Weak Economic Data Bringing Rates Down

“Interest rates for 30-year fixed-rate mortgages fell for the second week in a row to the lowest level in six weeks amid market concerns over a weakening labor market,” said Frank Nothaft, Feddie Mac vice president and chief economist. “The economy lost 467,000 jobs in June, more than the market consensus, and the unemployment rate rose to 9.5 percent, the highest since August 1983. Moreover, hourly employee wages increased at an annual rate of 0.7 percent on average in the second quarter of 2009, the smallest gain since records began in 1964.

“The weak employment situation coupled with falling home values is adding to greater defaults on home equity loans and lines of credit. The American Bankers Association reported that the number of home equity loans that were 30-days or more delinquent rose to a record high of 3.52 percent in the first quarter and home equity lines of credit also reached a record of 1.89 percent. For comparison sake, such loans totaled $1.1 trillion outstanding in the first quarter of 2009, representing nearly 10 percent of all home mortgage debt, according to the Federal Reserve Board.”

Find out HERE if your loan is owned by Fannie or Freddie

There are amazing refinance opportunities at my fingertips for many clients who would otherwise not qualify for today’s great rates.  This is part of the Economic Stimulus plan that is actually helping plenty of my clients to save money at a time when every penny counts.  One major factor is to find out if Fannie Mae or Freddie Mac owns your current first mortgage by using these simple online search tools.

To see if  FANNIE MAE owns your loan click on this link;

http://loanlookup.fanniemae.com/loanlookup/

To see if FREDDIE MAC owns your loan click on this link;

https://ww3.freddiemac.com/corporate/

Please contact me with the results you find and with any questions you may have.  This may be a great opportunity to save plenty of money by using our Government-Sponsored mortgage relief programs.

For more information read these previously posted articles;

Stimulus Refi’s to 125% Loan-to-Value

Brokers Now Offer Stimulus Refi’s With Freddie Mac Loans

Excerpt from previous post in March 2009…

President Obama’s eagerly anticipated foreclosure prevention program went into effect. It targets 9 million borrowers for help – are you one of them?

The $75 billion effort, dubbed the Homeowner Affordability and Stability Plan, boils down to two basic solutions:

First, the government is aiming to help more homeowners refinance their first mortgages into new low interest rates.  Second, it provides incentives to lenders and servicers to restructure your mortgage to more affordable levels.
Help for those seeking refinancing

This part of the program targets borrowers who have kept current on their mortgages. Many in this group have been unable to lower their housing costs through refinancings because of falling home prices.

Right now, if you’re “underwater” on your mortgage, meaning you owe more than the home’s market value, forget about qualifying for a refi. In fact, having 20% or less equity in your home makes refinancing almost impossible, unless you’re using an FHA loan or qualify for Mortgage Insurance which is harder to qualify for than the loan itself.

The new guidelines should help. Even homeowners with a mortgage that exceeds home value by 125% could be eligible, even if another 2nd mortgage exists on top of this figure. And there will be no prepayment penalties. But your loan must be owned by Fannie Mae or Freddie Mac.

Since lenders working with Fannie and Freddie already have most of the borrower documentation they need, the refinance process should go quickly. And, in some cases, lenders may not need to reappraise properties because borrowers cannot take cash out on these transactions; they’re only allowed to refinance the balance they owe.

The Administration estimates that this program, which will be in effect until June 2010, will help 5 million homeowners.

All borrowers will have to prove they have sufficient income to be able to keep up their loan payments and credit scores play a critical role in determining the rate you will receive.

Mortgage Rates Lower as Fed’s Plan Remains

July 2 (Bloomberg) — Mortgage rates in the U.S. fell this week, easing concern that a Federal Reserve plan to lower the cost of home loans had lost momentum.

The average 30-year rate dropped to 5.32 percent from 5.42 percent, mortgage buyer Freddie Mac of McLean, Virginia, said today in a statement.  (Note: Our rates generally float .25% or more LOWER than national average!)  The average 15-year rate was 4.77 percent.

“We’re back to where we were a month ago,” said Donald Rissmiller, chief economist at New York-based Strategas Research Partners. “This is almost an ideal report given that rates aren’t moving much in either direction and if you’re a policy maker, you’ll take that for now.”

Federal Reserve Chairman Ben S. Bernanke is trying to lower borrowing costs with a $1.25 trillion program to purchase securities backed by home loans. He’s trying to combat the almost four-year housing slump that contributed to the global credit crunch and cost the world’s financial firms almost $1.5 trillion, according to data compiled by Bloomberg.

The Fed last week left the size of its buying program intact and kept the benchmark rate for federal funds at between zero and 0.25 percent. The rate will stay at “exceptionally low levels” for an “extended period,” the Federal Open Market Committee said in a statement June 24.

Mortgage rates reached a record low 4.78 percent twice in April after the central bank announced its plan to boost buying of both mortgage securities and Treasuries.

Those purchases brought down yields on government debt and mortgage-backed bonds issued by Fannie Mae, Freddie Mac and Ginnie Mae, allowing lenders to reduce rates on new loans and still sell the securities at a profit.

Inflationary Pressure

Mortgage rates started climbing in May along with Treasury yields as investors became concerned that more government debt being sold to fund federal spending would fuel inflation.

Yields on Treasuries gained enough last month to become more attractive to investors than assets including high-grade corporate bonds, Dan Gertner, an analyst at New York-based Grant’s Interest Rate Observer, said in an interview yesterday. That helped fuel a rally that led to yields declining and prices rising, he said.

Foreign investors have also “shown no loss of appetite for buying U.S. Treasuries” and weak economic data have spurred the rally since mid-June in the Treasury market, Gertner said.

Pending home resales increased 0.1 percent in May, following a 7.1 percent rise the prior month, the National Association of Realtors said yesterday.

It’s Official: Stimulus Refi’s Now Allow 125% Financing!

WASHINGTON – U.S. Housing and Urban Development Secretary Shaun Donovan today announced an expansion of the Obama Administration’s Home Affordable Refinance Program to include participation by borrowers who are current but up to 125 percent underwater on their mortgage. Under authorization provided by the Federal Housing Finance Agency, borrowers whose mortgages are currently owned or guaranteed by Fannie Mae and Freddie Mac will now be allowed to refinance those loans according to the terms of the Home Affordable Refinance program established earlier this year.

Secretary Donovan made the announcement while touring a neighborhood in Las Vegas with Senate Majority Leader Harry Reid (D-NV) and Congresswoman Dina Titus. Las Vegas leads the nation in foreclosures and approximately 67 percent of the current mortgage holders have mortgages that are higher than the worth of their homes.

“I am pleased Secretary Donovan accepted my invitation to come to Nevada and see firsthand the challenges homeowners here are facing,” Senator Reid said. “His announcement that the loan-to-value requirement for the Administration’s refinance program has been raised to 125 percent is good news for anyone fighting to stay in their homes.”

“This decision is part of our ongoing efforts to maximize the effectiveness of the Making Home Affordable program and adapt to an ever-changing housing market,” said Treasury Secretary Tim Geithner. “By expanding refinance eligibility, we can bring relief to more struggling homeowners more quickly. It’s a crucial step in our broader efforts to get America’s housing market and economy on the path to recovery.”

Currently, only those borrowers whose first mortgage does not exceed 105 percent of the current market value of the property are eligible for the Obama Administration’s Home Affordable Refinance Program. For example if the property is worth $200,000, the borrower must owe $210,000 or less. Today’s announcement will allow more homeowners to become eligible for the program, by increasing the eligibility to 125 percent.

Click on this link to find out if Freddie or Fannie owns your loan;

http://straightforwardfinancial.wordpress.com/2009/07/06/525/

H.R. 3044 to Place 18-Month Moratorium on Current Appraisal Nightmare Process

McLean, VA – June 26, 2009 – Last night, Representatives Childers (D-MS) and Miller (R-CA) introduced legislation calling for an 18 month moratorium on the Home Valuation Code of Conduct (HVCC). The National Association of Mortgage Brokers (NAMB) applauds the introduction of H.R. 3044. NAMB would like to thank Representative Childers (D-MS) and Representative Miller (R-CA) for their continued efforts and leadership on this issue.

“The introduction of this legislation is a victory for consumers and members of the industry alike,” said NAMB President Marc Savitt, CRMS. “We thank Congress for recognizing the need to address the issue of appraiser coercion without causing undue harm to borrowers or diminishing competition in the marketplace.”

NAMB has taken an active stance against the HVCC since its introduction in March of 2008. “We urge Congress to pass H.R. 3044 as soon as possible to ensure that more borrowers will not be negatively impacted by this de facto rule,” stated Savitt. “In the period of time since its implementation, the HVCC has increased costs to consumers and decreased the quality of appraisals and has provided a level of uncertainty in an ailing housing market. Tens of thousands of consumers have already been robbed of their opportunity to enjoy historically low rates by Attorney General Andrew Cuomo’s rule.”

NAMB looks forward to working with Members of Congress as this legislation progresses.

Housing Rebound Barely Continues, Complications Impede Recovery

NEW YORK (CNNMoney.com) — Home sales continued their modest upward swing in May, according to a closely watched industry report that rose for the fourth straight month for the first time in nearly 5 years.

The Pending Home Sales Index, reported Wednesday by the National Association of Realtors (NAR), rose 0.1% during the month. The index was up 6.7% compared with May 2008. It was the first four-month run up in the pending sales measure since October 2004

Industry prognosticators had forecast no growth at all in the index for the month, according to Briefing.com, expecting it to settle back after ramping up 6.7% in April.

But the rise in sales contracts may not yield a like increase in completed sales, according to Lawrence Yun, chief economist for NAR.

“Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions,” he said.

Many industry insiders have complained that home appraisals are being too often based on values of foreclosed properties, which sell for significantly less than the homes of ordinary sellers.

The banks that have repossessed the foreclosed homes are anxious to sell and accept offers at large discounts than comparable homes not in foreclosure.

“We see that distressed homes often are selling for 20% less than normal homes in the same area, but some appraisals don’t distinguish between traditional homes and distressed property,” said NAR President Charles McMillan, a broker in Dallas-Fort Worth.

Overall, home sales are still slow, about a third below the peak years of 2005 and 2006.

The market will probably not rebound very fast, according to Robert Dye, a senior economist with PNC Financial Services, the Pittsburgh-based bank

“[The May number] is not a robust indicator of future market expansion,” he said. “Taken with the April number, it points to a gradual but slow recovery.”

One factor favoring a rebound is lower home prices. NAR’s Housing Affordability Index remains near historic highs, although it declined in May to 171.6 from 178.8 a month earlier, mostly due to higher interest rates. April was the high point for the index, which dates back to 1970.

“Under these conditions the typical family would devote only 14.6% of gross income to mortgage principal and interest, which is one of the lowest percentages on record,” said Yun.

“If rates hadn’t crept up, we may have seen a better number [for the May index],” said Dye.

Still, many other economic factors are decidedly negative, pointed out Dye. Consumer confidence is low, unemployment is up and prospects for more layoffs, work furloughs and slashed hours high.

“Market conditions are still poor,” he said.

Freddie Mac to Finally Allow Brokers to Offer Stimulus Refi’s

I’ve been busy helping people obtain sub 5% rates on Economic Stimulus Refi’s which have saved clients hundreds of dollars a month from their previous rate, sometimes without appraisals, and when no other opportunites existed in our tight Lending industry.  But up until now Brokers have only been allowed to help clients whose loans are owned by Fannie Mae.  Now Freddie Mac is finally realizing that Brokers play an important role in our Nation’s housing recovery process by offering and informing our clients of the best options available to them.  Freddie Mac will have their “Open Access” programs open to Brokers quite soon so be prepared and make sure you get your file started so that you can LOCK in the lowest rates when they come back down again!

Here is a preview of the upcoming changes for Freddie Mac’s Making Home Affordable refinance program;

Previewing Requirements for Relief Refinance Mortgage – Open Access To make Relief Refinance Mortgages more broadly available in the market and give borrowers more choices when refinancing, we are previewing the new Freddie Mac Relief Refinance Mortgage – Open Access. We are in the process of finalizing our requirements for this offering and will be communicating detailed origination requirements and an effective date for Freddie Mac settlements in a future Guide Bulletin. The Relief Refinance Mortgage – Open Access will permit LTV ratios up to 105 percent, unlimited TLTV/HTLTV ratios, and relief from standard mortgage insurance requirements. All Freddie Mac Seller/Servicers, regardless of whether they are the Servicer of record for the mortgage being refinanced, will be eligible for the Relief Refinance – Open Access option. The Relief Refinance Mortgage – Open Access will require full underwriting and the new refinance mortgage must meet all of Freddie Mac’s eligibility, underwriting and documentation requirements. Additional requirements for the Relief Refinance Mortgage – Open Access will include: Allowing the new refinance mortgage to be assessed through Loan Prospector (Freddie’s Automated System) Requiring a full interior/exterior appraisal for the new refinance mortgage. Please note that use of Home Value Explorer® point value estimates will not be permitted with the new Relief Refinance Mortgage – Open Access. Allowing the lesser of 4 percent of the new refinance mortgage amount or $5,000 of closing costs, financing costs and prepaids/escrows to be rolled into the new refinance mortgage. Cash back to the borrower may not exceed $250.

Rates Improving From 7-Month High Spike! Don’t Miss Out!

After two weeks of steadily increasing mortgage rates, from the mid 4’s to the mid 5’s, volatility in the mortgage market has shown signs of stabilization. Last week mortgage rates topped out near 5.625% before a late week Mortgage-Backed Securities market improvement allowed lenders to lower the par 30 year conventional fixed mortgage rate closer to 5.25%. This week begins with MBS trends continuing to indicate that mortgage borrowing costs should continue to moderate.

The foundation for how mortgage rates are generated is built upon trading in the secondary mortgage market, specifically mortgage backed securities(MBS).  If investor demand for MBS is high, prices are generally moving higher which helps mortgage rates tick lower.   If investor demand is weak for MBS, that drives prices lower, which increases mortgage rates.   Investor demand is determined by their perception of the overall economy and the gyrations for the yield curve.  If investors believe the economy is strong and growing, they tend to move their funds into higher yielding stocks as a growing economy tends to lead to higher corporate profits and higher returns for their investment dollar.  When our economy is struggling, investors tend to move their money into safer lower yielding investments such as MBS and treasuries to avoid losing money by holding stocks.  During a struggling economy, corporate profits tend to decrease or disappear thus the flight into safer assets.  Investors make their investment decisions based on many factors including economic reports which are released almost on a daily basis

Additional $10k California Home Purchase Tax Credit Running Out

(CNNMoney.com) — Time is running out for California residents wanting to take advantage of a $10,000 tax credit. The state set aside $100 million to help home buyers purchasing newly built homes, hoping to jump start the moribund residential-construction market. But only about 20% of the pot is left.

“We’re less than four months into it, and all the tax credits authorized are gone, or practically gone,” said Tim Coyle, a senior VP with the California Building Industry Association (CBIA).

The program launched in March and by June 3 nearly $24 million in tax credit certificates had already been issued, according to the state’s Franchise Tax Board.

That leaves nearly $76 million in credit available – but there are already numerous claims on that money. In fact, if all the submitted applications are approved, only $17.5 million will be left in the fund. And it has a run rate of about $10 million per week.

“The program is working better than intended,” said Coyle. “It’s really pushing people off the fence.”

How it works

0:00 /2:47Mortgage rates tick back up// <![CDATA[//

The credit is available on a first-come first-served basis and was supposed to last through March 2010. Almost any newly built home qualifies, as long as it’s an owner-occupied, principal residence on which property tax is paid. It could be a single-family home, a condo, a coop, a manufactured home or mobile home — even a houseboat. Only owner-built housing does not qualify. There is no cap on the home price or buyer’s income.

The credit reduces taxes dollar-for-dollar up to $3,333 a year for three years, or 5% of the purchase price of a home, whatever is less. Unlike the federal first-time homebuyers tax credit, which is $8,000 or 10% of the home price, whichever is less, the California credit is not refundable. That means the credit will only wipe out taxes up to the full amount paid or owed but no more.

For example, if the buyer’s tax bill came to $2,000 for the year, a buyer claiming the full $3,333 would owe nothing but couldn’t claim the extra $1,333 back from the state.

First-time, new-home buyers in California can claim both the federal credit and the state if they qualify. That could reduce taxes by $11,333 for the first year of ownership.

More money coming?

Because the money has gone so quickly, the state legislature is considering adding another $200 million to the program. That may be difficult to accomplish right now, however: The state is worse than flat-broke; it’s running a $24 billion budget deficit and has the lowest bond rating of any state.

But Coyle argues that the credit is a net win for state coffers and it puts people to work. “Every time you build a home in California, you’re generating $16,000 in taxes,” he said.

During the boom years, developers were building about 200,000 housing units annually and supported about a half million jobs. Now, only about 50,000 new homes will go up this year and industry employment has shrunk to a fraction of its peak. From 2006 to 2007 alone, industry employment dropped by about 220,000 jobs, according to the CBIA.

Passage of an extension of the program has a good chance, according to Assemblywoman Anna Caballero (D-Salinas), who supports a new bill that already won Assembly approval and has gone to the state Senate.

There has been little opposition, she said, but the program has to be “revenue neutral,” which could limit how much is made available as funds would have to be cut from other areas to pay for it.

There is also one big change from the original offering: People buying homes under construction – not just those already finished – will qualify, which should help put projects back on track.

“It creates a reservation system that was absent in the first bill,” said Caballero. “Buyers only received a credit when they closed escrow. Now, they would get it with a signed contract.”

“Contractors in Southern California were reporting no housing starts last January,” she added. “Now, they have new crews out on the job. That’s significant for California.”

The Option ARM Problem Starting To Surface

June 11 (Bloomberg) — Shirley Breitmaier’s mortgage payment started out at $98 when she refinanced her three-bedroom home in Galt, California, in 2007. The 73-year-old widow may see it jump to $3,500 a month in two years.

Breitmaier took out a payment-option adjustable rate mortgage, a loan popular during the housing boom for its low minimum payments before resetting at higher costs later.

About 1 million option ARMs are estimated to reset higher in the next four years, according to real estate data firm First American CoreLogic of Santa Ana, California. About three quarters of those loans will adjust next year and in 2011, with the peak coming in August 2011 when about 54,000 loans recast, the data show.

Option ARM borrowers hit with unaffordable monthly payments are another threat to the housing recovery and the economy, said Susan Wachter, a professor of real estate finance at the University of Pennsylvania’s Wharton School in Philadelphia. Owners who surrender properties to the bank rather than make higher payments for homes that have plummeted in value will further depress real estate prices and add to the inventory of properties on the market, she said.

“The option ARM recasts will drive up the foreclosure supply, undermining the recovery in the housing market,” Wachter said in an interview. “The option ARMs will be part of the reason that the path to recovery will be long and slow.”

Option ARM recasts will mean more pain for California, the state with the most foreclosures in the U.S.

More than $750 billion of option ARMs were originated in the U.S. between 2004 and 2008, according to data from First American and Inside Mortgage Finance of Bethesda, Maryland. California accounted for 58 percent of option ARMs, according to a report by T2 Partners LLC, citing data from Amherst Securities and Loan Performance.

Option ARMs typically recast after five years and the lower payments can end before that time if the loan balance increases to 110 percent or 125 percent of the original mortgage, according to a Federal Reserve brochure on its Web site.

Refinancing is impossible in many states given the nationwide drop in prices. Mortgage rates are also rising. The average 30-year rate jumped to 5.59 percent in the week ended June 11 from 5.29 percent a week earlier, Freddie Mac said today. In California, the median existing single-family home price dropped 37 percent in April to $256,700 from a year earlier, according to the state Association of Realtors.

“Once you start amortizing that loan, the payment is going to shoot up,” said David Watts, a London-based strategist with research firm CreditSights.

The delinquency rate for payment-option ARMs originated in 2006 and bundled into securities is soaring, according to a May 5 report from Deutsche Bank AG. Over the past year, payments 60 days late or more on option ARMs originated in 2006 have almost doubled to 42.44 percent from 23.26 percent, Deutsche Bank said. For 2007 loans, the rate has climbed from 10.1 percent to 35.25 percent.

“We’re already seeing much higher levels of delinquencies of these option ARM loans even before you reach the point of the recast,” said Paul Leonard, the California director of the non- profit Center for Responsible Lending.

The threat of soaring payments has counselors at Housing and Economic Rights Advocates busy.

“There’s a level of hopelessness to the phone calls now,” said Brown.

Even Geithner’s House Couldn’t Be Sold

NEW YORK (CNNMoney.com) — Treasury Secretary Tim Geithner is struggling to unload his million-dollar manse located in a posh New York City suburb. And like so many other Americans, he’ll probably lose money on it when he does.

Geithner and his wife Carole put their 5-bedroom Tudor-style home in Larchmont, New York on the market for $1.635 million in February, just days after he was tapped by the Obama administration to help lead the nation out of the worst economic crisis in a century.

The Geithners paid a premium for the house when they bought it in 2004, plunking down $1.601 million after a bidding war. The “exquisitely renovated” home was originally built in 1931, according to a listing for the 0.2 acre property.

“When the house first went on sale it was very evident that he was not going to get what he paid for it,” said Scott Stiefvater of Stiefvater Real Estate in Pelham, N.Y. “He was [bound] to lose some money.”

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It’s a familiar story as the housing crisis unfolds across the country. Indeed, after Geithner’s house sat unsold for nearly 3 months, the price dropped to $1.575 million. Still there were no takers, so Geithner listed it as a rental for $7,500 a month, and has since found a tenant.

But it’s unlikely that even such a steep rent will be enough to cover the mortgage, in addition to the $27,000 in annual property taxes. Of course, no one should feel too badly about watching Geithner take a loss. As Treasury Secretary he’s earning $191,300.

Meanwhile, home prices have plummeted 32.2% nationwide since the height of the housing bubble in July 2006 according to Case-Shiller. And millions of other homeowners who bought at the top of the market now find themselves unable to sell or refinance their way out of crushing monthly housing payments.

In April, home sales sank 36% year-over-year in New York’s Westchester County, according to the New York State Association of Realtors. But many homeowners are still refusing to lowering their prices, said Miriam Bernstein, an associate broker at RE/MAX Prime Properties in Scarsdale, N.Y.

The median sales price for a single-family home in the area was $570,000 in April, down 10% from $635,000 a year ago, while the median price actually increased 12% in April versus March.

Stiefvater said many Larchmont homeowners, like Geithner, are trying to rent out their homes while they wait for housing prices to bounce back.

“For now, [many] have the financial wherewithal to wait it out,” Bernstein said. “Eventually, the people sitting on the sidelines are going to have to sell.”

Federal DownPayment Assistance Using Stimulus Tax Credit Now Available

NEW YORK (CNNMoney.com) — First-time homebuyers will now have access to quick cash to help them with their down payments.

On Friday, the U.S. Department of Housing and Urban Development (HUD) announced that first-time homebuyers using FHA-approved lenders can now get an advance on the $8,000 tax credit created by the stimulus package and apply it toward their down payments or closing costs.

“We believe this is a real win for everyone,” said HUD secretary Shaun Donovan in a speech before the National Association of Homebuilders (NAHB). “Families will now be able to apply their anticipated tax credit toward their home purchase right away. What we’re doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing.”

As part of the stimulus package, Congress created a refundable first-time homebuyers tax credit in hopes of helping on-the-fence buyers to take the home-purchase plunge. But buyers couldn’t collect the $8,000 credit until tax time, rather than at closing time — when it’s needed.

The delay created an obstacle to reigniting the housing market because most first-time buyers — the ones who would buy much of the available inventory — have only saved enough to cover 4% of the purchase price, according to the National Association of Realtors.

The mechanics of the new program, according to NAHB economist Robert Dietz, allow lenders to purchase tax credits from the buyers and then collect the rebate from the IRS.

The initiative also authorized similar programs already offered in Colorado, Missouri, New Jersey, Pennsylvania, Tennessee, Washington and other states. To quickly infuse cash into their housing markets, the housing finance authorities in these states created bridge loans to allow buyers to borrow against the $8,000 credit and then repay it with their tax refunds.

The first state to launch such a plan was Missouri, which rolled out its Missouri Housing Development Commission Tax Credit Advance Loan program on January 14 — a month before Congress approved the stimulus package. Since then, Missouri has approved applications by more than 360 borrowers and closed on 166 of them.

Lamar Cherry and his wife, Chrishanna, used the program to augment their down payment when they bought their home in Kansas City.

The couple purchased a four-bedroom, three-bath split-level home for $150,000, putting about 6% down. Much of that $9,000 came from the loan program, which they tapped so they wouldn’t have to drain their reserves.

“We had money saved up that we were going to use for the down payment,” said Cherry. “Now we can use some of that to buy some things we need for the house.”

At closing, the Cherrys, like all buyers in the program, signed for their first mortgage, plus a second mortgage issued by the state. The second note is good for 6% of the price of the home, up to $6,750; there is a $350 set-up fee, but no interest is charged if the debt is repaid by June 2010.

In Missouri, borrowers can only access $6,750 of the $8,000 credit for down payments. “We wanted them to have a cushion below that $8,000 in case other tax liabilities show up,” said Greg Spurgeon, the single-family homeownership administrator for the Missouri Housing Development Commission.

If borrowers don’t pay off the note, it becomes a 10-year fixed-rate mortgage with an interest rate one-half percentage point above that of their first mortgages. For example, borrowers paying 6% on their first mortgages would be charged 6.5% on the second.

So far, Spurgeon said, a significant proportion of participating homebuyers have repaid their loans. He expects most of the others to do the same before the deadline.

Cherry has claimed the federal tax credit on his 2008 taxes, but he hasn’t gotten his refund yet. He definitely intends to repay the loan before the 2010 deadline because, he said, not doing so would add about $75 a month to his house payments.

Real Estate Activity Increasing! Have We Reached Bottom?

May 27 (Bloomberg) — Home resales in the U.S. rose for the second time in three months in April as foreclosure auctions and cheaper prices spurred bargain hunters, buttressing the case for an end to the industry’s slump this year.

Purchases increased 2.9 percent to an annual rate of 4.68 million, in line with forecasts, from 4.55 million in March, National Association of Realtors figures showed in Washington. The median price slumped 15 percent from a year earlier, the second-biggest drop on record. A separate report indicated that the slump in home values eased in the first quarter.

“You will see more gains in home sales and some fading of weakness in coming months,” spurred by lower mortgage rates and cheaper sales prices, James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said in a Bloomberg Television interview.

A pick-up in sales will help trim the glut of unsold homes and eventually stem the slump in property values. That will be critical to shoring up household finances and spurring a recovery in residential construction, helping the economy emerge from its deepest recession in half a century.

The average price of a U.S. home fell 7.1 percent in the first quarter, slower than the fourth quarter’s 8.3 percent drop that was the largest on record, the Federal Housing Finance Agency said in Washington.

“Our latest data are consistent with growing evidence that housing market conditions may be stabilizing in some parts of the country,” FHFA Director James B. Lockhart said in a statement.

Distressed properties accounted for 45 percent of all existing-home sales, today’s NAR report showed. Economists forecast resales would rise 2 percent to a 4.66 million annual rate from a previously reported 4.57 million pace in March, according to the median of 72 projections in a Bloomberg News survey. Estimates ranged from rates of 4.47 million to 4.8 million.

Sales were down 3.5 percent compared with a year earlier.

Properties for Sale

The number of houses on the market climbed 8.8 percent to 3.97 million in April, reflecting the gains usually associated with this time of year, NAR said. At the current sales pace, it would take 10.2 months to sell those homes, up from 9.6 months in March.

Resales of single-family homes increased 2.5 percent to an annual rate of 4.18 million. Sales of condos and co-ops rose 6.4 percent to a 500,000 rate.

The gain last month was led by a 12 percent jump in the Northeast and a 3.5 percent gain in the West. Purchases also climbed in the South and fell in the Midwest.

Foreclosure filings in the U.S. rose to a record in April for the second consecutive month, Realtytrac Inc., a seller of foreclosure data, said May 13, as the jobless rate climbed to its highest in more than a quarter century. Foreclosure filings jumped 32 percent from a year earlier, the group said.

Distressed Sales

The share of distressed sales last month was down from March, reflecting normal volatility, NAR said. First-time buyers accounted for about 40 percent of April sales, also down from March, the group said.

Still, “it’s a non-regular market in terms of so much distressed sales activity,” Lawrence Yun, chief economist of the agents group, said in a press briefing. The market is led by gains in sales of lower-priced properties, while there is “very little” activity at higher price points, Yun said.

Multiple bids are now common on foreclosure sales, while properties selling for $750,000 or more are taking 40 months to sell on a median basis, Yun said. Higher mortgage rates for jumbo loans are one reason for the disparity, he said.

The Obama administration’s stimulus plan provided an $8,000 tax credit for first-time home buyers for purchases completed before Dec. 1.

Lower mortgage costs are also helping to make buying more affordable. Rates on 30-year fixed loans fell to 4.78 percent in April, the lowest level since Freddie Mac began keeping records in 1972. Federal Reserve purchases of mortgage securities have contributed to bringing down rates, economists said.

Fed View

“The housing market is beginning to stabilize,” Fed Chairman Ben S. Bernanke said in congressional testimony on May 5. “We continue to expect economic activity to bottom out, then to turn up later this year.”

Some housing-related businesses are reporting an improved outlook. Lowe’s Cos., the second-largest U.S. home-improvement retailer, posted first-quarter earnings that fell less than analysts estimated.

“There have been some encouraging signs in recent weeks that suggest perhaps the worst is behind us,” Lowe’s Chief Executive Officer Robert Niblock said on a conference call May 18. “Consumer confidence has ticked up. Housing turnover, especially in certain markets, is showing signs of a bottom.”

Housing Crisis Brings Home Values Down 32% Off Peak Levels!

NEW YORK (CNNMoney.com) — The home price slide accelerated during the first three months of 2009, according to a report issued Tuesday.

The S&P/Case-Shiller National Home Price index, a bellwether of real-estate market direction, plunged a record 19.1% during the quarter compared with the first three months of 2008. That followed an 18.2% drop last quarter.

The Case-Shiller 20-city index dropped 18.7% year-over-year, also a record. It fell 18.5% during the last three months of 2008. This index has plummeted 32.2% from its July 2006 peak and has fallen 32 straight months.

The national index covers almost all homes sold throughout the United States and is reported quarterly, while the 20-city index reports sales in 20 major metro areas and represents a cross section of the national market. The 20-city index comes out every month.

“Declines in residential real estate continued at a steady pace into March,” said David Blitzer, chairman of the Index Committee at Standard & Poor’s in a prepared statement. “All 20 metro areas are still showing negative annual rates of change in average home prices with nine of the metro areas having record annual declines.”

The ugly report was somewhat unexpected, according to Mike Larson, a real estate analyst for Weiss Research.

“The market was anticipating better results,” he said. “There had been some signs of increased sales in post-bubble markets.”

But that sales increase has not translated into higher prices. Bargain hunting – bottom fishing really – for foreclosures and other distressed properties has driven sales volume up while further depressing prices.

The foreclosure sales, which many appraisers used to ignore when they evaluated home prices because they represented outliers rather than typical sales, now have to be accounted for.

“These used to be anomalies,” said Larson. “Now, when sales are dominated by foreclosures, where they represent 50% or more of [transactions], they are the market.”

The market plague has burst far beyond its Sun Belt epicenter, as the latest month’s data reveals. In March, Minneapolis recorded the largest monthly price loss of any metro area in the 20-city index, losing 6.1% compared with February. That is the biggest single-month decline for a city in index history.

Sun-Belt cities still had the largest year-over-year declines in March, with Phoenix prices down 36%, Las Vegas off 31.2% and San Francisco dropping 30.1%.

Two cities have now have fallen more than 50% from their peak prices: Phoenix is down 53% since June 2006 and Las Vegas is off 50.4% from its August 2006 high. Dallas prices suffered the smallest loss from peak, just 11.1% since June 2007.

Economist Mark Zandi, the founder of Moody’s Economy.com, is optimistic that the market will stop falling sometime this summer or fall. “We need to focus on the mortgage-modification program,” he said. “If that plan doesn’t work or only works as well as the other modification programs have, we’ve got a problem.”

Freddie Mac & Fannie Mae Still Hurting, Tough Times Ahead

NEW YORK (CNNMoney.com) — Fannie Mae and Freddie Mac, charged with helping lead the nation out of its housing crisis, are facing “critical” financial problems, federal regulators said Monday.

The companies suffer from severe financial, operational and compliance weaknesses, the Federal Housing Finance Agency said a report to Congress detailing its annual examinations of the firms. Taken over by the government in September, Fannie and Freddie are not able to operate without federal assistance.

“With new senior management teams, each enterprise has made strides in remediating problems,” the agency said. “But they still face numerous significant challenges including building and retaining staff and correcting operational and credit management weaknesses that led to conservatorship.”

Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) play a vital role in the national housing market, accounting for a combined share of 73% of mortgage originations in the second half of 2008. They also serve central roles in the Obama administration’s foreclosure prevention plan.

To continue functioning, the firms have drawn down about $60 billion of their combined $400 billion lifeline from the federal government. Fannie reported a $23.2 billion quarterly loss and Freddie a $9.9 billion quarterly loss earlier this month.

One hurdle to putting Fannie and Freddie back on firm financial footing is the many vacancies in their executive ranks. Hiring has been slowed by compensation concerns, the agency said.

While the housing meltdown prompted the companies’ near collapse in 2008, this year will also be difficult. Fannie Mae will face challenges as it works with servicers to help troubled borrowers and to manage and sell a growing inventory of foreclosed properties, the agency said. Freddie Mac, meanwhile, needs to improve its internal controls and find a chief executive officer.

“The problems of the last two years in the financial markets are slowly abating, but the challenges in the housing markets continue,” said James Lockhart, the agency’s director.

Help Save Honest Appraisers & Maintain Consumer Choice! Sign HVCC Petition Here!

The Home Valuation Code of Conduct (”HVCC”) stands to be an important step forward for consumers and the Real Estate industry, but in its current form there are some important changes that require your attention.

In its current form, Consumers have a great deal at stake as HVCC will not only require consumers to buy a new appraisal if they decide to change brokers or lenders, but will have to pay for longer rate locks as HVCC will extend the time it takes to close mortgage loans and deprive mortgage brokers and agents of the control that is fundamental in closing mortgage loans efficiently. Ultimately, this means costs are increased for consumers and there is less incentive for consumers to exercise their right to shop for the best deal when acquiring a mortgage as doing so requires purchasing an entirely new appraisal.

The HVCC is also discriminatory against mortgage brokers, appraisers, and real estate agents. The HVCC stands to eliminate independent Appraisers overnight by requiring them to join Appraisal Management Companies (AMC’s) in order to continue doing business. After joining an AMC appraiser will be disgorged of 40% or more of their income as a fee required by AMC’s. This not only means the end of the Independent Appraiser as we know them, but means that virutally half of Appraiser’s incomes will be shifted to unregulated entities, AMC’s.

HVCC has great potential, but only if careful consideration is given to the existing flaws that will only serve to hurt consumers, brokers, agents, and appraisers. We humbly ask for your help in helping HVCC live up to its true potential. Thank you.

Please Sign Secure Online Petition At This Link;

http://www.petitiononline.com/hvcc/petition.html

It’s A Great Time to Buy a Home!

NEW YORK (CNNMoney.com) — Is the housing meltdown ending?

Pending home sales rose in March for the second consecutive month and are up year over year. The Pending Home Sales Index from the National Association of Realtors showed a 3.2% gain to 84.6 from February, when it was 82. The index stands 1.6% higher than a year ago.

The consensus forecast of industry experts polled by Briefing.com had predicted no increase in the index.

It may still take a while before the market gains enough momentum to firmly state that the downturn has been reversed, according to Lawrence Yun, NAR’s chief economist. And, the upturn may have been boosted by the first-time homebuyers tax credit, a temporary measure that will lapse in December.

“We need several months of sustained growth to demonstrate a recovery in housing, which is necessary for the overall economy to turn around,” said Yun. “This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit, which increases buying power even more in areas where special programs allow buyers to use it as a down payment.”

The index is understood to be a forward indicator of home sales trends since it measures contracts signed, not completed sales. The up-tick may indicate that home prices have fallen low enough for buyers to get off the fence.

Feeling for the bottom

Yun is not calling a bottom yet, however, because the index is still at a relatively low level. Instead, he’s looking toward the summer selling season to determine what direction the market will take. Plus, he would like the number of homes on the market to drop to a more normal level of six to seven months of supply.

“If inventory goes down – it’s at just under 10 months now – to below eight months, that would mean we’re on the way to a sustainable recovery,” Yun said.

Anecdotal evidence indicates that trend may be happening. Realtors and other industry insiders are seeing rising open house attendance and multiple bids on some particularly desirable properties. Plus, pricing has become sharper, according to Sherry Chris, the CEO of Better Homes and Gardens Real Estate.

“Overpricing seems to be ending,” she said. “Properties are coming onto the market and selling quickly.”

And buyers are feeling a little more urgency, she added. In many markets, buyers have not felt any pressure to make an offer. “They said to themselves, ‘I don’t have to act immediately. It will still be on the market two weeks from now,’” she said.

Today, buyers are more likely to bid because they perceive the market as at or near its bottom. An April Gallup Poll reported that 71% of Americans thought it was a good time to buy a house.

They don’t, however, believe there will be price increases soon; three of four buyers think prices will stabilize or even decline in their areas over the next 12 months, according to Gallup.

Pat Newport, a real estate analyst for IHS Global Insight, is putting less emphasis on pending home sales than he once did for his housing market analyses. There has been a disconnect lately, he said, between the number of properties going into contract (pending home sales) and the number that actually close (existing home sales).

He speculates that this is because buyers are making offers and signing contracts but, because of financing problems, many deals are falling through.

Regional differences

The South saw the largest gain of any region, with pending home sales jumping 8.5%. Pending sales are 7.7% higher there compared with a year ago.

The Midwest gained 3.9% from February and 1.7% year-over-year. Northeast sales fell 5.7% and are off 24.1% compared with March 2008. The West dropped 1% for the month but are up 8.2% year-over-year.

Low home prices continued to help to drive sales, although NAR’s affordability index actually fell 2.3% from February, when it hit a historic high. This index is based on family income, home prices and mortgage rates.

“Compared to a year ago, the typical family can pay much less in mortgage costs for the same home, or buy a better home without necessarily increasing their monthly payment,” said NAR President Charles McMillan, in a prepared statement. “For buyers who’ve been on the sidelines and have good jobs, the market has never looked more favorable.”

Second Mortgages & HELOCs Get Stimulus Relief

WASHINGTON — The Obama administration on Tuesday will unveil a fresh set of incentives for mortgage servicers to help strapped homeowners, a senior administration official told Dow Jones Newswires.

Under a new program, the government will pay mortgage servicers $500 upfront and $250 a year for three years for successfully modifying a second mortgage, such as home equity loan.

Separately, the administration will unveil a schedule of incentives for holders of second mortgages to extinguish those liens voluntarily, the official said.

The administration will also announce a set of incentives for servicers and lenders participating in the Hope for Homeowners program, which aims to restore homeowners’ lost equity by encouraging lenders to write down loan principal.

The announcements, which will come jointly from the Department of Housing and Urban Development and Treasury, are expected updates on the administration’s plan to right the housing market. “We are tackling one of the challenges we recognized,” the official said.

The issue of second mortgages has been dogging policymakers ever since the onset of the foreclosure crisis. A large share of troubled borrowers also have a second mortgage on their home, which is typically owned by a different investor than the first mortgage. Such borrowers may not be able to afford their monthly payments if only the first mortgage is modified.

The administration’s effort on second mortgages is also aimed at soothing the concerns of investors, who have been crying foul over the Obama housing plan’s incentives for servicers. They argue the first mortgage shouldn’t be modified if the second one is left untouched. They also contend the banks that dominate mortgage servicing are conflicted because they own more than $400 billion of second mortgages. Such banks stand to gain from modifying the first mortgage because the second mortgage is more likely to be repaid once the homeowner is saved from foreclosure.

Some of the largest U.S. banks, including Bank of America, Wells Fargo and J.P. Morgan Chase, have already agreed to sign on to the program, the official said. The rest of the industry will be encouraged to participate.

Under the program, servicers must agree to modify all second mortgages where the first mortgage has already been modified. To qualify for payment, servicers must extend the term of the second mortgage and reduce the interest rate to match the first mortgage. Then, the government will share the cost with the servicer of reducing the rate down to 1% for amortizing loans and 2% for interest-only loans.

Borrowers will receive payments of up to $250 per year for as many as five years if they stay current on the loan. The payments will be applied to pay down principal on the first mortgage.

Changes to the Hope for Homeowners program are designed to place it in line with the taxpayer-assisted loan modifications. Launched last fall to help troubled borrowers refinance into more affordable government-backed loans, it has failed to gain traction due to onerous borrower requirements and the nagging problem of second liens.

The administration will announce Tuesday a $2,500 upfront payment to servicers that refinance borrowers into the program. Meanwhile, lenders that originate the new loans will receive $1,000 a year for three years, if the loans stays current.

Legislation to revamp the program is currently pending in Congress. Once those legislative fixes are made, HUD will work on creating a program to extinguish the second liens, the official said.

Refinancing in 2009…Tricky, But Worth It!

(Money Magazine) — On paper it seems like the perfect time to refinance. The average rate on a 30-year fixed mortgage recently hit a 20-year low when it fell below 5% in mid-March. And the Fed has said that it will spend $300 billion to buy back government-backed Treasury bonds; that will probably keep loan rates low for months to come. But wade into the mortgage market, and you may quickly feel as if you’re trying to grab a dollar in a game-show booth where the money is blowing around: Those ultralow rates are right in front of you, yet maddeningly elusive.

Lenders, grappling with deadbeat homeowners and shifting regulations, have pared back on mortgage products and upped credit requirements. Still, you have a good incentive to try: If you took out a mortgage two years ago, when rates were in the mid-sixes, you stand to drop your rate nearly two percentage points, saving almost $300 a month on a $300,000 loan. Here’s how to navigate the roadblocks.

Figure out if you qualify. Nowadays, credit score, income and equity are king. To land the best rates, you’ll probably need a credit score of at least 740, a stable job, and 20% equity. “Banks are looking for reasons not to lend you money,” says Mark Miskiel of Lighthouse Mortgage in Sedona, Ariz.

If you don’t have 20% equity, a refi isn’t out of the question – President Obama’s housing package allows homeowners who owe as much as 105% to receive government-backed loans. To qualify for that program, however, your original mortgage must be held by one of the government-sponsored entities, Freddie Mac or Fannie Mae; you must prove that you can keep up with payments; and you’ll get stuck with fees that tack 0.25% to 3% onto your rate.

Get rid of the HELOC. Home-equity loans and lines have become the enemy of would-be refinancers. Before you can close on a new loan, your home-equity lender must agree to “subordinate” the secondary loan (meaning that your primary lender will get repaid first in the event you run into financial trouble). That can add up to a month in the process, says Bob Moulton of the Americana Mortgage Group in Manhasset, N.Y. One way to speed up the process is to do a consolidation refi. And know that lenders add up to 0.25% to your rate to cash out the secondary loan.

Unfortunately, if you need a jumbo loan (typically above the conforming loan limit of $417,000, and in some high-cost counties the limit is $729,750), you can kiss those super-low rates goodbye. While jumbos normally run about half a percentage point higher than smaller ones, today the spread is a point and a half.

Pay a point upfront. A point, which equals 1% of your mortgage amount, typically buys you an eighth to a quarter of a percentage point drop in your rate. Today some overloaded lenders are knocking half a percentage point off for those who pay a point, hoping this extra initial cost will deter serial refinancers. If you’re planning to stay put for about five years, it may be worth it. Conversely, consider adding an eighth of a percentage point to your rate to lock it in for 45 days. Banks and lenders are putting a lot more effort into vetting applications, so it can take up to two months to close a loan, vs. about 30 days in the past; you don’t want to risk rates’ moving against you while you wait. The payoff for patience: a loan you can live with, for a very long time.

Not so long ago, having a pulse qualified you to take out a mortgage. These days lenders are vetting applicants with the ardor of a Senate committee grilling an AIG executive.

Waiting for Even Better Rates a Big Risk

(Bankrate.com) People in the mortgage industry say they hear from a lot of people who say they won’t refinance until mortgage rates fall to 4.5 percent or even 4 percent. Few lenders think rates will drop that low.

“It is ridiculous for somebody to hold out for 4 percent because there’s no evidence that we’re going to see that any time soon,” says Barry Habib, CEO of Mortgage Market Guide. It would be better, he says, to refinance now to take advantage of lower rates — and if rates unexpectedly drop even further, refinance again.

Another reason to act now, instead of waiting, is that lenders keep tightening their standards — and, at the same time, house prices are falling. The combination of more stringent lending and falling prices can push homeowners out of the category of people who are eligible for loans and into the category of people who are ineligible.

Here’s the most recent example: Until this month, the Federal Housing Administration would insure a loan for a cash-out refinance to 95 percent loan to value. “They just lowered that to 85 percent. That was a big change,” says Matt Hackett, underwriting manager for Equity Now.

The FHA will do a rate-and-term refi, in which the new loan is for the same amount as the balance on the old loan, for up to 97.75 percent loan to value.

For conventional loans — those not insured by the FHA — standards are tighter. Hackett says mortgage insurance companies won’t insure cash-out refinances. In most places, a rate-and-term refinance can go as high as 90 percent loan to value. In the few areas that aren’t defined as “declining markets,” people with good credit scores can refinance at up to 95 percent loan to value.

Home Sales Increase! Are We Nearing The Bottom?

WASHINGTON (Reuters) – Sales of previously owned U.S. homes rose at their fastest pace in nearly six years in February, data showed on Monday, providing some good news for the recession hit-economy.

Sales rose 5.1 percent in February to a 4.72 million-unit annual rate, notching their largest gain since July 2003, the National Association of Realtors said, but about 45 percent of the sales were foreclosure or short-sale transactions.

Economists polled by Reuters were expecting home resales to slip to a 4.45 million-unit pace, from the 4.49 million rate initially reported for January.

“Our analysis shows that distressed homes typically are selling for 20 percent less than normal market price, and this naturally is drawing down the median price,” said Lawrence Yun, NAR chief economist.

The median national home price declined 15.5 percent from a year ago to $165,400, the second biggest decline on record.

“Lower prices coupled with very low interest rates and an $8,000 tax credit are causing first-time home buyers to dive in,” said Bill Emerson, chief executive officer of Quicken Loans in Livonia, Michigan.

“While it’s good to see sales go up, it’s more important to see inventories go down. When that happens, only then can you start to talk about a housing correction,”

The inventory of existing homes for sale rose 5.2 percent to 3.80 million from the 3.61 million overstock reported in January. That represented a 9.7 month supply at the current sales pace, unchanged from January.

The housing market is at the core of the economic and financial meltdown that has triggered a collapse in asset prices, severely damaging household wealth. Stability in the housing market is seen as a key ingredient for the economy’s recovery from a recession that started in December 2007.

Fed’s $1.25 Trillion Mortgage Securities Commitment Does Little to Drive Rates Any Lower From the Historic Low Rates We Already Have

Lenders came out with good rate sheets on Wednesday afternoon after the Feds announced they’d purchase an additional $750billion in Mortgage Backed Securities, and the pricing for the most part was as good as a week prior, recovering our losses since. Consumers and loan officers flooded lenders with locks, but keep in mind that 2008 was a tough year on banks so they cut back on staff. With the flood of lock commitments, they cannot handle the volume, so to slow down submissions they increase rates. Not only this, but every day since Wednesday’s announcement mortgage backed securities have traded less than favorably for any re-pricings for the better due to other economic indicators and the emotions of the investors on any particular day.

Many consumers are under the impression that rates are going to 4.5% or lower, but I still do not see that happening anytime soon. I hope they do come down, but here are a few reasons why they are not dropping as we would like.  The current profit margins of the Lenders & Banks offering mortgage rates to the public will be thick for quite some time.  They’ve lost BILLIONS of dollars and are hoarding money wherever possible to recoup their losses.  The Feds know about these thicker-than-usual profit margins and lately it seems that they will always help the Banks first, then the public secondly.  Without direct pressure from Washington to squeeze these profit margins lower, rates will hover wherever the demand exists and right now there is a great demand for the existing low rates.

The Feds have now injected $1,250,000,000,000 into mortgage backed securities and have actually purchased just over $200bil.  They were nearing the “halfway mark” of their first commitment to buying Mortgage Backed Securities so they knew they’d eventually have to inject billions more into the fund, so they did so on Wednesday.  We already have rates at historic lows and the recent injection, in my opinion, is to support long-term recovery by supplying these great rates we already have for a much longer period of time.  If rates dropped to 4% we’d have a tremendous “party”, but we’d run through the funds much quicker than the Feds would want. How could lenders handle the volume if rates went to that level?  How soon after such a “party” would we need to inject Billions or Trillions more?  Long story short, don’t sit on the sidelines for lower rates. Mortgage rates now are still at historic lows, take advantage of it!

FHA Cash-Out Refi’s Reduced to 85% CLTV Max!

MORTGAGEE LETTER 2009-08

HUD PRESS RELEASE

TO:                     ALL APPROVED MORTGAGEES

SUBJECT: Limits on Cash-Out Refinances

Effective for case number assignments on or after April 1, 2009, the loan-to-value (LTV) of any cash-out refinance to be insured by FHA may MAY NOT EXCEED 85 PERCENT OF THE APPRAISER’S ESTIMATE OF VALUE.

AQ NOTE: Borrowers who owned their property longer than one year used to be able to take cash out up to 95%.

Given the continued deterioration in the housing market, and FHA’s need to limit its exposure to undue risk, this reduction to the maximum LTV for cash-out refinances is being instituted on a temporary basis while FHA further analyzes the housing and mortgage industry as well as its own portfolio to determine whether permanent measures should be taken.

Underwriting and eligibility requirements for cash-out refinances include:

Subordinate Liens and Combined Loan-to-Value (CLTV):

• New Subordinate Financing: If new subordinate financing is being offered by the mortgagee or other permitted entity, the CLTV is limited to 85 percent (the FHA-insured first mortgage and any new junior liens when added together).
• Re-Subordinate: Existing subordinate financing may remain in place, but subordinate to the FHA-insured first mortgage, regardless of the total indebtedness or combined loan-to-value ratio, provided the borrower qualifies for making scheduled payments on all liens.
• Modified Subordinate Lien: FHA understands that many subordinate lien holders have been requesting modifications to the terms of the lien (typically a reduction in the amount of the lien) in exchange for remaining in a subordinate position. Modifying the subordinate lien in this manner often results in re-executing it at closing, which is an acceptable practice to FHA and therefore, FHA does not consider it a new subordinate lien.

Length of Ownership:

• 12 Months or More: The subject property must have been owned by the borrower as his or her principal residence for at least 12 months preceding the date of the loan application in order to obtain the maximum of 85 percent of the appraiser’s estimate of value in the new mortgage. This applies whether there was a mortgage, and thus, mortgage payments, on the property, i.e., ownership of at least 12 months regardless of the number of mortgage payments, if any, that may have come due.
• Less than 12 Months: If the subject property has been owned less than 12 months preceding the date of the loan application as the borrower’s principal residence, the mortgage amount is limited to the lesser of either 85 percent of the appraiser’s estimate of value or 85 percent of the sales price of the property when acquired. However, a sales price need not be considered if the property was acquired as the result of inheritance and is or will become the heir’s principal residence.

Delinquent Borrowers Ineligible: Borrowers who are delinquent or in arrears under the terms and condition of their mortgage are not eligible for a cash-out refinance.

Three-and Four Unit Properties:  The “self-sufficiency” test for three- and-four unit properties remains in effect.  Handbook HUD-4155.1 REV-5, paragraph 1-8C explains the additional requirements for these properties.

Second Appraisal Requirements for High-Balance Cash-Out Refinances:  A second appraisal is required on cash-out refinances that will exceed $417,000 and the property is in a declining area. See Mortgagee Letter 2008-09 for more information.

Non-Occupant Co-Borrowers/Co-Signers: Any co-borrower or co-signer being added to the note must be an occupant of the property securing the new FHA-insured mortgage.  Non-occupant co-borrowers or co-signers may not be added in order to meet FHA’s credit underwriting guidelines for the cash-out refinance.

Fees Charged by Non-Approved Broker: While FHA regulations (see 24 CFR 203.27(e)) permit a borrower to engage a broker who is not FHA-approved to assist in obtaining mortgage financing, the loan origination services may not be performed by that broker and the FHA approved mortgagee shall not compensate the broker for such services.  FHA requires that these services be performed by either an FHA-approved lender or loan correspondent. Further, under no circumstances may a borrower be charged a fee that is not commensurate with the amount normally charged for similar services.  If the payment bears no reasonable relationship to the market value of the services provided, the excess over the market rate may be used as evidence of a compensated referral or unearned fee in violation of section 8(a) or (b) of RESPA and 24 CFR 3500.14(g).  See Mortgagee Letter 2008-17 for additional guidance.

Existing Mortgage Not Required: Properties owned free and clear may be financed as cash-out transactions.

If you have any questions regarding this mortgagee letter, please contact the FHA Resource Center at 1-800-CALL-FHA (1-800-225-5342).  Persons with hearing or speech impairments may access this number via TDD/TTY by calling 1-877-TDD-2HUD (1-877-833-2483).

Sincerely,

Brian D. Montgomery

Assistant Secretary for Housing-Federal Housing Commissioner

Mortgage Rates Back Down Again!

NEW YORK (Reuters) — U.S. mortgage applications rose for the first time in three weeks as near record-low interest rates spurred demand for home refinancing and purchase loans, data from an industry group showed on Wednesday.

The jump in demand came several weeks after the unveiling of the strongest government action yet to aid homeowners since the housing market’s meltdown began and may help gauge what is in store this spring, the peak home-buying season.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended March 6 increased 11.3% to 723.4.

U.S. President Obama last month announced the Homeowner Affordability and Stability Plan, which is designed to provide much-needed support to the housing market. The goals of the housing plan are to support refinancing for good quality borrowers; help distressed borrowers avoid foreclosure; and stimulate new housing demand through the expansion of Fannie Mae and Freddie Mac , the top two U.S. home funding companies.

Mark Goldman, lecturer of real estate at San Diego State University, said interest rates on mortgages are at enticing levels that could lift demand in the months ahead.

“It does not really matter if interest rates on mortgages move up one week or move down another, they are still at historically low levels,” he said.

“What is important right now is that home affordability has improved and low interest rates help more people afford to buy a home,” he said.

Get a Great Deal on a Short Sale, But Be Prepared

(Money Magazine) — When Brian Gavitt, a physician, and his wife Gayleen, a stay-at-home mom, started to eye homes in Sacramento last winter, they knew they were looking in the hardest-hit areas of the housing bust. So the couple, who were relocating from Lansing, figured they could land a fantastic bargain in no time at all.

The part about the bargain turned out to be true. The Gavitts bought a five-bedroom house in the upscale Natomas Park neighborhood (”Even now, you don’t see FOR SALE signs up anywhere,” says Gayleen.) And it was a steal at $300,000, a full $200,000 less than they would have paid just two years ago.

The amount of time it took to land the deal was another story. It was more than six months from when the Gavitts first saw their dream home to the moment they held the keys in their hands. The reason: The home they bought was a short sale.

Not along ago, few people had even heard of a short sale, which occurs when the bank agrees to discount the loan balance for a seller who owes more on his mortgage than the home is currently worth.

If you’re in the market for a home today, you’re almost guaranteed to be looking at some short sales. Nationwide, 14% of homeowners are currently underwater on their mortgages, calculates real estate website Zillow.com. And in many areas, it’s far more: In the Gavitts’ zip code, for example, over half of homeowners would owe more than their home is worth if they sold today, calculates Dee Schwindt, the Gavitts’ realtor.

The good news is that short sellers are likely to still be living in the home and some may even be current on their payments. That means these aren’t the run-down, distressed properties that you often find among foreclosures; in fact, there’s a good chance that some of the most deluxe homes for sale in your market are underwater.

Before you get too excited about buying a short sale, know that they generally aren’t, well, short. For the sale to go through, the seller’s lender must approve the price and agree to take the shortfall as a loss. That extra step can cause the process to drag on three times as long as a normal home sale.

But as the Gavitts discovered, the hassles can be well worth it. Some buyers and realtors don’t want to deal with short sales, leaving many choice homes with very few bidders. So if you’re willing to brave the intricacies of the process, you’ll be far more likely to land the home you always wanted. The key to snagging a good deal is knowing how to avoid the land mines.

Know what you’re getting into. In a short sale, you are dealing with several parties: the sellers, their agent and the sellers’ lender. That’s why a short sale can take anywhere between two and six months to execute, compared with about 30 days for a typical sale. Though many banks are willing to take a loss on a mortgage in a short sale if it means avoiding an even bigger loss in a foreclosure, with so many owners trying to unload properties, the lender’s negotiators are flooded with short-sale offers. So if you’re moving or selling another property, keep in mind that you’ll likely need to budget for a few months’ worth of rental payments so you have somewhere to live in the interim.

Find the right pro. Lenders often make realtors who work on short sales take a hit on their commission, so some brokers may be loath to show you the listings. But don’t even think about going solo. These deals take a lot of work and persistence, says Loni Parmelly, author of Success in Short Sales. Before you sign up with an agent, ask him how many short sales he’s closed. If he hasn’t done at least two, find someone more experienced.

Weed out candidates. In most cities, home listings will indicate in the description whether the property is a short sale. Ideally, you want to knock off ones that come with extra complexities. If possible, pass on any home that has more than one lien against it; having to negotiate loans with two lenders can greatly increase the amount of time it takes to complete the deal. Also avoid homes where the seller has other offers. That’s because if another offer is pending, the seller’s agent isn’t likely to even submit yours for approval until the first one is rejected, meaning you’ll have to wait for another negotiation to play out before you even get a chance.

Set the right price. The first step is to have your agent submit your offer to the seller. Don’t just rely on the current list price to come up with your initial bid, says Bill Richardson, a district sales manager for the Keyes Co. Realtors in Boca Raton, Fla. The seller’s agent may have far underpriced it in hopes of attracting buyers, but the bank likely won’t accept a lowball offer. Ask your agent to determine the home’s fair market value by searching comparable sales in the area, with an emphasis on other short sales and foreclosures (or get a rough estimate yourself at zillow.com). If the fair market value is lower than the list price, set your offer 10% lower than that.

At this point, you’ll also want to get pre-approval for a mortgage; many banks won’t even consider your offer if you don’t have one, says Schwindt.

Protect yourself. Next, the seller’s agent will submit your offer to the seller’s lender. At this point, you’ll be asked to sign a sales contract. See if the lender will agree to pick up all closing costs as part of the contract, says author Parmelly. Also ask your realtor to specify that you won’t do an appraisal or inspection of the property until the offer is approved. That way you won’t have to shell out hundreds of dollars until you know you realistically have a good chance of getting the home.

Finally, though most lenders will require you to make some kind of deposit along with the contract, don’t put down more than $3,000 before your bid is accepted. That will give you room to put offers on other homes or even to pull out of the sale if it drags on for too long.

Be a pain in the neck. After your offer is submitted to the lender, you’re likely to hear nothing for weeks, if not months. This is no time to relax. Call your agent at least once a week, and make sure the seller’s agent is contacting the bank’s negotiator nearly every day.

“These negotiators may have 400 files on their desk. They’ll want to get rid of the squeaky wheels,” says Parmelly, who worked as a loan negotiator for lenders for 16 years. To help the seller’s realtor in her negotiations with the lender, it’s a good idea to have your agent show her which comparable homes you used to arrive at your number.

If the clock keeps ticking and you’re reaching the end of your rope, try playing hardball. After months, the lender the Gavitts negotiated with was still dragging its feet and their pre-approved loan rate was about to expire. “We said, ‘We need an answer by Friday or we walk,’ ” Gayleen says. The bank responded by week’s end.

Keep your eye on the market. When the bank finally sends its counter-offer, use it as a guideline rather than an ultimatum. Most of the time, the lender’s number is based on its own research, that of a local realtor it hires and the outstanding loan balance. Usually its goal is to sell for at least 90% of the home’s value, says Amy Bohutinsky, a spokes-person for Zillow.com.

The lender’s offer may not be what you’d hoped for, but don’t despair: You have a chance to counter. If the market has been flat since your initial bid, try for 5% to 10% less than the bank’s number. If the market has been sinking rapidly, however, you may be able to prove that the home’s value has shrunk further and offer even less. Once you have the lender’s ear, the new offer should take less time to process.

Despite all the legwork and wait, the Gavitts are thrilled with their new home. “I’m glad people are turned off by short sales,” says Brian. “It just means more choices for the rest of us.”

Fed Mortgage Relief: The Basics

NEW YORK (CNNMoney.com) — President Obama’s eagerly anticipated foreclosure prevention program went into effect on Wednesday. It targets 9 million borrowers for help – are you one of them?

The $75 billion effort, dubbed the Homeowner Affordability and Stability Plan, boils down to two basic solutions:

First, the government is aiming to help more homeowners refinance into new low interest rates.

Second, it provides incentives to lenders and servicers to restructure your mortgage to more affordable levels.

Here’s how to know whether you’ll likely be able to take advantage of either of these options.
Help for those seeking refinancing

This part of the program targets borrowers who have kept current on their mortgages. Many in this group have been unable to lower their housing costs through refinancings because of falling home prices.

Right now, if you’re “underwater” on your mortgage, meaning you owe more than the home’s market value, forget about qualifying for a refi. In fact, at least 20% equity in your home is now a must, unless you’re using an FHA loan.
iReport: Would you walk away?

The new guidelines should help. Even homeowners with a mortgage that exceeds home value by 5% could be eligible. And there will be no prepayment penalties. But your loan must be owned by Fannie Mae or Freddie Mac. The government is still working on getting other loan servicers to participate.

Since lenders working with Fannie and Freddie already have most of the borrower documentation they need, the refinance process should go quickly. And, in some cases, lenders may not need to reappraise properties because borrowers cannot take cash out on these transactions; they’re only allowed to refinance the balance they owe.

The Administration estimates that this program, which will be in effect until June 2010, will help 5 million homeowners.

Who’s not eligible? Homeowners whose property values have dipped severely, putting them underwater by more than 5% are out of luck.

Those with “jumbo” mortgages also don’t qualify. Only those who took out “conforming” loans – currently defined as mortgages of less than $417,000, except in certain high-cost areas such as New York City – from Fannie or Freddie would be able to refinance.

All borrowers will have to prove they have sufficient income to be able to keep up their loan payments.
Mortgage modification help for at-risk borrowers

Homeowners in default or at risk of default may qualify for loan modifications, which restructure the terms of loans.

Anyone at risk of default, such as those suffering serious hardships, income loss, increases in expenses, payment “shock” (such as when interest rates jump), high mortgage debt compared to income, who are underwater or who show other indications of being at risk of default, may be eligible for modification.

The mortgage must have originated before Jan. 1, 2009, and the unpaid principal can amount to no more than $729,750 for a single family home (more for a home with two-to-four units). Borrowers with other debt, such as car loans and credit cards, exceeding 55% of their incomes, may still qualify for a modification, but they’ll be required to accept debt counseling in a HUD-certified program.

If you qualify, your servicer – the company that administers the loan and to whom borrowers make their payments – or lender will reduce your monthly mortgage payments to 31% of your gross income. The reduction would come mostly through interest-rate reductions – though rates can be lowered no more than to 2% – or by extending the length of the loan to 40 years. In some cases, principal reduction also would be an option.

The reduced payment would stay the same for five years and then gradually revert back to the conforming loan rates in place at the time of the modification, increasing by no more than 1% a year.

Borrowers would also receive incentive bonuses, in the form of principal reduction, of up to $1,000 a year for five years for making payments on time.

Servicers who participate are required to modify all eligible mortgages under the program unless they are specifically prohibited from doing so by the contracts they have signed with investors, who are the actual owners of the notes. In those cases, lenders and servicers have to make good-faith efforts to obtain permission from investors to make the modifications.

President Obama estimated 3 to 4 million homeowners could benefit from the new modification procedures. Eligibility for the program will sunset at on Dec. 31, 2012, and borrowers may tap the program only once.

Servicers who want to participate must sign up by the end of this year.

Who’s not eligible. Speculators, those who bought homes for investment purposes, do not qualify for help because the property must be owner-occupied. No investor, vacant or condemned properties are eligible. Occupancy will be verified through a credit report and other documentation.

The program will also not reward homebuyers who were irresponsible in their borrowing. All applicants will be closely examined by lenders and those who acted unscrupulously by, for example, misrepresenting their incomes in no-doc loan applications, would not qualify.

To protect taxpayer money, modifications must make sound financial sense. Servicers are required to apply a “net present value test” on the loans at risk of immediate default or that are 60 days or more delinquent. If the test determines that the value of the loan is enhanced by doing a modification compared with allowing the loan to go into foreclosure, the lender will proceed with the workout.

That will disqualify many borrowers who simply can’t afford any reasonable mortgage payment.

“[The plan] will not reward folks who bought homes they knew from the beginning they would never be able to afford,” said Obama, when he announced the program two weeks ago. “In short, this plan will not save every home.”

Fannie Taps Lifeline After $58.7bil Loss in 2008

NEW YORK (CNNMoney.com) — Hammered by the ailing housing market, mortgage finance giant Fannie Mae said Thursday it would tap its lifeline from the Treasury Department after reporting $58.7 billion in losses for 2008.

The company, a crucial source of funding for mortgage lenders, said it would draw down $15.2 billion of its $200 billion federal line of credit. In return, the government will receive preferred shares.

And it gave a dour view of the housing market — saying it expects peak-to-trough price declines to be in the 33% to 46% range, up from the 27% to 32% range it gave in the previous quarter. For 2009, it predicts home values will drop 12 to 18%.

For the fourth quarter, Fannie Mae reported $25.2 billion in losses, or $4.47 per share. The results mark the sixth straight quarter of losses, though slightly narrower than it reported in the third quarter. A year ago, Fannie Mae reported $3.6 billion in losses.

The company, which was taken over by the government in September along with Freddie Mac, attributed the losses to soaring defaults. Its provision for credit losses plus foreclosed property expense came to $12 billion for the quarter, up 30% from the previous quarter. Its charge-offs, or loans written off as uncollectable, rose 219% to $7 billion in 2008.

The value of non-performing loans were $119.2 billion at year-end, compared with $63.6 billion on Sept. 30 and $27.2 billion at the end of 2007.

Fannie Mae (FNM, Fortune 500) had said it would need up to $16 billion to cover its fourth quarter losses. Freddie Mac (FRE, Fortune 500), which has accessed nearly $14 billion and has said it may need up to $35 billion more, should report its results in coming weeks. The companies need the funding because their liabilities exceed their assets, giving them a negative net worth.

The companies’ net worth is declining in part because its mortgage guaranty becomes a costlier obligation as the housing market worsens. Also, its funding costs have run higher as investors demanded higher rates because of the agencies’ perceived riskiness.

The results come a week after President Obama unveiled his foreclosure prevention plan, which relies heavily on Fannie and Freddie. The companies will allow borrowers whose mortgages they own or back to refinance even if they have little or no equity. And they will contribute more than $20 billion toward subsidizing interest rates to lower the monthly payments for borrowers on the verge of or already in default.

Fannie Mae, which unveiled with Freddie Mac their own streamlined loan modification program in November, said it conducted 33,249 loan modifications, 7,875 repayment plans and 11,682 preforeclosure sales in 2008.

Acknowledging the need to strengthen Fannie Mae and Freddie Mac at a time when the companies are under pressure from rising defaults, Obama doubled their federal lifeline, which was originally $100 billion each. He also is allowing each to hold up to $900 billion in loans in their portfolios, an increase of $50 billion.

The companies provide critical financing for mortgage lenders by purchasing their loans. They dominate the home loan market now that private investors have been spooked by the mortgage meltdown.

Their long-term future, however, remains in doubt. Set up by the government, they were private companies whose debt carried an implicit federal guarantee. But as the mortgage crisis deepened, the Treasury Department in September put them into conservatorship, a form of reorganization similar to bankruptcy.

Conforming “Jumbo” Limits Restored to $729,750

Conforming loan limits have been restored to as much as $729,750 in 250 counties around the U.S. as the regulator of Fannie Mae and Freddie Mac implements a policy change in last week’s $787 billion economic stimulus bill.

For more info and a list of specific county limits click on this link below

http://www.fhfa.gov/webfiles/1279/CLLarra022309_final.pdf

Feds Double Aid to Freddie/Fannie

Washington Post- The federal government has doubled the size of its commitment to Fannie Mae and Freddie Mac, increasing the guarantee against losses on their mortgage investments to $400 billion.

The massive expansion of this public backstop for the troubled mortgage giants was disclosed this morning among the details of the Obama administration’s plan to reduce foreclosures.

Fannie Mae and Freddie Mac were seized by the government in September to stabilize their role as the main source of funding for the mortgage lending industry. The government pledged up to $200 billion to cover the companies’ losses, but officials said at the time they did not expect the companies to need that much help.

The two companies have since estimated that they will need up to $65 billion to cover their losses in 2008 alone, as economic deterioration drives more borrowers to default.

In announcing the new round of aid today, officials said they were acting to show that the companies had all the government support they would need.

“Resetting these agreements from $100 to $200 billion each should remove any possible concerns debt and mortgage-backed securities investors have about the strong commitment of the U.S. Government to support Fannie Mae and Freddie Mac,” said James Lockhart, director of the Federal Housing Finance Agency, which oversees the companies.

$8,000 From Feds To Buy a Home

NEW YORK (CNNMoney.com) — There’s a nice windfall for some homebuyers in the economic stimulus bill awaiting President Obama’s signature on Tuesday. First-time buyers can claim a credit worth $8,000 – or 10% of the home’s value, whichever is less – on their 2008 or 2009 taxes.

A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill – the amount of witholding they paid during the year plus anything extra they had to pony up when they filed their returns – was less than that amount. But there has been a lot of confusion over this provision. Adam Billings of Knoxville, Tenn. wrote to CNNMoney.com asking:

“I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?”

Not exactly. Billings won’t get $8,000 on top of his current refund, but he would turn that small refund into a much larger one. If his total tax liability came to $6,000, but he had $7,000 withheld from his payroll, he would normally receive a $1,000 refund. With this credit, his refund would total $8,000. If the credit were non-refundable, as was originally proposed in the Senate version of the stimulus package, he would have only received $6,000, or the total amount he paid in.

To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as “first time” buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit.

Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)

Applying for the credit will be easy – or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.
Lukewarm reception

The housing industry is somewhat pleased with the result because the stimulus plan improves on the current $7,500 tax credit, which was passed in July and was more of a low-interest loan than an actual credit. But the industry was also disappointed that Congress did not go even further and adopt the Senate’s proposal of a $15,000 non-refundable credit for all homebuyers.

“[The Senate version] would have done a lot more to turn around the housing market,” said Bernard Markstein, an economist and director of forecasting for the National Association of Homebuilders (NAHB). “We have a lot of reports of people who would be coming off the fence because of it.”

Even so, the $8,000 credit will bring an additional 300,000 new homebuyers into the market, according to estimates by Lawrence Yun, chief economist for the National Association of Realtors.

The credit could also create a domino effect, he said, because each first-time homebuyer sale will lead to two more trade-up transactions down the line. “I think there are many homeowners who would be trading-up but they have had no buyers for their own homes,” Yun said.

Who won’t benefit, according to Mark Goldman, a real estate lecturer at San Diego State University, are those first-time homebuyers struggling to come up with down payments. The credit does not help get them over that hurdle – they still have to close the sale before claiming the bonus.

Instead, many may look at the tax credit as a discount on the home price, according to Yun. A $100,000 purchase effectively becomes a $92,000 one. That can reassure buyers apprehensive about purchasing and then watching prices continue falling, he added.

And it provides a nice nest egg for the often-difficult early years of homeownership, when unexpected repairs and expenses often crop up. Recipients could also use the money to buy new stuff for their home – a lawnmower, a rug, a sofa – and, in that way, help stimulate the economy