133rd Edition - Carnival of Real Estate

There were a lot of entries this week, and many about the Stimulus package, which was pretty well-covered in the previous two carnivals. But we also got some great entries that show a silver lining in our current times. Since good news is something we could use more of, we opted to title this week's Carnival of Real Estate: On a Positive Note

Herewith we feature some positive and hopeful advice on how to save money, find money, and feel better despite the chaos all around us.

We begin with "Are You Water-Wise?" from Ro Troia at Blog the Rockies.

Ro says "Generally, I receive tons of junk mail and end up tossing or shredding most of it. This month with my water bill was an informative pamphlet about being water-wise. I thought this would be good information to share." Let's face it, every dollar we save is one less dollar we have to earn. Which is a good way to think these days since those dollars are harder and harder to come by.

Next we have "How Can I Improve the Value of My Already New Home?" from Matthew Bossert over at House Seller's Guide. Matt gives some great tips on how to make your home worth more money, even if it's brand spanking new.

Jacqulyn Richey from Prudential Americana Group offers an informative piece on the new "First Time Homebuyer Tax Credit," which is something we all need to be well versed in for potential new customers. Now is a great time for a lot of people to buy that new home, and this knowledge is invaluable.

Barry Wolfert offers this piece about some Georgia legislation that offers tax credits beyond simply first time homebuyers here at his blog, North Atlanta Real Estate Voice. Good news for Georgians!

Ben Roberts offers a very thoughtftul piece called "Precision Without Accuracy: Why Housing Statistics can be Just Plain Wrong" at Exit Real Estate 540. Ben discusses how foreclosure numbers affect overall statistics and suggests how that can impact perception of a local market, ergo things aren't always as bad as they might look.

Finally, an interesting article from The Happy Rock called "A Simple Way to Delay Bank Foreclosure" based on a segment that appeared on Good Morning America. Basically, ask for the original note if you face foreclosure and you might buy yourself the time you need to get back on your feet, or at least ready to move forward. Not sure if this works, but it might be a single ray of sunshine for someone who needs it in these troubled times.

Get your posts in by Sunday, March 22nd for next week's issue of the "Carnival of Real Estate!"

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FIRST-TIME HOMEBUYER TAX CREDIT

FIRST-TIME HOMEBUYER TAX CREDIT
What you need to know!

On Tuesday, February 17 President Obama signed into law “The American Recovery and Reinvestment Act” which, among other things, gives first-time homebuyers a tax-credit for up to $8,000 if they purchase a home between January 1, 2009 and November 30, 2009. Here are several things to know about the tax credit:

1. The tax credit included in the economic stimulus package applies only to first-time homebuyers and only to their principal residences. The amount of the tax credit will be 10% of the purchase price of the home up to a maximum credit of $8,000. Unlike the 2008 first-time homebuyer tax credit, this one will not have to be repaid.

2. First-time homebuyers for the purpose of this legislation refer to someone who has not owned a principal residence for the past 3 years. This restriction does not apply to second-homes or investment property

3. This new tax credit is only available for homes purchased between January 1, 2009 and November 30, 2009 – homes purchased last year are not eligible.

4. The tax credit is subject to income limitations. Single buyers who make up to $75,000 Adjusted Gross Income (AGI) and married buyers who make up to $150,000 AGI will receive the full tax refund. For incomes above that, the tax credit will be phased out.

5. This tax credit is a refundable tax credit. That means that even those with little or no tax liability will receive the entire amount of the tax credit.

6. The tax credit includes a recapture feature. This means that the buyer has to own the property for at least 36 months in order to capitalize the tax credit. If the home is sold in less than 36 months the buyers would have to repay part or all of the tax credit. There may be exceptions in some cases included death and divorce.

$75 billion to aid distressed homeowners

The White House announced today that it will use $75 billion that has already been authorized by Congress to help 'subsidize' mortgage payments for millions of people who find themselves unable to make mortgage payments.

Most of this money will go to reward banks for restructuring the loans of individuals having trouble, but some of the money will also go to homeowners who are staying current on their mortgage bills. Fannie Mae and Freddie mac will also get additional funding to acquire more loans.

“This is not a silver bullet, although I don’t think one exists,” says Mark Zandi, chief economist at Moody’s Economy.com. “This should be helpful to stem but not stop the continuing rise in foreclosures.”

Zandi estimates that $500 billion in mortgages are 'underwater' That means that the amount owed on the property is higher than the property is actually worth. Properties like that are easier to walk away from, because the homeowner realizes they are already way behind.

“Say someone bought a house for $400,000, and it’s now worth $200,000. They are just walking away from the mortgage,” says Jack McCabe of McCabe Research & Consulting in Deerfield Beach, Fla. “There is no incentive to keep making payments on houses that are continuing to decline.”

The new Homeowner Affordability and Stability Plan from the White House is designed to help responsible homeowners who are making payments on time, but cannot get refinancing because of lost home value.

In one part of the new plan, the White House wants banks to take the first step, reducing homeowners' payments to no more than 38% of their income. The government would then subsidize the monthly payment down to 31%. A fact sheet released today indicated that a family with a $200,000 income on a 30 year fixed mortgage at 6.5 percent would save about $191 a month.

We'll have to wait and see if -- and how quickly -- these new programs actually help alleviate the increasing mortgage crisis for the average homeowner. Stay tuned!

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Looking for a deal? Make an offer.

A recent article on Forbes.com included commentary from some of the top minds in investing and real estate, including the kind of real estate, Donald Trump.

Certainly we don't need to read an article to know the sobering truth about the current market - it's abysmal. But the offer some great advice for people looking to buy right now - MAKE AN OFFER.

Investors have long known that the best way to make money is to buy when things are on sale. The same goes for real estate. Some of my clients are looking to invest in foreclosures and short sales right now, making their investment dollar go a whole lot further than it did just a couple of years ago.

Real estate, like all things, is cyclical. When property values do rise again, and they will eventually, these savvy investors may find themselves more profitable on the properties they are buying now than on any other property.

Sellers are becoming more realistic, and some of them are simply upside-down on their property and will shed the responsibility for little to no profit - and sometimes at a loss. Which makes the advice of MAKE AN OFFER that much more important. You have no idea what someone will accept until you ask. As Donald Trump points out in the article, don't worry about hurting anyone's feelings. He advises, "Far too many people fear rejection, and they don't want to be insulting, but you would not believe what you can get by not being afraid to hear no. If you get a no you establish a low base to continue negotiations from, and it took you two seconds of time to ask, we all have that to spare."

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HAPPY NEW YEAR!

Wishing you and all of your loved ones a happy, healthy and prosperous New Year! If you'd like info on refinancing your current loan, or want a new mortgage to buy a new property, please give me a call at (708) 473-7688 or email me at BarkerLoans@gmail.com. I'm happy to help and, as always, I appreciate your business!

- John

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Are mortgage rates going to go down to 4.5%?

According to reports, the Treasury is considering a plan to reduce mortgage interest rates to 4.5%. No reports have come from the treasury directly so there are a few different scenarios that have been reported.

One of these says that the Treasury will purchase mortgage-backed securities (MBS) directly from Fannie Mae and Freddie Mac as well as mortgage backed by the FHA. By purchasing these MBS the Treasury will add liquidity to the mortgage market which will lower interest rates. The Federal Reserve (The Fed) announced a similar program last week which almost immediately lowered mortgage rates from over 6% to about 5.5%. The hope would be that this plan would increase liquidity in the market and increase demand across the economy for MBS, this lower the raising the price and lower the yield (Rate) on these MBS. The other scenario says that the Treasury will purchase mortgages directly from lenders as long as they have a rate of 4.5% on them.

Since there is no official statement from the Treasury there are no guarantees as to what, if anything, will be done. But, the markets have reacted positively to the fact that the Treasury, along with the Fed, are trying to improve environment for the mortgage and housing sectors.

I hear it would cost billions of dollars. And, I have heard that the government will make a profit. Which is true?

Since there is no actual policy these are all just guesses. If the Treasury offered mortgages at 4.5%, many people feel they will realize a profit since the Treasury can borrow funds at about 2.7%. This would give them a profit of 1.8% on this historically low rate. Other see this as a huge cost to the government to entice the lenders to offer mortgages at 4.5% when the market is currently 1% higher. Nobody can know for sure until there is an actual policy.

When can we expect these rates?

Many people feel that these rumors or “leaks” from the Treasury are an attempt to get a feel of how well or poorly a program like this would be received by the markets, Congress, the public, and the incoming Obama administration. While a lot of people think a program is in the works, the final look of that program is anyone’s guess right now.

I was going to refinance at 5.5%. Should I wait for these lower rates?

You know what they say about "a bird in the hand" . . . If a refinance at 5.5% make sense to you – do it. This program may never materialize. And, while you wait, you are not only spending more money with every payment you make, but rates would also rise to a point where refinancing is no longer a good option. There have been at least three opportunities in 2008 to refinance at rates below 6% and I have many customers that waited too long to make the decision. They have spent thousands more this year than they would have if they had refinanced. Many of them have already applied and locked their rate and are taking the sure bet. But, I still have a few customers that intend to wait for the 4.5% rate to materialize. All I can say to these customers is, “Good luck!”

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The Federal Reserve will purchase $600 Billion in Mortgage-Related Assets

In another attempt to help the financial crisis, the Federal Reserve (The Fed) announced that it will purchase $100 Billion in direct obligations from Fannie Mae and Freddie Mac and also purchase $500 Billion in mortgage-backed securities (MBS) from the mortgage giants.

By purchasing these mortgage assets the Fed is attempting to lower interest rates and increase the availability of mortgage lending throughout the country. By purchasing these assets, the Fed will increase liquidity in the markets. By increasing the liquidity it will drive the price of these assets higher and lower their yield (rate).

After the Fed’s announcement, interest rates immediately decreased. And, mortgage applications have skyrocketed in the couple days since the announcement. So far, most of the increase in mortgage applications is due to refinancing but the hope is that mortgages for home purchases will increase as well which should stabilize and increase home values.

The Fed also announced similar plans aimed at unfreezing consumer credit markets such as those for credit cards, auto loans, and student loans.

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New FHA Loan Limits for 2009

The Housing and Economic Recovery Act of 2008, approved in July 2008, based the new FHA loan limits on the Fannie Mae and Freddie Mac loan limits that were set by the FHFA last week (See: Fannie Mae & Freddie Mac Loan Limits to remain at $417,000 for 2009). The FHA loan limits are 115% of the applicable Fannie Mae and Freddie Mac loan limits except for low-cost and high-cost areas which will be limited to the floor and ceiling limits as described below.

FHA Floor Loan Limits
The “floor” FHA loan limits are the lowest limits throughout the country. The floor FHA loan limits are set at 65% of the Fannie Mae & Freddie Mac loan limits and apply to areas where the 115% of the median home price is at or below this level. These floor limits are:

• 1 Unit $271,050


• 2 Unit $347,000


• 3 Unit $419,400


• 4 Unit $521,250

FHA Ceiling Limits
In high-cost areas, the FHA “ceiling” loan limits are set at 150% of the Fannie Mae & Freddie Mac loan limits and apply to areas where the 115% of the median home price is at or above this level. The ceiling limits are:

• 1 Unit $625,500


• 2 Unit $800,775


• 3 Unit $967,950


• 4 Unit $1,202,925

There are further special exceptions that apply to Alaska, Hawaii, Guam and the US Virgin Islands due to the high cost of construction in those areas. Limits in these are are 150% of the ceiling limits above. You can a list of the high-cost areas and areas with special exceptions at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/08-36mla1.xls.

FHA Loan Limits for the Chicago Metropolitan Area
Effective with all loans approved after December 31, 2008, there will be new, and in most cases lower, loan limits for FHA Loans. For the Chicago MSA, the new limits are as follows:

• 1 Unit $365,700


• 2 Unit $468,150


• 3 Unit $565,900


• 4 Unit $703,250

These limits for the Chicago MSA include the counties of Cook, De Kalb, Du Page, Grundy, Kane, Kendall, Lake, Mc Henry & Will.

Adjacent counties in Indiana and Wisconsin will all have the same FHA loan limits as well. These include the county of Kenosha in Wisconsin and the counties of Jasper, Lake, Newton and Porter in Indiana. Need more info? Send me an email or give me a call!

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Fannie Mae & Freddie Mac Loan Limits to remain at $417,000 for 2009.

The Federal Housing Finance Agency (FHFA), has stated that the maximum loan limits for Fannie Mae and Freddie Mac will remain at $417,000 for 2009 for most of the United States. However, some higher-cost counties and areas may have higher limits.

Under the Housing and Economic recovery Act of 2008, the national conforming loan limits for the country are determined by changes to the average home sales prices over the previous year – however, they may not go down because of falling home prices. So, even though home prices have fallen in 2008, the loan limits will remain the same.

Loan limits across the country will be as follows:

• 1 Unit $417,000


• 2 Unit $533,850


• 3 Unit $645,300


• 4 Unit 801,950

To see the Fannie Mae and Freddie Mac loan limits, by county, go to: 2009 Loan Limits for All Counties (XLS format).

For a list of the high-cost areas got to: 2009 High-Cost Area Loan Limits (PDF)

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Protecting Your Credit

Many customers are asking me how they can protect their credit ratings to ensure they will be able to get good rates when and if they decide to refinance in the future, or need to take out an equity loan in the future.

One of the best things you can do is to live within your means. This means not running up credit cards debts, and putting off unnecessary purchases until you have the funds to make the purchase. Yes, this is an old-fashioned way of thinking, but one that makes a lot of sense. It can also help you better manage your money, and keep your credit rating intact.

My mother used to save money in envelopes in her drawer - one envelope for Christmas gifts, one for this, one for that. Everytime she got paid, she put a few dollars into each envelope until she had enough money to make the purchases.

With the holidays approaching, many people are getting ready for all of the gift purchasing they want to do. So how you do you get through the holidays without running up debt? Well, some stores, like Kmart, offer Layaway so you can pick out all of your holiday gifts while they're in stock and available, and then pay for them every two weeks until Christmas. Layaway is certainly an old idea whose time has come back. No credit card debt, and no interest paid out.

Make your payments on time. This is so important. Don't let yourself fall into bad habits of making late payments.

If you're having trouble making payments, call the creditor immediately. Don't wait or them to call you because you're late. Most banks, credit cards and mortgage companies want to work with you to make sure they get their money, so talk to them the minute you think you can't make a payment. And don't be afraid to call again and again if things don't get better. Let them know and ask them to help you. You'll be surprised how willing they are to help.

Don't cancel unused credit cards. Your credit rating is a complicated equation, but one aspect of it is the amount of open credit you have available.

These few tips can help you protect your credit rating, and keep you financially safer. And remember, you can get a free copy of your credit report every year, so make sure to get yours and check it for accuracy!

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Treasury Makes Changes to TARP

On October 14, 2008, Treasury Secretary Paulson announced that the Treasury will purchase equity stakes in nine top American banks using the first $250 Billion that has been allocated to the TARP Program (See What is the TARP? And, why does it cost $700 Billion?) The nine banks agreeing to these investments by the Treasury are: Goldman Sachs, Morgan Stanley, JP Morgan Chase, Bank of America (including Merill Lynch), Citigroup, Wells Fargo, Bank of New York Mellon, and State Street Corp. These banks represent the most financially stable banks in the country as determined by the Treasury.

Why are they buying equity stakes in the banks instead of purchasing the troubled assets of the banks?

The econmic crisis has affected thebanking industry so adversely that many people have lost faith in the banks. In order to protect the banks, and restore confidence in the banking system, the government felt it had to make an equity investment in these banks.

The Bush adminstration is greatly conflicted by this decision. President Bush said that this sort of intervention (not seen in this country since the great depression) was “not intended to take over the free market but to preserve it.” Treasury Secretary Henry Paulson added, “We regret having to take these actions. Today’s actions are not what we ever wanted to do — but today’s actions are what we must do to restore confidence to our financial system.”

At a news conference President Bush said, “I’m sure there are some of my friends out there saying, I thought this guy was a market guy; what happened to him? Well, my first instinct wasn’t to lay out a huge government plan. My first instinct was to let the market work until I realized, upon being briefed by the experts, of how significant this problem became.” Paulson added, “Government owning a stake in any private U.S. company is objectionable to most Americans — me included. Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”

The Treasury will also invest on other banks besides the original nine banks mentioned above. These banks will apply to the Treasury and will be picked based on a ratings system that will determine the strength and viability of these banks. The strongest and most viable banks will be the most likely recipients of these investments and weaker banks will be least likely. This may lead to these stronger banks purchasing the weaker banks which will also help the banking system by reducing the number of potential bank failures.

The Treasury has invested $125 Billion in the first nine banks listed above and will use the remaining $125 Billion to invest in the other banks.

Treasury Secretary Paulson believes the government will profit

On October 20, 2008, Paulson said, “This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything, This program is designed to attract broad participation by healthy institutions and to do so in a way that attracts private capital to them as well.”

Paulson added that this program was designed to increase the investors’ confidence in these banks and will also increase the confidence of the banks to start lending their money instead of hoarding it for reserves. This boost in investor confidence and increase in lending will increase the value of the banks and the equity stake help by the government.

What is the TARP? And, why does it cost $700 Billion?

The TARP is the Troubled Asset Relief Program which is part of the Emergency Economic Stabilization Act of 2008 which was signed into law last week. These are genereally what people are talking about when they refer to “the bailout plan.”

I have spoken to so many people that are confused by the purpose of the program, what it means to the overall economy, and how the heck we can afford this. I am going to try to give a plain-English explanation to the plan the best I can. Here are the main pats of the plan:

1) $700 Billion Bailout – not really, though

The first thing that confuses most people is that most people are referring to it as a bailout. The term bailout conjures up visions of the Treasury opening up its piggy bank and giving $700 Billion to banks and Wall Street firms to make up for their poor business plans. This is not what is happening

The government is going to purchase assets that are already existing and currently being held by the banks. These assets, mostly mortgage-backed securities (MBS), will be purchased at greatly depressed prices. By owning these MBS, the government will be entitled to the payments being made on these mortgages. So, almost immediately, the government will realize cash inflows as the borrowers make their mortgage payments.

Also, since these assets are illiquid (there is no market to buy and sell these assets so there values have fallen) the government will be buying these assets at greatly depressed values. As the market corrects itself, these assets should increase in value. The government then can sell these assets at a profit.

The purpose of this part of the program is to get these illiquid assets off the balance sheets of the banks in order to free up capital (money) for the banks to use to increse their lending. Also, by purchasing these assets the government will be creating a market for these assets to be bought and sold. As the market is created, and there is more demand for these assets, the value of these assets will increase.

Warren Buffet, the world’s second wealthiest man and one of the most respected investors in the world made a comment that he wished he had the money to do this kind of program himself. He sees a huge potential profit for the government.

2) The government will get equity stakes in the companies that take part in this plan.

In order to further protect the taxpayer, the banks that participate in the program will be required to give the government warrants. These warrants will give the government the right to purchase shares of the company at a certain price at some time in the future. So, as these banks free up capital and are able to operate normally again their values should increase giving the government a potential to make a profit on these warrants.

3) Foreclosure avoidance and homeowner assitance

For the mortgages that are involved in the assets that are aquired by the government, the Treasury department will be required to implement as plan to increase the assistance to the homeowners and to encourage the servicers of these mortgages (the companies that actually collect the monthly payments) to take advantage of the HOPE for Homeowners Program or other programs to minimize foreclosures. Also, the Treasury can offer guarantees or other inducements for the mortgage servicers to modify the terms of the mortgages.

4) Limits on executive compensation

If the Treasury purchases any assets directly from a company, or if they take an equity stake or debt position in the company, the company is restricted from offering compensation incentives that wil encourage their executives from taking risks. The companies are also restricted from making “Golden Parachute” payments to a senior executive and, the companies are given “clawback” premission whereby they can take back any bonuses or incentive pay that has been paid to an executive if it is later found out that the reason for these payments is not true. (e.g. the income or profit of the company turns out to be less than originally thought).

5) FDIC insurance increase

The Federal Deposit Insurance Corporation will increase the amount of deposit insurance from $100,000 to $250,000 through the end of 2009.

Hopefully, this programs helps the credit crunch and mortgage crisis and gets the banks lending again. This is a very important step to helping the housing crisis and the overall health of the economy.

Will mortgage rates rise or fall?

It depends.

Since the proposed bailout of Wall Street was announced over a week ago, I've been inundated by calls with people wanting to refinance because they heard mortgage rates would be falling. Every news cast reported that this move would free the mortgage markets and rates would fall. And, they did – but for a short period of time.

After the government took over Fannie Mae & Freddie Mac, mortgage rates did come down. In fact, across the country mortgage interest rates for a 30 year fixed rate mortgage fell (on average) between .25% and .50%. And, on the Monday after the Secretary of the Treasury, Henry Paulson, announced his plan to purchase about $700 Billion in mortgages, rates fell even further.

So, I guess they were right – rates are better and everyone can refinance, right?

Well, back in March 2008, I wrote the article, “Is now a good time to buy?” which gave three reasons why it was a good time to purchase a home. The third reason I gave really applies here. Nobody can predict the future, and underwriting guidlines have become much tighter, and loan-level price adjustments (LLPAs) have increased. All of these mean that when you find a rate that works for you, lock it. Only a few of the people who called me last week actually locked their rates. Many of them were hoping rates would fall even more. Many of them did not qualify for the best available rates due to the stricter underwriting guidelines and LLPAs (See ”Credit Score Affects Interest Rates Even More”) for more information).

Since then, the markets have been on a roller coaster, and interest rates have gone back up, but are still at historically low levels. So, rates did fall but, as happens all too often, many people got greedy and waited too long to get the lowest possible rates. And, others were not eligible for these rock-bottom rates due to their credit scores and loan to value.

So John, how can we keep up with the changing rates and get the best-possible deal?

Here is my advice: Give me a call ay (708) 473-7688 so we can discuss your specific situation. We can determine what's the best possible plan for you and your family. We can determine if now is the right time to refinance for you... or not. If not, we can develop a plan and set a target interest rate that would make sense at which to refinance. In the meantime, we can work to make sure you are in the best possible position to take advantage of the best available rates when they ARE available. Give me a call – there's no obligation – EVER!

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Beware of Foreclosure Scams

With so many people out there unable to make their mortgage payments and fearing foreclosure, scam artists abound. They prey on your fears and use public information to find people who are vulnerable.

While many competent companies exist to help those facing foreclosure, many scam companies exist as well. This video from FreddieMac gives a quick overview of what to watch for.

If you're worried about making your mortgage payments, call your lender immediately and try to work out an arrangement. Most lenders will offer you special payment options, or even forbearance options that allow you to move missed payments to the end of your loan.

You can also speak to your mortgage broker about refinancing your existing loan. Rates are pretty low right now and many of my customers are looking to take advantage of these low rates to prevent any future problems by lowering their payments today.

Whatever you do, don't let yourself become a victim. Get information from trusted professionals and be wary of people using public information and scare tactics to coax you into signing any agreement. And as always, consult your attorney with any questions about any contract you sign.

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ACT NOW to Help the Housing Market

When most people talk about first time home buyer programs or home buyer assistance programs they are almost always talking about Down Payment Assistance Programs (DPAs). DPAs have been around for over a decade and have helped hundreds of thousands of families purchase a home who would have otherwise not been able to. For more specifics on how these programs work please see my blog article “Down Payment Assistance Programs.”

On July 30, 2008 the Housing and Economic Recovery Act of 2008 has banned these programs effective October 1, 2008. At a time when the government should be doing everything they can to help qualified homebuyers purchase a home, they are taking away a valuable tool in helping these people aford a home. The down payment is the last obstacle for many families who are otherwise qualfied to purchase a home and responsibly make their mortgage payments. Instead of reforming the use of the programs and creating rules to make them less risky, Cogress decided to ban them all together.

This is going to have a huge adverse effect on the housing market. By some estimates, as many as 40% of all FHA home buyers use DPAs for their down payment. By taking this huge group of homebuyers out of the market, Congress may make the housing crisis even worse or, at least, make it last even longer.

Whether or not you are in the market to buy or sell a home or not, this issue should concern you. If you watch the news or read a newspaper, you hear about the huge financial institutions that seem to be failing every week – Fannie Mae, Freddie Mac, Bear Stearns, Lehman Brothers – the list seems to go on and on. In almost all of the news reports, these companies failures can be at least indirectly attributed to the housing crisis. In order to get the economy back on track, the housing market has to come back.

YOU CAN HELP!

We all need to make our voices heard to our Congressmen and Senators that we believe that the housing market is way too important to the overall health of the economy to elimate this huge group of homebuyers from the market. We need to let them know that we are all in favor of the responsible use of these programs and the implementation of rules to make these programs safer for FHA and the US economy. But we must let them know that we definitely support the continuation of these programs.

Please go to http://rallyforhomeownership.org/ for more information and an easy way to contact your Congressman and Senator. Time is almost up and we cannot afford to wait until the pool of potential home buyers shrinks before we act.

U.S. Government takes over Fannie Mae & Freddie Mac

Today, the US Treasury took control of home mortgage giants Fannie Mae & Freddie Mac. This is the latest fallout from the ongoing housing and mortgage crisis facing the nation and slowing the economy. According to Henry Paulson, US Secretary of the Treasury, it was a necessary step to keep these companies from failing and stabilizing the beleaguered secondary mortgage market.

Under this government takeover, the companies will be run by the government and their CEOs will be replaced Monday. They will be placed under conservatorship – which means they will run as independent companies under the supervision of the Federal Home Finance Agency (FHFA).

James Lockhart, the head of the FHFA, said, “As house prices, earnings and capital have continued to deteriorate, Fannie and Freddie's ability to fulfill their mission has deteriorated. In particular, the capacity of their capital to absorb further losses while supporting new business activity is in doubt.”




In addition, an audit of Fannie Mae & Freddie Mac conducted by Morgan Stanley was ordered by Paulson. Apparently, this audit has revealed very troubling information that led Paulson to believe that this was the only option to save these companies and prevent and even larger crisis in the national and global credit markets. Paulson characterized this action as a “time out” that should help these companies to stabilize.

Parts of the plan call for Fannie Mae & Freddie Mac to actually increase their mortgage holdings in the short term to help further stabilize the mortgage and housing markets. In the long term, though, they will have to reduce their holdings in order to minimize future risk for the companies. Congress will ultimately have to decide the future of these companies.

Federal Reserve Chairman Ben Bernanke said that he fully supported the government takeover. "These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets," Bernanke said.

Although this all seems like horrible news for the mortgage and housing markets (as well as the broader economy) there are some positives to this move. First, this prevents the failure of the mortgage giants and possible the entire mortgage system as we know it. Second, with the government guaranteeing the debt of Fannie and Freddie, many people believe we could actually see rates go down and mortgage become easier to get. Bother of these could help to end the housing crisis and downward spiraling home values across the nation.

We will learn more as the markets open Monday and I will provide updates as I learn more.

Save Down Payment Assistance Programs!

One of the negative provisions of the Housing and Economic Recovery Act of 2008 is the elimination of seller-funded down payment assistance programs (DPAs) effective October 1, 2008. DPAs have helped hundreds of thousands of families purchase a home by providing for a gift for the down payment. Studies suggest that tens of thousands of families who are otherwise qualified for a mortgage are unable to purchase a home due to being unable to save for a downpayment. For more information on DPAs, please see my post, Down Payment Assistance Programs posted on February 16, 2007.

Help Support HR 6694

Al Green (D-TX) – along with Gary Miller (R-CA), Maxine Waters (D-CA), and Christopher Shays (R-CT) – have presented a law that will save DPAs and at the same time reforming them to make them less risky. The reason for the elimination of DPAs is that FHA mortgages that utitlize DPAs for downpayments have a higher default rate than FHA mortgages withouts DPAs. However, by eliminating DPAs altogether, the government will prevent thousands of people from purchaing a home that are qualified for a mortgage except for the downpayment.

HR 6694 not only saves DPAs, it also reforms them to lessen the riskiness of these loans. It establishes minimum credit scores to make sure the borrowers are credit-worthy, and eliminates the moratorium on risk-based premiums for FHA loans to enable increased premiums for FHA mortgages with DPAs.

These changes to the Housing and Economic Recovery Act of 2008 will help reduce the number of defaults and foreclosures without further hurting housing sales which are affecting all areas of the US economy.

What can we do?

For the next 5 weeks, Congress is out of session. This means they are much more acceissble at their local offices to the people who they serve. Please pick up the phone, write a letter, or send an e-mail to your Congressmen and Senators to support HR 6694. Senators have been more negative on DPAs in the past so we really need to work on contacting them.

Here are links to two websites that make contacting your Congressman easy:
http://rallyforhomeownership.org/ and http://capwiz.com/nehemia/issues/alert/?alertid=11709431. These sites provide information on the act as well as talking points to use when contacting your Senators and Representatives. They will also help you find and contact your Congressmen.

Act today before we see housing sales decrease further.

Is there any help for the mortgage crisis?

Housing and Economic Recovery Act of 2008

On July 30, 2008 President Bush signed the Housing and Economic Recovery Act of 2008 into law. This law is intended to modernize and strengthen the regulation of Fannie Mae and Freddie Mac and the Federal Home Loan Banks, the housing Government Sponsored Entities (GSE). It also expands the mission of Fannie Mae and Freddie Mac and creates a new FHA programs designed to help at least 400,000 families save their homes from foreclosure.

Here are some of the highlights of this new legislation:

1. GSE Reform
   This legislation establishes a new “world class” regulator for the housing GSEs. The new regulator will have broad authority making it equivalent to other federal financial regulators to ensure the safe and sound operations of the GSEs.
   
   It also creates permanent conforming loan limits up to $417,000 or 115% of the local median home price, capped at $625,500. These loan limits will not go into affect until after the expiration of the temporary limits established by the Economic Stimulus limits (See FHA Announces New Temporary Loan Limits) on December 31, 2008.
   
   
2. FHA Reform
   The law creates a permanent FHA loan limit of $271,050 or 115% of the local median home price, capped at $625,500. These loan limits will not go into affect until after the expiration of the temporary limits established by the Economic Stimulus limits (See Fannie Mae & Freddie Mac Announce New, Temporary Loan Limits) on December 31, 2008.
   
   Also, the down payment requirement for FHA purchase transactions will increase from 3% to 3.5%. And, there is now a moratorium on risk-based pricing of FHA loans beginning October 1, 2008 for a period of 12 months.
   
   Lastly, seller funded down payment assistance programs such as the Nehemiah Program will be terminated October 1, 2008.
   
   
3. First-Time Homebuyer Tax Credit
   The law establishes an incentive for first-time homebuyers (FTHB) to purchase a home. FTHBs can receive a tax credit up to 10% of the purchase price of a home up to $7,500 subject to certain income limitations ($75K AGI for single and $150,000 AGI for joint). This tax credit must be repaid over a 15 year term at a rate of 6.67% of the tax credit amount. If a home is sold before 15 years the remainder of the tax credit will be recaptured at closing. It is essentially an interest-free loan for 15 years.
   
   
4. Hope for Homeowners Mortgage
   This is a refinance program that will help up to 400,000 families prevent losing their homes to foreclosure. Up to $300 Billion will be allowed for this program. This program is effective October 1, 2008 and ends September 20, 2011 or when the $300 Billion has been reached – whichever occurs first.
   
   To qualify for this program the mortgage must have been originated prior to January 1, 2008 and the borrower’s housing expense ratio (Monthly mortgage payment divided by monthly gross income) must be greater than 31% as of March 1, 2008.
   
   The current lenders would need to be willing to write down any existing mortgages on the property to 85% of the new fair market value (FMV) and the borrowers will get a new 30 year fixed rate mortgage up to 90% of the new FMV of the property. Also, there are limitations on the ability for borrowers to add a second mortgage to the property for the first five years of the new mortgage.
   
   The borrower must also agree to share any equity and appreciation in the property if they sell the or refinance the mortgage within the first 5 years or if they sell the property after 5 years based upon this sliding scale:
   
   
   At first glance, many people would think this is a horrible deal for the borrower. Remember, though, that this program is helping prevent people from losing their homes to foreclosure. If their property is foreclosed, they lose all equity and may still owe money after they lose their home. And, by insuring these loans through the FHA program, the government is taking on risk by guaranteeing mortgage to borrowers who are already behind on their mortgages.
   
   The best strategy, in my opinion, would be to keep the loan for as short a time as possible. As soon as the borrower is in a financially stable position, they should refinance the mortgage to keep any future appreciation for themselves.
   
   For more information about your current loan or financial situation, send me an email or call me at (708) 473-7688.
   

FHA Mortgages to Implement Risk-Based Mortgage Insurance Premiums

FHA Mortgages to Implement Risk-Based Mortgage Insurance Premiums

Effective July 14, 2008, FHA will implement risk-based mortgage insurance premiums for all one- to four-unit properties. These new premiums will be based upon the borrower’s credit scores and the Loan to Value (LTV) ratio. The chart below illustrates the new premiums:

All of the premiums are expressed in basis points (bps), or 1/100th of a percent (0.01%). So, for a borrower with a credit score of 620 and an LTV of 97%, the Up-front Mortgage Insurance Premium (UFMIP) will be 1.75% (175 bps) and the annual Mortgage Insurance Premium (MIP) will be 0.55% (55 bps). To see how this differs from the previous system, let’s look at a property with a sales price of $100,000.

HUD’s move to risk-based premiums is a result of the housing and mortgage market troubles that we are experiencing. The risk-based premiums are designed to allow more people to be able to purchase a home and refinance their mortgages and help the FHA program deal with the potential for higher defaults. According to HUD Release Notes (HUD No. 07-123):
The risk-based insurance premium structure will further expand FHA's reach to additional underserved borrowers, particularly minorities and first-time homebuyers who have been disproportionately lured into exotic mortgages, and enhance the FHA's overall risk management. The move to risk-based premiums ensures that FHA remains on solid financial footing as a self-financed agency for the long-term.

This is a great idea to expand the FHA to help those who are able to afford their homes but are in mortgages that are not suitable for their financial situation. It should help more people avoid foreclosure and help to solve the current crisis in the housing and mortgage markets.

Doesn’t this just add more risk for the taxpayer? Won’t this cost the taxpayers more money to bail these people out their mortgage they cannot afford?

No! First, this is not a bailout of borrowers. The borrowers will still have to meet the income, asset, and credit requirements of the FHA program and the value of their property will still have to be sufficient to support the mortgage amount.

There is virtually no sub-prime mortgage market left these days. FHA has always provided mortgage financing to those borrowers who have had small down payments; little to no credit histories; and less than perfect credit purchase and refinance their homes. In fact, FHA loans are sometimes called the original sub-prime loans (See FHA Mortgages to Become More Popular). But, as the sub-prime market has grown, and FHA has become less popular, many people who would have otherwise qualified for an FHA loan have been steered toward less affordable and more risky sub-prime mortgages. This program just gives more people the option of FHA mortgages. And, with the risk-based premiums, people with worse credit and/or higher LTVs will pay more since their loans are riskier – the same way people with worse driving records pay more for auto insurance.

And, most people do not realize that the FHA program costs the taxpayer nothing. It is one of the only (And possible the only) federal program that does not use one single dollar of taxpayer money. It is completely self-sufficient and is funded completely by the UFMIP and MIP payments made by the borrowers with FHA loans. These premiums have been sufficient to cover the entire cost of the program.

Someone told me that the FHA program can help reduce the United States debt – is this true?

Yes! In fact, there have been many years where the FHA program has had a surplus of funds. By law, any “profit” made by the FHA program must go directly to pay down the national debt. So, not only does the FHA program not cost the taxpayer money, it actually helps the taxpayer by helping to reduce the amount of the national debt.

What is Illinois SB 1167?

After the failure of IL HB 4050 (See: How will Illinois HB 4050 affect you?) the Illinois General Assembly went to work to revamp the law and revise some of its rules. The result of this was IL SB1167 also known as the Anti Predatory Lending Database Program.

For all applications dated July 1, 2008 or later lenders will have to enter all borrower(s) pertinent information along with information on the mortgage applied for into a database with the State of Illinois. Depending on the information entered, the borrower(s) may have to attend counseling paid for by the mortgage company and provided by housing counselors approved by the State of Illinois.

How do we know if we need to go to counseling?

Counseling will be required on a purchase transaction only if the borrowers are first-time home buyers and the mortgage applied for contains one or more of the following:

1) The loan permits interest-only payments
2) The loan may result in negative-amortization
3) The total points and fees payable by the borrower at or before closing will exceed 5%
4) The loan includes a prepayment penalty
5) The loan is an adjustable rate mortgage which allows adjustments of the interest rate in the first three years.

Counseling will be required for all refinance transactions that contain one or more of the above-mentioned features.

Investment properties are exempt from this law as are reverse mortgage transactions.

This sounds like a good idea, why are so many people against it?

Most of us in the mortgage industry agree that the intentions of the law are good – make sure people understand the mortgages they are getting and are able to afford them. However, as often happens when the government gets involved, they are going about it the wrong way.

The first try at this law was a disaster. In fact, the University of Illinois studies this law and the impact it had on the affected neighborhoods. In December 2006 a report from the University of Illinois reported that the law was not achieving its goals. It showed that the neighborhoods in which the law was active were negatively impacted. The home sales in the affected zip codes declined by over 50% while other similar zip codes not affected by the law only saw a decline in home sales of 20% in the same time period. It also went on to say, in addition to other things, that the law does not offer borrower’s additional consumer protection. You can read the report in its entirety at http://www.sal.uiuc.edu/sparc/research/workingpapers/pdf/bates_vanzandt_revised_0131.pdf.

If I meet the criteria listed above, will I be subject to counseling regardless of the lender I choose?

No. The only lenders that are covered by this law are those mortgage lenders and brokers who are subject to the licensing requirements of the State of Illinois. This excludes Federally-chartered banks and their respective subsidiaries. As a subsidiary of a federally-chartered bank, WestAmerica Mortgage is exempt from this law.

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"Marketopoly" gives needed information and advice to real estate investors

Hidden across the United States, scattered among hundreds of cities, are real estate markets that are still quietly appreciating and investment properties that are still consistently producing thousands of dollars of annual income for their owners.

Contrary to the headlines and the "experts," there is no "national" real estate market. From the condo high-rises in Miami to the McMansions in the sleepy suburbs of Minneapolis, all real estate is local. There are hundreds of real estate markets, and each of these markets has opportunities concealed within them.

Marketopoly reveals not only how to quickly and accurately identify these unseen investment opportunities and have them unfold before you, but also how to capitalize on them.

Marketopoly has the information that real estate investors need in times of change. Investment real estate will never look the same.

In a nut shell, the book details how to quantify local market conditions and trends as well as investment properties for buying and holding real estate. It is a common sense yet all too uncommon approach to predictable and profitable real estate investing.

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Fannie Mae Withdraws Declining Market Policy

Fannie Mae withdrew its declining market policy today and went back to their uniform down payment requirements. This should go a long way to making mortgages more affordable and accessible to more people and help to stabilize the mortgage credit markets.

Fannie Mae had initiated the declining markets policy in January 2008 due to the falling property values across the country. To try and stem the tide of foreclosures and short sales Fannie Mae required larger down payments for properties deemed to be in a “declining market.” (See Declining Market Areas)

This was the kiss of death for many transactions and made mortgages less affordable – thereby worsening an already bad mortgage market. By reverting to their previous policy, Fannie Mae will allow people to make the minimum allowable down payment per the programs guidelines regardless of the market the property is in.

However, many lenders are not as quick to change their policies. Many lenders are not automatically changing their declining market policies in line with Fannie Mae. Over time, most or all of the lenders will fall in line with Fannie Mae’s requirements but, for the time being, down payments requirements may vary from lender to lender.

Declining Market Areas

What is a declining market area?

If you are in the market for a new home, or refinancing your current mortgage, you may have run into this term with your lender.

Fannie Mae has issued new guidelines for properties that are in declining market areas – that is, areas where the value of homes is dropping. With the current credit crisis and the slowdown in the real estate market, many areas across the nation are seeing property values fall for the first time in a long time.

If your property is in a declining market, the maximum loan to value ratio (mortgage amount divided by the value) is decreased by 5%. So, if you are purchasing a home and the maximum LTV for the program is 95%, you must now have a down payment of 10% instead of only 5%.

There are two ways that your property can be listed in a declining market area. First, Fannie Mae is maintaining a database of areas that it designates as declining market areas. If this is the case, your lender will receive a message when they run your loan through automated underwriting that your property may be in a declining market area. Second, since all real estate markets are local, your appraiser may report on the appraisal that the property is in a declining market area. Either way, the 5% reduction in maximum LTV is required.

As far as an accurate value goes for properties in these areas, many lenders are adding appraisal requirements to make sure the property is worth the value listed on the appraisal. The lender may require additional comparable closed sale to be added to the appraisal or the lender pay require the appraiser to get information on properties actively listed in your properties markets.

This is another in a long line of added obstacles to obtaining a mortgage that you should be aware of in this difficult market. Unfortunately, the time to get a mortgage can be greatly increased if the appraiser has to add this information to his appraisal report. For the time being, my branch at WestAmerica Mortgage is requiring additional information on all appraisal reports from our appraisers just in case the property is in a declining market area or in case it will be added prior to closing. So far, this has helped us meet our scheduled closing dates.

Please take a look at other articles on my blog so you are informed about the changes in the mortgage market over the past 6 – 9 months.

Short Sales Now Widespread

Since I wrote the article, “What is a Short Sale,” in June 2007, short sales have become much more common. In fact, Inside Mortgage Finance reported that approximately 20% of all home sales closed in March 2008 were short sales. They also said that the number of short sales would have been dramatically higher except for the fact that they estimate about 1 out of every 3 short sales never close.

Why is there such a huge increase in short sales?

The main reason for the increase in short sales is the downturn in the housing market. Falling home values make it more likely that people will not be able to sell their home at a high enough sales price to cover the amount they still owe on the property. When a borrower owes more on the property than the property is worth, and they do not have the assets to pay the difference, they must turn to their lenders and hope the lender will accept less than the amount they owe.

Another issue that has made the increase in short sales so dramatic is the recent trend of purchasing a home with little to no money down. These risky loans have no cushion against property depreciation, since there was no down payment to being with. As soon as values stop rising and start falling, these properties are instantly worth less than the mortgage amount.

Also at issue here are questionable appraisals. There has been a lot of attention recently being placed on appraisal standards and acceptable practices. With the increase in foreclosures, the extra scrutiny placed on the appraisals of these properties has shown that many of the original appraisals were inflated. This was not a problem as long as property values continued to increase, but is a huge problem when they decrease.

Lastly, many lenders are desperately trying to work with homeowners to stem the increase in foreclosures we have seen over the past year. They are taking extraordinary steps to avoid foreclosing on a property, and one of these steps is to accept short sales more readily. The lenders would rather take a lesser amount when the homeowners have a willing buyer, than to go through the time and expense of a foreclosure, and risking losing even more.

Short sales take time.

If you are looking for a great deal by purchasing with a short sale be prepared to wait. Normally, you negotiate with the seller directly, and it may take several days. When it is a short sale, the lender or lenders have to approve the sale. This can take weeks. Expect to wait up to a month or more just to see if the deal is accepted. If you have the ability to wait - and are willing to walk away from a property if the deal is not acceptable to the lender(s) - then you can find a great deal with short sales. Make sure you have a loan officer, Realtor, and attorney who are well-versed in short sales. There will always be more headaches with a short sale but having an experienced team will help.

Sellers should be proactive

Instead of waiting for an offer and then hoping and praying that the lender(s) will accept the offer, many sellers are contacting their lender(s) before they market their properties. By negotiating with the lender beforehand, you can lessen the time it takes, and the headaches involved in these transactions, for everyone involved. Again, make sure you already have an experienced attorney and Realtor who are well-versed in short sales, as well as the local real estate market, before you contact your lender(s).

For more information on how short sales work, see my article, “What is a Short Sale?”

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Fannie Mae Further Tightens Lending Rules

Fannie Mae announced that they will now require a minimum FICO score for loans it buys on an individual basis. The new minimum FICO score will be 580. Up until now, Fannie Mae never set a minimum credit score.

They also announced that they will increase the time required after a foreclosure before a borrower is eligible to obtain a Fannie Mae mortgage from the current 4 year period to 5 years. But, Fannie Mae said that they will allow shorter periods for borrowers who can document extenuating circumstances that have forced the foreclosure.

These changes are just the latest in a long line of changes from Fannie Mae and Freddie Mac in response to the housing downturn and mortgage crisis. These changes come on the heals of two rounds of increasing loan-level pricing adjustments announced by Fannie Mae and Freddie Mac over the past several month (See see "How much will my credit score cost me on my next mortgage?" and "Credit Score Affects Interest Rates Even More").

This again shows how much more important credit scores are becoming and how vigilant all people must be about what is on their credit reports (See “Check your credit report every year – FREE!”).

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Check your credit report every year – FREE!

In my December 2006 blog article, “FREE Credit Reports,” I talked about obtaining your free credit report directly from the main credit repositories. Now, with the changes Fannie Mae and Freddie Mac have made recently (see "How much will my credit score cost me on my next mortgage?" and "Credit Score Affects Interest Rates Even More") your credit scores are more important than ever.

The Fair and Accurate Credit Transaction Act of 2003 (FACTA) was passed by Congress to, among other things, allow consumers to monitor their own credit reports from the three main credit repositories – Equifax, Experian, and Trans Union. These free credit reports may be obtained on the internet, over the phone, and through the mail through a centralized source that was established specifically for this purpose (you cannot obtain a free credit report by contacting the credit repositories directly.)On the internet, go to http://www.annualcreditreport.com/ to get copies of all three credit reports. You can also call 877-322-8228 to obtain the credit reports by phone or you can download a form to mail in at http://www.annualcreditreport.com/cra/requestformfinal.pdf

I get offers in my e-mail all the time for free credit reports – are these the same thing?

No. Many of these offers are from companies that offer other services such as credit monitoring or credit repair. They will give you a “free” copy of your credit report if you subscribe to and pay for their service. The credit report you receive will be from that company and not directly from the main credit repositories.

When you get it at http://www.annualccreditreport.com/, you will receive information about how to correct any problems you find directly with the repositories. By law, they have to remove any information that they cannot prove is accurate - and they will let you know the steps you need to take to make the corrections.

I haven’t taken out any new credit – why should I check it?

First, you want to make sure there are not any mistakes on the credit report. If you have ever had a collection you know that some collection agencies are not very good at updating the information when the collection has been paid off. This will continue to affect your credit score. And, if you wait until you are applying for new credit such as a mortgage, it is too late – your credit scores have already suffered.

Second, you want to know what accounts your credit report shows. If there are unfamiliar accounts, you will want to investigate to make sure you are not a victim of identity theft.

Is now a good time to buy?

You cannot imagine how often I hear this question nowadays. The answer I always give is a resounding YES! There are three main reason why this is a great time to purchase a home.

First, it’s a buyer’s market! Every day in the news we hear about how hard it is to sell a home and how far home prices have fallen. The buyer has a great opportunity to find the perfect home and negotiate a great deal for it.

Unfortunately, many would-be buyers have been scared out of the market by the falling home prices. They are afraid that the value of their home may continue to fall after they purchase it. This may be the case, but if you are looking at a home as a long-term investment, prices will stabilize and eventually rise giving you a nice return on your investment (There is a lot more risk if you are purchasing property as a short-term investment.). If this were any other purchase, falling prices and a wide selection would motivate people into buying now.

Second, mortgage interest rates are low. In the past few months, interest rates hit their lowest levels in the past few years. Low interest rates coupled with lower housing prices makes this market the most affordable home-buying market in years. Again, we hear in the news the problems in the mortgage market but the fact is, for borrowers, this is a great time to get a mortgage.

Third, nobody can predict the future. This is probably the biggest reason why I think now is the time to buy. Housing prices are low now – but for how long? Nobody can predict when the housing market will rebound. By the time we know, it is already begun to rebound. Trying to purchase at the exact bottom of a market is impossible – ask anyone who invests in stocks. And, housing markets are all local. Housing prices will rebound at different times in different parts of the country. Even neighborhoods within the same city will see their values move at different times. If there is a place you want to live, and you can afford it now, don’t wait until that changes.
Also, due to the problems in the mortgage market, it is getting more difficult and more expensive for many people to get a mortgage. Last year, if you had a 620 FICO Score and a 5% down payment, you would get the same rates as somebody with a 740 FICO Score and a 30% down payment. However, in the past few months, Fannie Mae and Freddie Mac have made a lot of changes that will increase the cost of people getting mortgage if they do not have a significant down payment and/or a great FICO Score. Please read "How much will my credit score cost me on my next mortgage?" and "Credit Score Affects Interest Rates Even More" for more information on this. If there continues to be problems in the mortgage market, these changes may continue. And, if you have credit issues and need a sub-prime loan, they are getting harder to find and more expensive all the time.

If you are ready, willing and able to purchase new home, now is the time to act. It has been a long time since housing has been so affordable and nobody knows how long it will last or how long it will be before it is this affordable again.

If you have been thinking about buying, I have a great tool that you can use to see the properties available in the areas you are interested in. It is free and there is no-obligation to use this service. Click on the link below for more information and to sign up.

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FHA Announces New Temporary Loan Limits

Earlier this month, HUD announced the new temporary loan limits for FHA Mortgages as a result of the economic stimulus package passed earlier this year. Like conventional mortgages, The maximum FHA loan amount is $729,750 but will be adjusted per housing market based upon the median home prices for that market.

In the Chicago MSA, the maximum loan limit for a single family home is now $410,000 up from $271,050 before the temporary increase. The new limits for 2- 3-, and 4-unit properties are $524,850, $634,450, and $788,450, respectively.

These increased loan amounts will make traditionally “jumbo” loans more affordable for more people and will hopefully allow many people who are currently in mortgages they cannot afford refinance to more affordable conventional and FHA loans (See FHA Offers Relief to Homeowners with FHA Secure).

These new loan limits will follow the same FHA guidelines as before. However, some lenders have already added some guidelines for these larger loan amounts. For example, one lender requires a second appraisal for any FHA loan that exceeds $417,000 and another lender requires at least a 580 FICO score for any FHA loan that exceeds the maximum mortgage amount before the temporary increase.

As I wrote in January 2008 (FHA Mortgages to Become More Popular) FHA loans will once again be a larger segment on the overall mortgage market than it has been in the past several years. The FHA Program has undergone many changes over the past couple years (see This is Not Your Father’s FHA)to better serve the mortgage needs of today’s market and bring it more into line with the conventional mortgage programs.

To see the new, temporary mortgage limits in your area, please go to: https://entp.hud.gov/idapp/html/hicostlook.cfm.

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Credit Score Affects Interest Rates Even More

On March 6, 2008, Fannie Mae came out with Announcement 08-04 which spells out the increased Loan-Level Price Adjusments (LLPAs). These LLPAs replace those discussed in my blog article “How Much Will My Credit Score Cost Me.”

An LLPA is an additional fee on top of any points and closing costs paid for a mortgage based upon the Loan to Value Ratio (LTV) and the borrowers’ credit score. So, the higher the LTV and lower the credit score the more you will have to pay for a mortgage. This can take the form of additional points and/or higher rates.

The new LLPAs are as follows:









1 These LLPAs do not apply to loans with amortization terms of 15 years or less, Expanded Approval®, Expanded Approval with Timely Payment Rewards®, MyCommunityMortgage®, and most Government loans. See LLPA Matrix for details.

CASH-OUT REFINANCES - FICO Score/LTV








Two- to Four-Unit Property LLPAs2
The two-unit LLPA below replaces the existing two-unit LLPA. The three- and four-unit LLPAs are new LLPAs.

• Two-Units: 0.50% LLPA applicable to all LTVs
• Three- to- Four Units: 1.00% LLPA applicable to all LTVs
2 These LLPAs do not apply to MyCommunityMortgage loans.

All LLPAs are cumulative unless otherwise noted.

These new LLPAs are effective with all mortgage delivered to Fannie Mae beginning June 1, 2008. Most lenders have already incorporated these new LLPAs into their current rate sheets. Your credit score is more important than ever in getting a good rate on a conventional loan. For information on credit scores please visit my blog article "Understanding Credit Scoring & Credit Repair.”

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Federal Reserve Cuts Federal Funds Rate by ¾%

Yesterday, the Federal Reserve Open Market Committee (FOMC or Fed)) voted to cut the Federal Funds Rate by .75% to 2.25% - the sixth time they cut rates in the past six months. These rate cuts are meant to stimulate the economy by making it cheaper for banks to borrow and lend money and for business to borrow to grow their business. This time, there was a lot of differing opinions on how large the rate cut would be. Some looked for the FOMC to cut by a full 1% while others were looking for only a .5% cut. The vote by the Fed was not unanimous – two members felt the cuts were too aggressive given the threat of inflation.

Cutting interest rates can be seen as inflationary. It stimulates the economy and also devalues the US dollar in relation to other currencies. This causes prices we pay to increase in the future and, as a result, many long-term interest rates, such as mortgages, actually increase when the Fed cuts rates.

Some homeowners with mortgages that are tied to the Prime Rate will see a decrease in their interest rates on these loans since banks tie their Prime Rate to the Federal Funds Rate – when the Fed cuts by .75%, banks cut their Prime by .75%. Usually, Home Equity Lines of Credit are based on the prime rate. These homeowners should see the new rates reflected on their next statement.

These rate cuts don’t seem to be working, the economy is still heading for recession

When the Fed cuts rates, it can take 6 – 9 months before they have an impact on the economy. Therefore, the economy is just now experiencing the rate cuts that the Fed put into effect when they began cutting rates in September 2007. The Fed tries to get in front of problems so they can prevent or lessen upcoming problems. The economy continued to grow through the end of 2007 and now the cuts are helping to prevent the economy from slowing further.

And what about mortgage interest rates?

This is an even more complicated question. The mortgage market is affected by the economy and, to some degree, the actions by the Fed. But, as I mentioned before, these rate cuts can be inflationary which will tend to increase mortgage rates. In addition to the economy, the mortgage rates are affected by the sub-prime mortgage crisis, the slowing housing market, and the resistance of investors to purchase the mortgage-backed securities (MBS) that fuel the mortgage market.

Today (3/19/08) the Office of Federal Housing Enterprise Oversight(OFHEO), the regulators for Fannie Mae and Freddie Mac, took a huge step today to increase the liquidity (Availability and accessibility of mortgage funds) of the mortgage market. The steps they took today will allow Fannie Mae and Freddie Mac to provide up to $200 billion in mortgage-backed securities liquidity. By purchasing these MBS, Fannie Mae and Freddie Mac will make a significant dent in the logjam of mortgages that have been unable to be securitized and purchased over the past several months. This logjam has led to MBS being less attractive and a widening of the spread between the yield on mortgages and US Treasury bills, notes, and bonds. This should increase the demand for MBS thus raising their prices and lowering their yields – this will in turn lower mortgage rates.

Fannie Mae & Freddie Mac Announce New, Temporary Loan Limits

As part of the economic stimulus plan signed into law last month (See Congress Agrees on Economic Stimulus Plan ... ) Congress authorized Fannie Mae and Freddie Mac to raise the maximum mortgage limit for conforming loans through the end of 2008. These temporary increases are to help the housing industry as well as make it easier for more people to refinance their mortgages. These increases will increase the liquidity of the mortgage market for many homeowners whose mortgages are above the current conforming limit of $417,000.

After much debate as to how many people these increases will help (See Will the Increase in Mortgage Limits Help?), the OFHEO has published the new limits. While critics had estimated that only 15 counties will be affected, it appears that over 100 counties and metropolitan areas across the country will experience an increase from the current maximum.

Unfortunately, my home market of Chicago, IL, as well as many other markets, will not see an increase in the limits for conforming loans.

To see a list of all the areas with increased limits click here!

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Down Payment Assistance Programs to Continue

On October 1, 2007, the Department of Housing and Urban Development (HUD) published a rule that would have eliminated the use of seller-funded down payment assistance programs for FHA loans effective October 31, 2007 (See FHA Bans “Gift” Down Payment Assistance Programs). On that date, Judge Friedman of the United States District Court for the District of Columbia issued a temporary injunction against HUD from implementing that rule (See HUD’s Ban on FHA Down Payment Assistance Programs on Hold). In the injunction, Judge Friedman agreed that there was a “substantial likelihood” that the regulation violated applicable law. Judge Friedman further stated that the regulation lacked a “reasoned analysis” and was based on “flimsy” support. Judge Friedman also questioned whether HUD acted appropriately in issuing the regulation in view of a published report that Secretary Jackson was committed to that course of action regardless of whatever public comments HUD would later receive.

On March 3, 2008 Judge Karlton of the United States District Court for the eastern District of California set aside the HUD rule, thus allowing down payment assistance programs to continue to help thousands of American families realize the dream of homeownership.

In addition to the various down payment assistance programs such as Ameridream, Inc and the Nehemiah Program, opposition to HUD’s rule included several members of Congress, the Mortgage Bankers Association, the U.S. Conference of Mayors, the National Association of Home Builders, the National Urban League, and over 15,000 individuals and families nationwide.

Down payment assistance programs have helped over 1 million families and individuals purchase a home. In addition to helping the home buyers, these programs also help to stabilize the neighborhoods in which they are utilized.

With all of the issues facing the housing industry over the past couple years, this is welcomed news. FHA will be an integral part of a housing turnaround. In addition to the recent changes to FHA guidelines (See FHA Mortgages to Become More Popular and This is Not Your Father’s FHA) as well as the temporary increase to FHA loan limits (See Mortgage Limits Increased), down payment assistance programs enable more people to afford a home.

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Will the Increase in Mortgage Limits Help?

As a part of the economic stimulus plan passed in February, Congress allowed for the temporary increase in mortgage limits for Fannie Mae, Freddie Mac, and FHA mortgages. However, many people have questioned how many people this will actually help. There are reports that only 15 counties across the country have median home prices high enough to qualify for the maximum mortgage limit of $729,725 – and, most of these counties are in Southern California.

While the National Association of Home Builders (NAHB) has estimated that mortgages on 3 million additional homes will be eligible for purchase by Fannie Mae and Freddie Mac others estimate that it will be half that amount. However, there will be several other counties across the country that do no necessarily qualify for the maximum limit but may still see an increase above the current $417,000 limit.

The changes to the FHA mortgage limits will have an even greater impact. All counties, regardless of median home price, will have a floor of at least $271,050 – up from $200,160. And, at least 85% of the 3,300 counties in the U.S. have median home prices high enough to result in an increase to the maximum FHA mortgage limit.

These changes may not help everyone, but they are not intended to. The reason for these increases is to increase the liquidity (availability and accessibility of money for mortgages) in the mortgage market to help repair the damage done by the sub prime mortgage mess and the slumping housing industry.

Keep checking back for the actual loan limits in your area – they should be available in the first half of March.

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Mortgage Limits Increased

As a part of the stimulus plan enacted by Congress and Signed by President Bush last month (see my blog entry on the economic stimulus program) the mortgage limits for Fannie Mae, Freddie Mac and FHA loan programs will increase for the rest of 2008.

As a result of the problems facing the housing industry and the sub prime mortgage crisis, jumbo mortgages (those greater than $417,000) have been harder to get and much more expensive. Traditionally, jumbo mortgages have used similar underwriting standards and were priced approximately .25% - .50% above conventional mortgages. Now, the underwriting standards are so tight that many people are unable to afford these types of loans. Additionally, jumbo loans have been as much as 1.5% higher than conventional mortgages making the much less affordable.

Loan limits for a single family home will increase from $417,000 to $729,750 or 125% of the median house price in the area. FHA limits will also increase. The current basic standard mortgage limits for FHA insured loans will increase from $200,160 to $271,050 (with limits up to $729,725 in the highest cost areas). Limits for 2 – 4 unit properties were also increased.

These mortgage limit increases are expected to help the beleaguered housing industry. It will make mortgages more attainable and affordable for more Americans. It will also allow more people to refinance their current mortgages to more favorable terms and rates and hopefully cut down on the mortgage defaults and foreclosures which hit record levels lately.

Check back for more information as to the actual mortgage limits you can expect for your area. As soon as I know them I will post them to this blog.

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Do I have an orphaned mortgage? What is that and should I care?

In the past a mortgage was “orphaned” when the loan officer who originated the mortgage left the company. Since the loan officer was the point of contact for the borrower for future mortgages, the loan was now orphaned. The branch manager of an orphaned mortgage would usually assign these mortgages to another loan officer who would send out a lender introducing themselves as the borrowers new point of contact.

However, truly professional loan officers have evolved these days and take a much more proactive approach to their customers’ financial situation. Professional loan officers take an advisory role to their customers and take into consideration current needs as well as future goals of their customers to make sure the mortgage product they take helps them achieve these goals.

A professional loan officer will usually offer to review their customers’ financial situation at least annually, free of charge, and make recommendations based upon their current and projected financial situation and changing financial goals and needs. These loan officers are not just trying to get another refinance when rates drop.

So, if you have a mortgage and never hear from your loan officer (except when rates drop and they want to refinance your mortgage) you have an orphaned mortgage.

If my loan officer keeps in touch with me it is only because they want more business for themselves - they really don’t care about my situation.

Unfortunately, this may be true of many loan officers. Many will mail you a postcard monthly so you have their contact information in case you need another mortgage. However, there are a lot of true professionals in the business who do really care about their customers. Yes, the loan officer will get more business by keeping in contact with you but you can benefit from his efforts as well.

Mortgages are just a commodity and I call around to get the lowest rate possible and go with that guy.

I know a lot of people who have said this and live to regret it. In fact, over the past several years there were a lot of people who made the decision to use another loan officer who I have heard from since. Many were convinced to take an exotic mortgage, such as a Pay Option ARM, that they neither fully understood or was the correct mortgage closed because the loan officer they ended up with was inexperienced. Some of them ended up with a higher rate because they did not lock in the rate when they should have. Some of them ended up paying exorbitant closing costs and fees that were never properly disclosed up front.

Remember, having the lowest rate on the wrong program is not a good deal. Getting a fair rate on the right program with a loan officer who understand and cares about your financial needs and goals is.

If I don’t hear from my loan officer, how does that cost me money?

Here are a couple ways:

Over the past 3 months there were several times when rates were at or below 5.500% for a fixed rate, 30 year mortgage depending on your credit score and LTV (See “How much will my credit score cost me on my next mortgage?” for more information on this). When this happened, all of my customers were notified and had to opportunity to lock in these rates. After rates had crept back up (these rock-bottom rates were available a very short time) the news started reporting rates at their lowest levels in years. I received several calls from people who read my blog about refinancing. Unfortunately, the rates were long gone by the time they had read about them, which is often the case.

Also, at the end of last year, Fannie Mae and Freddie Mac announced they were introducing delivery fees for mortgage with credit scores below 680 and LTVs over 70% (See “How much will my credit score cost me on my next mortgage?”). I contacted my customers that were in this situation and advised them to refinance before these changes took place. I was able to refinance several of them before the changes and saved them a lot of money – most of these customers would not have been able to save s much money on their refinances had they waited due to the increase in rates they would be subject to now.

Lastly, a customer of mine had contacted me in the fall. They had an ARM that adjusted up more than 2.5% in the spring and they had fallen behind on the payments due to the increase in payment. They had called a couple sub-prime lenders and were not going to be able to get a better rate and lower payment with them. They called me and I told them about the FHA Secure Program (See “FHA Offers Relief to Homeowners with FHA Secure” for more information on this program) and refinanced them to a lower rate and better payment. They haven’t been late on a payment since.

There are many other ways that having a loan officer you trust can save you money.

So, what do I do if I have an orphaned mortgage?

Find a professional loan officer, such as myself. I am happy to help people with their financial needs and determine what mortgage program is right for them. Even if you are not ready for a new mortgage right now, I will be happy to evaluate the loan you have in light of your needs and goals and make recommendations to you. I talk to many more people who do not need a new mortgage than I do to people that do need a new mortgage now. It is part of my job as a professional loan officer. If you have questions or about your mortgage please don’t hesitate to give me a call or send me an e-mail.

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Congress Agrees on Economic Stimulus Plan – Sends to President Bush for signature.

Last month the US House of representatives quickly came to an agreement on the size and scope of the economic stimulus package with the White House and approved the measure by an overwhelming vote of 385-35. The immediately called upon the US Senate, along with the white House, to adopt the House bill without changes.

However, the Senate Finance Committee, led by Democrat Max Baucus, D-MT, added over $40 Billion to the bill before sending it to the Senate for debate and vote. The new version of the bill, supported by both Barack Obama, D-IL, and Hillary Clinton, D-NY, would have added huge delays to the passage of the stimulus package as the House and Senate would need to agree on changes so that the bills matched. The republicans filibustered in the Senate that basically killed the bill by not letting it go to a vote.

The Senate then quickly acted to approve, by a vote of 81-16 (Obama and Clinton did not vote due to campaigning), a bill sponsored by Senator Mitch McConnell, R-KY, which was essentially the same as the House version except for the addition of some added benefits for Senior Citizens and Disabled Veterans. The house approved this bill hours later so it could be quickly sent to the President for his signature.

How much will I get?

Basically, if you make less than $75,000 ($150,000 for a married couple) you will get a check in May or June of this year. Single taxpayers will get $600 and a married couple will get $1,200. Plus, you will receive $300 per child (eligibility is the same as for a child that qualifies for the child tax credit on your tax returns) For those who make at least $3,000, but not enough to pay taxes, will receive a $300 rebate for individuals and $600 for married couples. This bill also covers up to 20 Million senior citizens living solely on Social Security and 250,000 disabled veterans.

What do I have to do to get this money?

The rebates will be based upon tax returns for 2007. So, as long as you file your tax return, you will automatically receive your rebate. You need to do nothing else. For those taxpayers who file for an extension on their tax returns, or file their tax returns late, their rebate checks will be delayed accordingly. Those who do not file a tax return will not receive their rebate checks.

Will this help the economy grow?

This is the big question. Many people feel that most of this money will go to savings or paying down debts. If this is the case, it will have a limited effect on economic growth. When we pay down debt with this money, we are paying for purchases that were made in the past. The purchases had an impact on the economy when they were made.

In my discussion with friend, family, and customers, I think most of them will spend at least some of the money they receive. Many people I have spoken with are looking to make home improvements or take a more expensive family vacation this summer with at least some of the money. A few of them are looking to use the money as a down payment on a new car. The more that is spent of this money the more it will help the economy.

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