The Department of Corporations says brokers can negotiate loans in connection with loans made by a licensed lender but cannot negotiate, broker or make any direct loans to banks.

  • Through the DRE, a person with a real estate license can broker loans.

Résumé



  • Demographics: 73.9 percent white, 12.4 percent black,4.4 percent Asian; 14.8 percent identify as Hispanic or Latino

  • Top private employers in area: Kaiser Permanente, Northrop Grumman Corp., The Boeing Co., Kroger Co., Vons

  • Largest U.S. manufacturing center


*Article taken from Scotsmanguide.com by Kristen Terry

Thursday, April 17, 2008

Banks See A Bright Side In Dour Numbers

When JPMorgan Chase and Wells Fargo announced first-quarter profit declines of 49% and 11% today, executives from both banks tried to emphasize that the bad news was masking the good. To hear them tell it, the lingering credit crisis and the harsh toll it has exacted on U.S. banks are the very scenario these two companies have been waiting for.
Sure, losses from business and consumer loans, including prime mortgages, are accelerating and only expected to worsen as the year goes on. Not much of a surprise, of course, but the numbers are stunning. At JPMorgan, credit costs rose 61% from the same period last year, to $5.1 billion. At Wells Fargo, a $2 billion provision was three times greater than last year.
JPMorgan, which in addition to being a big mortgage and credit card lender, is the top arranger of leveraged loans, wrote down $1.6 billion worth of exposure, mostly to leveraged loans it still hadn't sold off its books. Exposure was $22.5 billion at the end of March, down just $3 billion from the end of last year.
But while rivals, including Citigroup, are courting private equity investors and others to buy bundles of leveraged loans at a discount, just to move them off their books, JPMorgan, which suffered less because it didn't have the massive exposures to credit derivatives holdings other banks had, views the market disruption as an opportunity.
During the quarter it added $3 billion in new leveraged loan commitments in markets that are otherwise crippled with uncertainty. "We're still open for business," JPMorgan Chief Executive James Dimon said on a conference call Wednesday.
The upbeat tone of the earnings reports Wednesday contrasts with the gloomy mood set Monday, when Wachovia surprised the market with a $393 million loss owing to $2 billion in market-related losses. The Charlotte, N.C., firm is feeling the heat of its ill-timed move into the California mortgage market through its acquisition of adjustable rate lender Golden West Financial in 2006.
Citigroup and Merrill Lynch are also set to report disappointing results this week, with some predicting another round of massive write-downs.
JPMorgan, meanwhile, is in the process of taking over Bear Stearns after its collapse last month, but that doesn't rule out other acquisition possibilities. It is said to have looked at acquiring Washington Mutual, the faltering Seattle thrift that recently arranged a $7 billion capital infusion from Texas Pacific Group. "You should assume we look at everything," Dimon said without commenting specifically on talks with Wamu.
Wells Fargo, based in San Francisco, has also seen its share of challenges and opportunities. It is massively exposed to the California real estate market, writing off $1.5 billion in loan losses, up from $715 million in the first quarter last year. It has $84 billion in home equity loans looming, more than one-third extended to Californians, and is trying to sell off some of that exposure.
But its revenues rose 12% during the quarter, to $10.6 billion. Ironically, mortgage refinancing activity is driving its business. Wells took in $132 billion in mortgage applications in the quarter, the most since the refinancing boom of fall 2003.
"We're very excited about our opportunities to continue to gain market share," said Chief Executive John Stumpf in a statement, "at a time when many of our competitors are struggling." Take that Wachovia.


Article by Liz Moyer Taken from Forbes.com