While these numbers may be reassuring to some it has not been without a huge price tag as mentioned here. Can it continue when the stimulus money stops or will it just fizzle out as it did last year? It is hoped that it will create a sense of urgency among buyers that they must act now before they miss the bottom which is being experienced in many housing markets reporting multiple contract offers on listings, something we have not seen in a very long time.

So while this report gives cause for hope, there are still issues in unemployment, foreclosures, new housing inventory, first time homebuyer tax credit ending and Alt-A option arm resets all showing we still have a long road to recovery but could the worst be behind us?

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While many are standing on their soap boxes preaching the end of the crisis as we know it there is strong evidence that we are not out of the woods yet. While yes prices are down, mortgage rates are historically low and strong government incentives; these are exactly the issues in the marketplace.

* Prices are still down 32% from their peak and have not turned
* 30% of home sales in July were First Time Home Buyers
* 31% of home sales were distressed sales or sales of homes in foreclosure (First time in history)

Look at it; we still have huge amounts of “known” inventory on the market. We have government intervention that is artificially reducing this inventory through first time home buyer incentives, loan modifications, short sales and BILLIONS being spent weekly to keep mortgage rates low. You have lenders suspected of withholding foreclosed inventory off the market, by some accounts only about a third of repossessed houses are being actively marketed. Many home sellers above $250,000 taking their unsold home off the market and we may have another round of foreclosures due to “Alt-A” and option arm mortgages that will begin resetting and unemployment levels and underwriting guidelines are still tightening.

While sales of homes to first time home buyers has been a huge drag on home prices I don’t think we can conclude a turn around until prices collectively, actually start to increase, government intervention stops and monthly inventories are reduced.

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The Mortgage Disclosure Information Act or MDIA was passed into law when Congress enacted the Housing and Economic Recovery Act becoming effective July 30, 2009. The MDIA, seeks to ensure that consumer’s receive cost disclosures earlier in the mortgage process to create transparency during the loan process. It is important to understand the significance of this law and the affect it can have on your loan closings. Bear in mind, this rule only applies to primary residences and vacation / second home transactions and the interpretation will vary among lenders who will error on the side of caution.

What Changes Do the New Rules Bring?

The MDIA only allows a “reasonable” credit report fee to be collected before the customer receives the Good Faith Estimate (GFE) and Truth in Lending (TIL). The customer must receive both the GFE and the TIL within 3 days of application. Once the borrower has received and signed the initial Truth in Lending Disclosure, the loan officer can then order the appraisal. The MDIA has established the following schedule to be used to determine when it is permissible to accept fees:

• Disclosures mailed to borrowers —- on the 4th business day after mailing
• Disclosures e-mailed to borrowers —- on the day actual receipt is confirmed
• Disclosures are provided in person —- on the day of receipt

There is a 7 day mandatory waiting period after receiving the final Good Faith Estimate and Truth in Lending before signing final loan documents. If, throughout the loan process, the fees and charges change more than 10%, the APR by .125% or a change in loan terms there is a mandatory 3 day wait plus the mandatory wait time based on the manor the re disclosure took place. Its important to note, that this means ANY fees added after the initial disclosure has been made, not just lender.

What Makes the APR change?

• Fees - Changes in lender or title fees
• Interest Rate - Locking a rate other than what was disclosed on the application or an extension in rate lock time period
• Loan Amount - Putting more or less money down; Reduction in purchase price
• Type of Loan - Deciding to put less money down, changing to an FHA or VA which can have more fees associated.

What Can a REALTOR® & Lender do to Help Ensure Timely Close?

First it’s important for everyone to be on the same page to understand that the loan process will take longer. It’s crucial that the buyer is genuinely pre-approved prior to entering into the contract. Its imperative that a dialogue takes place in the beginning with the chosen title representative to accurately reflect their fees. Its important for loan officers to lock the loan early in the process, don’t gamble the interest rate. Going forward its important to manage your customers expectations. Also, its going to be important to schedule your loan closings 45 days out and initially even 60 days while lenders get used to these new processes as we are only 3 weeks into it and the first loans are approaching closing.

If something does come up at the end it’s important to note, that no re disclosure is necessary if the lender, broker, Realtor or seller pay whatever fee was added. The final rule also allows consumers to expedite consummation to meet a bona fide personal financial emergency.

Be ready, more regulations coming down the pike as well. New RESPA regulations that were published November 17, 2008 and are scheduled to take full effect on January 1, 2010.

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The First Time Homebuyer Tax Credit was passed as part of Obama’s American Recovery and Reinvestment Act of 2009, signed into law by President Obama on February 17, 2009, crediting up to $8,000 in tax payments to qualified first time home buyers. The maximum tax credit for an individual first time home buyer is 10% of the purchase price, up to $8,000.

Who qualifies for the $8,000 First Time Home Buyer Tax Credit?

• Must be a first time home buyer defined as no home ownership in the last 3 years, so prior ownership does not disqualify them only home ownership in the last 3 years
• No repayment is required if the buyer owns and occupies the property for 36 months
• The tax credit starts to phase out for an individual taxpayer with a modified adjusted gross income from $75,001 to $95,000 for single filers and $150,001 to $170,000 for joint filers.

Who does not qualify for the $8,000 First Time Home Buyer Tax Credit?

• The property is acquired from a related person
• The property is acquired by gift or inheritance
• The buyer is a nonresident alien
• The buyer disposes of the property before the end of such taxable year

A common misconception about the $8,000 First Time Home Buyer Tax Credit is that it is a true credit and not a deduction. So if you typically get a refund you would get $8,000 above and beyond your typical refund. Conversely if you owe every year your $8,000 would be deducted from the amount you owe.

You can check out the IRS publication at your convenience and remember if you do not have a ratified contract and make loan application by October 15, 2009 chances are your will not close by the November 30, 2009 deadline and you will end up at the short end of the stick.

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This is one reason that more and more home buyers are requesting “down payment gifts” from family members. Many potential home buyers don’t want to miss their opportunity now that home prices have dropped, mortgage rates are low and a generous first-time home buyer tax credit is available.

But if a monetary gift will be in the mix for financing the purchase of your home, you should understand that there is a right way and a wrong way to proceed. So before you run out to your parents and say “show me the money“, it is just not possible to simply put the funds from your parents in your bank.

A three step process is involved when you accept cash for a down payment. If you fail to follow these steps precisely, it is quite likely that an underwriter will disallow the gift as a source of down payment potentially delaying closing or killing the deal altogether.

The first thing to do is to create and endorse an acceptable gift letter. While there are a number of variations of the “Down Payment Gift Letter,” the basic format is pretty much the same in each.

• States the amount of the gift
• Specifies the subject property address
• States the gifters name, address and phone
• Specifies the relationship of the gifter to the giftee
• Specifies that the gift is an actual gift and not a loan
• Endorsed and dated by all parties

If you do not have a lender gift letter I would be glad to send you one that I use for my clients. Its universal and accepted by all lenders. Just send me an email.

Once the gift letter is in place, the person making the gift should create a strong paper trail for the money that is being provided as a gift. This is one reason why it is preferable to use certified checks rather than wire transfers. While both methods are acceptable forms of gifting, a certified check provides documentation in the form of a teller receipt, making it easier to prove.

Be sure that the amount specified in the gift letter matches the amount of the actual gift.

Finally, when a giftee accepts the gift, it has to be “as is.” Make the deposit directly to a bank teller at a branch of the bank, being careful not to merge the deposit with other monies. For a gift in the amount of ten grand, for instance, you should deposit exactly that amount. That is to say, don’t add any other money to the deposit. If you follow these three steps, you should not have any problem.

In the meantime, you could face legal and tax ramifications if gifts of money are exchanged among relatives. In case you don’t know how a donation or gift receipt would affect you, remember to discuss this with your lawyer or accountant.

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There are 4 types of lending entities, each with their own flipping guideline.

•    FHA (Federal Housing Authority)
•    Conforming (Fannie and Freddie)
•    VA (Veterans Administration)
•    Hard Money (Kinda like getting a loan from Shady Frank but not to be confused with Barney Frank, although close.)

Now HUD defined property flipping with the original letter as “the practice whereby a property recently acquired is resold for a considerable profit with an artificially inflated value, often abetted by a lender’s collusion with the appraiser.”

In 2006 HUD loosened FHA’s flipping policy to 2 versions, 90 days and less and a 91 – 360 days.
According to FHA guidelines, FHA will only insure a loan on a property sold within 90 days if the seller is HUD, a Government Agency, a Federally Chartered Bank, a Non Profit or a relocation company.  AFTER 90 days to 6 months, FHA will require a 2nd appraisal if the purchase price is 100% above the sellers purchase price and also, this appraisal cost can not be paid by the borrower.

Additionally, up to 12 months, FHA can require additional documentation to “support the resale value if the resale price is 5 percent or greater than the lowest sales price of the property.”

*For more information see FHA MORTGAGEE LETTER 2006 -14

Conforming (Fannie and Freddie) has no seller seasoning requirement

VA (Veterans Administration) has no seller seasoning requirement

Fannie, Freddie and VA have no “seller seasoning” requirements, although each lender I can assure you does. Most lenders are 12 months, some are 6 months and at the very least 1 or 2 will be 90 days. This is called Risk Overlaying.

Risk Overlays … Lenders may impose additional conditions to further insulate themselves from the possibility that they may have to buy back the loan. Risk overlaying not only applies to seller seasoning but every other loan underwriting guideline as well. As a Buyer, seller, Realtor you have to be very careful….just because there is a DU approval DOES NOT MEAN the lender will fund the loan. I can not stress this enough. The biggest overlays right now are credit scores and debt ratio’s but there are many more. Buyer beware.

Do your due diligence find out prior to submitting an offer how long the seller has been on title. If its less than 90 days save yourself the trouble unless of course it qualifies for the FHA exception. If you don’t, your lender will not find out till the appraisal is done that the title has transferred and then your into the transaction for $350-$400 and a lot more in wasted time.

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Unemployment dropped to 9.4%, from the prior month’s reading of 9.5% - breaking a streak of 9 straight monthly increases. People still aren’t spending. Savings rate stands at 4.6%, down from May figure of 6.2% but still up significantly from prior publications of negative to 1% all the while wages and salaries have declined 4.7% from the prior year. Consumers have still have little access to credit as credit cards and home equity lines have all but dried up. The only thing that could stimulate the consumer would be a reversal of wages or lower taxes and with the Fed Printing Press working 24 hour days, 7 days a week we can be assured tax rates will increase…significantly is my guess. Just next week the Fed will be auctioning off another $75B. How high can taxes go?… funny you should ask!

Housing has been rebounding. On Tuesday, the Pending Home Sales Index came in at an amazing 3.6%, where only a 0.7% rise was expected. The National Association of Realtors reported that Pending Home Sales rose in June for the fifth straight month, fueled by low home loan rates and bargain home prices. Its important to note that this figure is on contracts written and not closed…. But regardless it seems the Fed’s buying of mortgage bonds to keep rates low, over $ ONE TRILLION worth, and the $8,000 “first time” home buyer tax credit does seem to be helping sales to firm. Can we say missing the boat???

Be on the look out his week for rates to bounce a little lower due to last weeks oversold conditions, with hand on trigger to lock. We are still on a long term down trend but still below all major moving averages. Hopefully the 4.5% mortgage bond can get above the 50 day moving average of 99.41 and the 100 day next at 99.90.

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Get educated on loan modifications. Know what your loan options are. Have several different real estate agents give you a comparative market analysis (CMA) to see what your home would sell for. Seek the advice of an attorney if you want to pursue keeping your home.

Here are some of the common things many “scam” companies will say when you call and ask them if they can help you save your home.

1. “By signing the title of your home over to us, we can salvage your credit. That way when the foreclosure is issued, it’s our name that will be recorded.”

Busted - In truth, a home foreclosure is always recorded against the borrower. It doesn’t matter whose name is on title. The person who borrowed the funds is responsible. If you fall for this, you now owe money on something you no longer own.

2. “We will help you out of this situation by giving you some money AND paying your delinquent payments. Just sign the title to your house over.” (more…)

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Over 275 subprime lenders, Countrywide, Bear Stearns, Lehman Brothers, Merrill Lynch, Washington Mutual, Fannie Mae, Freddie Mac and now Wachovia……. getting bought out days before it would have to go the way of Lehman Brothers. The FDIC comes out to say that “Wachovia did not fail.” That is a major play on words.

The American public spoke today. I for one am getting tired of the “bailout talks.” Let the cards fall where they may. Giving $700 billion is nothing but a reward to those that got us in this mess. At what point would a rational person think there was a problem? After the 275 subprime lenders? It just did not have to go down this way. Why do taxpayers have to ante up? We did not do this.  There are other ways to fix this situation and saving some executives butt is not something to which I am inclined to say yes.

I say, hell no to the bail out. There has been way to much saving face with Wachovia, Bear, WAMU and all the others.

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Listening to the media there has been 3 prior bottoms as well. His $10 billion is protected to the tune of a guaranteed return of 10% a year. So the bottom is a lot closer for him than us little guys. But this is a good this as a vote of confidence in the sense that the investment community is more willing to make investments in the financial sector…and this could be a turning point. But probably not THE turning point.

On the flip side  Fed Chairman Bernanke and Treasury Secretary Paulson had some trouble selling the $700 billion bailout to the Senate Banking Committee. There is a lot uncertainty regarding this bailout funding and the market will be very reluctant to go higher until it can see the plan come together.

So once again we are in a hurry up and wait mentality.

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October Crude contracts were trading $25 higher at one point, the highest one day gain in history, closing up $16.37 higher on the day. With oil higher and heavy metals such as gold rallying nearly $45 an oz, we are once again touching on inflationary fears which would make mortgage rates soar. After hitting a recent high last Tuesday of 101.69 the 5.5% MBS have given up nearly 175bps to close at 99.9375. The Dow got hammered and gave up nearly all Fridays gains to close down 372 points.

If we are in a recession, mortgage rates don’t know it yet. The markets tend to be very omniscient.

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The 10-yr yield hovers around the pivotal 3.76% level with a close below keeping bonds in the game but severely scrambled.  With the Dow, NASDAQ & S&P raring upwards, Treasuries and Agency MBS’s are taking the brunt of the blow as investors move safe harbor capital off the sidelines to deploy them back in the stock market.  As a result, Agency MBS pricing is off a full point as is GNMA (FHA) MBS.  Wow, what a week it was.

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Once again, with each new fix the risk is it doesn’t work.  Not that anyone is paying attention to the mundane economic data being released, but initial claims came in on the high side of expectations at 455K vs an expected 440K mark and leading indicators off consensus levels as well.  The slumping economy’s impact on the credit crunch has not been addressed as much as the vice versa effect, the credit crunch’s effect on the economy.

Don’t discount the exacerbating effect on the current financial fiasco of an economy that is shedding jobs at an alarming pace.  So doom and gloom aside, agency MBS pricing is selling this morning as the central bank capital injections have temporarily soothed the flight to quality stampede.  FNMA 5.00% MBS are off 12 ticks (-12/32) while GNMA (FHA) 5.00% are off 7 ticks (-7/32).

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When working a financial plan, I see all sorts of folks go out of the gates leading the race and somewhere along the line things seem to fall apart. Working a plan is a long and arduous process. It’s crucial that you are in constant contact with your coach (financial planner) and stay on course. Its very easy for folks to get “tired” in the 2nd and 4th quarters.

No one expected the Giants to win. They were underdogs according to every sports poll, broadcaster and viewers. Not only did they not expect the Giants to win but some expected the Pats to win pretty easily. After a lackluster finish last year, Tom Coughlin was on the cusp of losing his job. After the first two games of this year Eli Manning was about to be taken out and be stoned. EVERY publication and news show was telling him how bad he was a quarterback.

The second thing I was reminded. That everyone has the same opportunity to be successful in life. Every morning we get up and put our clothes on just like everyone else. So what separates the successful from the unsuccessful? Beliefs. What limiting beliefs are holding you back from achieving what you want most in life?

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You can see the whole Bank Rate article here.

This interview led me to some important points that I want to make. It’s not a marketing secret that scaring the crap out of consumers is a pretty useful sales tactic. People buy on emotion and make emotional decisions and the news media and advertisers sell products that way.

I have been pounding the table since May 2007 that the Federal Reserve would start to lower rates in the fall of 2007; you can see my Blog post. So this big whoop la comes as no surprise.

What needs to be understood is that mortgages just like any investment should be managed. Just like investments, different loan products “perform” better during certain periods and working with a Certified Mortgage Planner allows customers to take advantage of changes in market sentiment and conditions and save $10’s of thousands of dollars.

Managing a mortgage is not about getting the lowest interest rate. It’s about matching the mortgage to the client’s financial goals. When you match the mortgage to their financial goals rates do not matter. The loan program that you have is meeting a certain financial need of the borrower.

This is part of wealth creation I explain to clients. In this business I have meet many people who have achieved great wealth by aligning their mortgage (s) to their financial need. I have never met one that achieved great wealth because they received the lowest mortgage rate. (more…)

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The stock market is scheduled to open with its worse drop in recent memory and bad news for Bank of America, reporting it a 95% drop in net income and may call in to question the buy out of beleaguered Countrywide.

If Bank of America does not go forward with the Countrywide buy, Countrywide is all but assured a spot in Federal Bankruptcy court and that would send additional shock waves through the financial markets.

Those with adjustable rates gotta be loving the current rate environment. I have been saying since May 2007 the Fed would lower rates and I would go with short term adjust ables. Those with a home equity line of credit will see their rate decline this month of at least .75%. All the short term adjustable rate indices’s, such as the LIBOR, MTA and CMT will have huge declines today and over the coming months so we will all see our payments going down. Who would have ever thought we would see the 30 year near 5%?

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With the Jobs Report for December showing only 18,000 new jobs when estimates were looking for 70,000 thats quite a surprise. Unemployment is creeping up as well to 5% this is a pretty large increase from Novembers level of 4.7%. Bad news for stocks but great news for mortgage bonds!

The bad news with the slide in interest rates as is with all the so called help from the government for those facing foreclosure or arm resets is that the majority of those wanting to take advantage of the lower rates and refinance can not. Its nearly impossible for even the best of credit scores to refinance their loan right now at anything over 80%. I have had four loans in December alone, all rate and term refinances (no cash out), all mid 700 credit scores not get approved. Its ridiculous right now, mortgage bonds are at the best they have been since summer of 2005 but its increasingly harder for approvals on refinances to take advantage of them.

Fannie Mae and Freddie Mac have all but closed up funding higher loan to values. I do not see this getting better anytime soon and even see it getting worse before it gets better. Most lenders have already added Risk Based Pricing to loans that Fannie and Freddie are officially starting in March 2008. Some lenders are starting to take away Investor loan programs for cash out. That is correct No Cash Out for Real Estate Investors, not even $10. Also some lenders are pulling Expanded Approvals as well. Then you have the automatic 5% value reduction for declining markets.

The storm is not over yet. There are going to be many more limiting changes that are coming down the pipe I am sure and It will not matter how low rates go if mortgage holders can not take advantage of them.

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Seller Held Seconds – This is a great option for those rehab investors to get their initial capital out of their property and move on to the next project and also opens the market to many more potential buyers. Let’s say you buy a property for $150,000 and spend $15,000 in renovations. Let’s say after renovations the property is worth $200,000.

The potential home buyer secures a conventional 1st deed loan at 80% of the value of the home and takes out a mortgage for $160,000. This pays your loan off and also you’re out of pocket expense renovating or updating the property. It’s essential, that there is a down payment from the buyer of at least 3% to 5 %. In this instance, you hold a second deed for $30,000.

You become the second deed of trust with all the rights of any 2nd trust deed holder. Most often the terms of the loan are higher rates and shorter balloon terms; let’s say a 36 month balloon (36 months is typically the shortest balloon term a first deed lender will accept) at 12% interest rate with an interest first payment option. So during the 36 months you’re receiving interest payments of 12% and by the end of 36 months the buyer needs to refinance the property to pay your loan off. (more…)

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There were three recent home sales in the Lenox Forest Section of Riverdowns. Two of the sales were full service listed homes and one was For Sale by Owner. Riverdowns subdivision is located off Robious Rd. in Midlothian, VA about a .5 mile east of Rt 288. (more…)

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The current market can make it more difficult to evaluate investment properties. The determined sale price at the beginning of renovations can be 5% or 10% less at the end of renovations. Not to mention you have to account for marketing expenses, carrying costs, tax implications and even have a Plan B.

Its very important that real estate investors align themselves with competent advisor’s that can advise them how to properly structure and progress the transaction. This includes a Certified Mortgage Planner, CPA, Realtor, Property Manager and Appraiser. There are many DIY’s “speculators” out there getting absolutely hosed and even foreclosed.

Its essential that you spend a large amount of time of due diligence when considering an investment property to purchase. Initially this may take some time to develop your specific goal but properly structuring a consistent standard upfront will save much time down the road and allow you to move quickly as investment opportunities arise. A very brief overview of considerations are below: (more…)

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