Still Going Strong…unfortunately

Foreclosure numbers are still staggering and they are likely to continue until some type of “real” aid is available to the average homeowner who is losing their job, unable to make payments or just made a poor financial decision.

What To Do Now

If you are at risk of foreclosure, you need to do something now. Do not wait as this is a sign of your willingness to go through with the foreclosure. Instead, invest the time in getting help.

#1: Talk to an experienced Housing Counselor about your situation. They may be able to point you in the right direction in terms of stopping the foreclosure process. There IS help available for many people.

#2: Talk to your lender. Today’s lenders are more willing than ever to keep you in your home by finding a solution to foreclosure. When they call, tell them what is happening and ask what type of help they can offer.

Should You Keep Your Home?

Those without income may be unable to remain in their home since no amount of mortgage can be paid. If you do have a job and you do wish to stay in your home, find out if there are any options to help you to do so. If you lose your home to foreclosure, lenders will not lend to you for years to come. With the credit market being so tight, even with good credit, you will struggle to find a lender to buy another loan, or even a rental agent who will rent to you. In other words, if you can stay in your home, do so.

Those who may be having trouble with lenders or those who are unable to find the help they need otherwise, may wish to look for help directly from FHA loan specialists. The goal you have is to get help now. Do not wait since it only takes a few months before you are too far into the foreclosure process to stop it.

Freddie Mac losses mount, warns of foreclosures

Freddie Mac’s losses keep mounting, but mortgage giant avoids requesting more taxpayer aid

 WASHINGTON (AP) — Freddie Mac lost almost $26 billion last year, ominous news for taxpayers who are footing the bill to rescue the mortgage finance company and its sibling Fannie Mae.

Freddie Mac, which has lost a total of almost $80 billion since the housing crisis started in 2007, is bracing for more pain. The McLean, Va.-based company said a record 4 percent of its borrowers are at least three months behind on their payments and facing foreclosure.

Its chief executive, Charles Haldeman, warned Wednesday of a “potential large wave of foreclosures” still to come.

This is a major problem for the federal government, which seized control of Freddie and Fannie in September 2008. The two companies have already siphoned $111 billion from the government to stay afloat. That number is expected to hit $188 billion by fall 2011.

And while Freddie Mac didn’t ask for any more bailout money last quarter, the company said it will likely need more financial aid and might never repay it.

“We now have unlimited taxpayer exposure to the bailout of Fannie and Freddie, a bailout nation where the big get bigger, the small get smaller and the taxpayer gets poorer,” Rep. Jeb Hensarling, R-Texas, said at a House hearing Wednesday.

Fannie and Freddie dominate the mortgage market, backing about 70 percent of the loans made last year. The two companies purchase mortgages from lenders and package them into securities. Investors are willing to buy the securities because they are effectively guaranteed by the U.S. government. That puts American taxpayers at risk.

But the fragile housing sector is so dependent on the government that officials say they won’t have a detailed exit strategy until next year. Underscoring the market’s weakness, the Commerce Department said Wednesday that sales of new homes unexpectedly plunged 11 percent from December to January to the lowest level on record.

Treasury Secretary Timothy Geithner told lawmakers Wednesday that the Obama administration will “make sure we bring about fundamental change in the housing market and get ourselves in a position where the government is playing a less risky, but more constructive role in supporting housing markets in the future.”

Separately, Freddie Mac warned there is “significant uncertainty as to whether or when we will emerge” from government control.

For taxpayers, stabilizing Freddie and Fannie Mae has been one of the costliest consequences of the financial meltdown. Freddie Mac has received about $51 billion from Treasury to date, and the Obama administration has pledged to cover unlimited losses through 2012.

Freddie Mac said Wednesday it lost $25.7 billion, or $7.89 a share, for all of 2009. Of those losses, $4.1 billion went to dividends paid to the Treasury Department, which holds a nearly 80 percent stake in the company.

In the final three months of last year, Freddie Mac posted a loss of $7.8 billion, or $2.39 a share. The results, however, were a marked improvement over the fourth quarter 2008 when Freddie lost $23.9 billion, or $7.37 a share.

During the most recent quarter, Freddie suffered $7.1 billion in credit losses and a $3.4 billion write-down in low income tax credit investments. Also Wednesday Fannie Mae said in a regulatory filing that it plans to take a $5 billion charge when it reports its fourth quarter results later this week.

Fed Planning Exit…higher rates coming?

The Federal Reserve yesterday released an outline of their plan to remove the financial marketplace from the supportive influences of accomodative policy. Part of this outline included a statement on the fate of the Agency MBS Purchase Program.

Here are the comments:

“The Federal Reserve purchased $300 billion of Treasury securities and currently anticipates concluding purchases of $1.25 trillion of agency MBS and about $175 billion of agency debt securities at the end of March”

Plain and Simple: NO CHANGE IN TONE FROM BERNANKE ON THE END OF THE MBS PURCHASE PROGRAM. Funds are still on schedule to run out at the end of March.

While this is a necessary step in the overall recovery process, there will still be consequences to manage.

Even though we have been reminded that the Treasury is providing confidence boosting, the general “up in the air” condition of Fannie and Freddie combined with the loss of Federal Reserve MBS funding are expected to push mortgage rates higher. 

The timing of this move has increased nervousness about the outlook for housing. The Fed will be exiting the mortgage market just as the spring/summer home buying season is expected to pick up steam. Naturally, the question everyone wants addressed is:

HOW MUCH WILL RATES RISE?

Without going into servicing valuations and best executions options, mortgage rates are dependent upon the mortgage basis. The mortgage basis can be generally thought of as a guidance giver for mortgage rates. Rates will generally be a factor of:

1. The direction and movement of benchmark Treasury yields
2. The perception of risk in holding mortgage-backed securities as an investment (loss of principal investment)
3. Supply and Demand in the agency MBS market

Plain and Simple: the Fed’s asset purchases reduced interest rate volatility.  Lenders do not like interest rate volatility….less of it helps keep mortgage rates low relative to Treasury yields. Because the Fed is not planning on offloading their holdings anytime soon, interest rate volatility should remain low.

But do mortgage rates even matter ?

Yes they matter, but not as much as most think. Rates are low right now and many analysts are calling for higher rates in the near future…that should be boosting home buyer demand right now, before rates rise. Yet purchase demand continues to put along near 12 year lows. Low rates are not helping right now…will they make much of a difference in two months? While mortgage rates are easy to pin the blame on, the problem runs much deeper than borrowing costs. 

Housing needs qualified borrowers, its all about JOBS JOBS JOBS!

Mortgage Rates in ’10

After hitting an all-time low in early December, the average rate on a 30-year, fixed-rate mortgage rose to 5.05 percent this week and could climb to 6 percent by the end of 2010, if not sooner.

The key catalyst for interest rates going forward will be the end of a Federal Reserve program that buys a sizable chunk of mortgage-backed securities issued by firms such as Fannie Mae and Freddie Mac. That program succeeded in immediately pushing mortgage rates well below the 6 percent mark when it was announced last year.

But the Fed has committed to winding down the program by March. Interest rates are bound to rise to 6 percent by the end of 2010 because private buyers will demand a higher rate of return on the securities than the Fed did. Lenders may have to raise the rates they charge to consumers in order to make that happen.

Short Sales…will they become less of a headache?

The biggest mystery to me over the last eighteen months was why banks weren’t more receptive to the ‘short sale’ process. Studies have shown that it costs the bank more money if a property was foreclosed upon than if they accepted a ‘short sale’. For homeowners, a ‘short sale’ makes much more sense for several reasons:

• There is a much higher chance that the deficiency judgment could be negotiated in a short sale versus a foreclosure.

 • A short sale would have less of a negative impact on the homeowner’s credit rating.

• The homeowner would have at least some control over the timing of their relocation to new living arrangements.

• A ‘short sale’ would allow the homeowner to leave with dignity.

So, if it would be better for both the bank and the homeowner, why were more ‘short sales’ not completed? A recent research study by The National Consumer Law Center (NCLC) has uncovered the mystery behind this dilemma. In order to understand it, we must first look at the differences in the banking industry over the last ten years.

In the past, the banks used to process the loan (take the application, put together the file, etc.), lend you the money, and also service the loan (send the bills, make collection calls, follow-up, etc.). Over the last eight to ten years, the lending of mortgage money has shifted. First Wall Street and then the federal government became the primary lender in the mortgage sector. But, neither Wall Street nor the government had any interest in processing or servicing the mortgage. Mortgage companies continued to process the loans, but a new industry was created to fill the need for the servicing of these loans. So now, a separate and independent entity is servicing a tremendous portion of existing mortgages.

Just ten years ago, 37.4 percent of all mortgage loans were securitized (thus requiring a servicing company). Today, that number is 79.3 percent. The NCLC study shows that the reason more houses are not available for ‘short sales’ is because these servicing companies actually collected more fees for a foreclosure than they did for a ‘short sale’. Actually, the servicing company would lose money if they did a ‘short sale’. Since they were now in charge of making that decision, it was obvious why foreclosure was the alternative of choice.

The federal government realizing that modifications were not the answer and banks realizing that the foreclosure process was too expensive, have agreed to change the fee structure to make it more profitable for the servicing companies to lean toward ‘short sales’.

It’s always about the money. This situation was no different. Now that the money will flow to the companies that choose the ‘short sale’ alternative, watch how much easier the ‘short sale’ process will become.

Even with Abuse, please extend FTHB tax credit

The mortgage industry is still pressing forward with its lobbying efforts to extend the first time home buyer tax credit, despite new allegations from the Treasury Department that the program is being abused by some mortgagors. Industry lobbyist Howard Glaser who works with the Lenders One Alliance said Friday that FTHB fraud is “inexcusable” and “the IRS must do a better job” but noted that extending the tax credit for several more months is critical to the nation’s economic recovery. A former Housing and Urban Development attorney, Mr. Glaser told CNBC that “if we pull the plug now we pull the plug on the recovery.” The Treasury inspector general for tax administration found that 19,300 people claimed $139 million in deductions on their tax returns before actually purchasing a home. (The FTHB law requires that the home purchase must take place before the deduction can be granted.) Also, $500 million in credits may have been granted to home buyers who already owned a house at least once.

The Future of the 8K Tax Credit

Will the $8,000 homebuyer tax credit be extended, or possibly even expanded?

Maybe… Or maybe not. It’s politics after all.

Currently there are FIVE bills flitting about Washington, D.C. that would, assuming they are signed into law, either extend or expand the currently existing $8,000 homebuyer tax credit due to end on December 1, 2009.

Senator Johnny Isakson (R-GA) introduced Senate Bill S1230 – the Home Buyer Tax Credit Act of 2009 – on June 10. Senator Isakson created the original $15,000 homebuyer tax credit that morphed into the current $8,000 first-time homebuyer tax credit that became law when the Stimulus Bill was passed. This bill proposes a non-refundable tax credit up to $15,000, that can be split equally over two years, for all primary residence purchases – not just purchases by first time home buyers. The bill has been referred to the Senate Finance Committee for further debate. It has 12 cosponsors, notably including Senator Chris Dodd (D-CT), the Senate Banking Committee Chairman. It would expire one year after enactment.

Representative Kenny Marchant (R-TX) introduced House Bill HR 2619 on May 21.  This proposes to extend the existing $8,000 tax credit to July 1, 2010 and adds provisions for a tax credit of up to $3,000 for homeowners who refinance. This bill has been referred to the House Ways & Means Committee for further debate. There are currently no cosponsors.

Representative Eddie Bernice Johnson (D-TX) introduced HR 2606 – the Home Buying Credit Expansion Act – on May 21. This bill proposes to remove the first-time homebuyer requirement (allowing all principle residence purchases to qualify for a tax credit) as well as extends the bill through Jan 1, 2010. It has one cosponsor (Rep Timothy Bishop D-NY) and has been referred to the House Ways & means Committee.

Representative Howard Coble (R-NC) introduced HR 2801 – the Home Ownership Move the Economy (HOME) Act – on June 10. From the Department of Redundancy Department, this bill appears virtually identical to Rep Johnson’s in that it opens the tax credit up to all primary residence purchases and extends the credit to Jan 1, 2011. It has no cosponsors yet and has also been referred to the House Ways & Means Committee.

Representative Dan Burton (R-IN) introduced HR 2655 on June 2. It has picked up six cosponsors, four Republicans and two Democrats. It joins its cousins in the House Ways & Means Committee and also eliminates the first time home buyer requirement while extending the credit to Jan 1, 2011.

What does all this mean?

I am clearly not a political analyst. It is apparent however, there is interest in extending the existing home buyer tax credit. Why there are three virtually identical bills proposed escapes me. Perhaps it’s a power play where Congressmen want their name attached to the bill. Power plays in D.C. – hard to imagine isn’t it?

Isakson’s Senate Bill proposes the most sweeping changes. Given that it is virtually identical to the original tax credit provisions in the Stimulus Bill, I think this one is going to have a rough road to passage. It was previously passed in the Senate, but the House squelched it. Seems they could just as easily do that again given the current makeup of the House.

The four bills in the House are all quite similar. None propose increasing the credit from the existing $8,000 limit. It will be interesting to see if Marchant’s proposed $3,000 credit for refinances gains any traction. All of the proposals eliminate the first-time buyer provision, which seems to me to be a good thing to do. The NAR recently reported that 40% of current home sales were made by first time buyers. Of course that means 60% were not (not factoring in investors and second home buyers, which are not an insignificant source of home purchases).

Expanding the availability of the tax credit to non-first time buyers seems prudent. There are no current bills that propose extending the tax credit to investors or second home owners – all require the purchase to be a primary residence.

Will the existing $8,000 tax credit be extended or increased?

While it is purely speculation on my part, I think we’re likely to see the existing tax credit extended beyond its current end date of December 1, 2009 (to qualify currently, your home purchase must close on or before November 30, 2009). And we may just see the requirement that you be a first-time home buyer lifted. I’d be surprised if the $15K credit gets past the House, though it may clear the Senate – Dodd’s co-sponsorship will help in that regard.

Of course we’re talking about politicians in Washington, D.C. so who the heck really knows what (if anything) will happen. Do not, I repeat do not plan on the tax credit being extended/expanded based solely on my speculation!

We’ll be watching these bills closely and will report when, or if, they make it out of Committee. Remember your High School civics class – the vast majority of bills die in committee…

9 Traps…for homebuyers to avoid

A systemized approach to the homebuying process can help you steer clear of these common traps, allowing you to not only cut costs, but also secure the home that’s best for you.

No matter which way you look at it buying a home is a major investment. But for many homebuyers, it can be an even more expensive process than it needs to be because many fall prey to at least a few of the many common and costly mistakes which trap them into either: paying too much for the home they want, or losing their dream home to another buyer or, (worse) buying the wrong home for their needs. A systemized approach to the homebuying process can help you steer clear of these common traps, allowing you to not only cut costs, but also secure the home that’s best for you.

9 Buyer Traps;  This report discusses the 9 most common and costly of these homebuyer traps, how to identify them, and what you can do to avoid them:

• Bidding Blind:  What price should you offer when you bid on a home? Is the seller’s asking price too high, or does it represent a great deal. If you fail to research the market in order to understand what comparable homes are selling for, making your offer would be like bidding blind. Without this knowledge of market value, you could easily bid too much, or fail to make a competitive offer at all on an excellent value.
• Buying the Wrong Home:  What are you looking for in a home? A simple enough question, but the answer can be quite complex.  More than one buyer has been swept up in the emotion and excitement of the buying the process only to find themselves the owner of a home that is either too big or too small.  Maybe they’re stuck with a longer than desired commute to work, or a dozen more fix-ups than they really want to deal with now that the excitement has died down.  Take the time upfront to clearly define your wants & needs.  Put it in writing and then use it as a yard stick with which to measure every home you look at.
• Unclear Title:  Make sure very early on in the negotiation that you will own your new home free and clear by having a title search completed.  The last thing you want to discover when you’re in the back stretch of a transaction is that there are encumbrances on the property such as tax liens, undisclosed owners, easements, leases or the like.
• Inaccurate Survey:  As part of your offer to purchase, make sure you request an updated property survey which clearly marks your boundaries.  If the survey is not current, you may find that there are structural changes that are not shown (e.g. additions to the house, a new swimming pool, a neighbor’s new fence which is extending a boundary line, etc.).  Be very clear on these issues.
• Undisclosed Fix-ups:  Don’t expect every seller to own up to every physical detail that will need to be attended to.  Both you and the seller are out to maximize your investment.  Ensure that you conduct a thorough inspection of the home early in the process.  Consider hiring an independent inspector to objectively view the home inside and out, and make the final contract contingent upon this inspector’s report.  This inspector should be able to give you a report of any item that needs to be fixed with associated, approximate cost.
• Not Getting Mortgage Pre-qualification:  Pre-qualification is fast, easy and free.  When you have a pre-approved mortgage, you can shop for your home with a greater sense of freedom and security, knowing that the money will be there when you find the home of your dreams.
• Contract Misses:  If a seller fails to comply to the letter of the contract by neglecting to attend to some repair issues, or changing the spirit of the agreement in some way, this could delay the final closing and settlement.  Agree ahead of time on a dollar amount for an escrow fund to cover items that the seller fails to follow through on.  Prepare a list of agreed issues, walk through them, and check them of one by one.
• Hidden Costs:  Make sure you identify and uncover all costs – large and small – far enough ahead of time.  When a transaction closes, you will sometimes find fees for this or that sneaking through after the “sub” – total – fees; such as loan disbursement charges, underwriting fees, etc.  Understand these fees in advance by having the lender project total charges for you in writing.
• Rushing the Closing:  Take your time during this critical part of the process, and insist on seeing all paperwork the day before you sign.  Make sure this documentation perfectly reflects your understanding of the transaction, and that nothing has been added or subtracted.  Is the interest rate right? Is everything covered? If you rush this process on the day of closing, you may into a last minute snag that you can’t fix without compromising the terms of the deal, the financing, or even the sale itself.

Enjoy the biggest purchase of your life!!!

Why now?…..here’s why

Anyone looking to buy, move-up or refinance, MUST do it before the spring. Let me explain why I feel this way. Banks are not currently in the business of lending money to home purchasers. Why? Because, with all the risk associated with mortgaging and with inflation looming why would anyone make a 30 year loan at 5%? So banks, for sometime now, have been content to just collect the up-front fees associated with the loan and the processing fees associated with servicing the loan (billing, collection, etc.). The actual loan is financed by the government who has been willing to make loans at a lower rate in part to help stabilize the economy.

Well, the Fed announced last week that they will no longer be buying those mortgages after March of 2010.

Once the government stops purchasing mortgage-backed securities and banks are forced to make the loans, rates will rise. History tells us that once they start to rise they will do so quickly and dramatically.

Again, if you are going to buy, move-up or refinance, DO IT NOW!

Cash for Clunkers…..actually worked…huh?

A vehicle getting 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline.   A vehicle getting 25 mpg and 12,000 miles per year uses 480 gallons a year.   So, the average Clunker transaction will reduce US gasoline consumption by 320 gallons per year.   There were approximately 700,000 vehicles sold in the program – so that’s 224 million gallons per year.    That equates to saving a bit over 5 million barrels of oil per year. I repeat—per YEAR.  5 million barrels of oil is about ¼ of one day’s US consumption.  And, 5 million barrels of oil costs about $350 million dollars at $75/bbl.

Our Government “gave” each Clunker Trader $4,500 per car for 700,000 transactions which cost US Taxpayers $3,150,000,000–not including Washington’s astounding administrative costs. So, we all contributed through our taxes to spend more than $3 billion to save $350 million.

But, we did save $350 million.