What's in the Bailout for Homeowners - Sunday, September 28, 2008

Emergency Economic Stabilization Act of 2008 - The $700 billion bill is expected to pass the House on Monday and the Senate by Wednesday this week. Includes plan to stem foreclosures and to work with servicers to modify loans. In Sunday's version of the bill, federal agencies holding mortgages and mortgage securities would be required to identify loans that could be modified without causing big losses for taxpayers. However, exactly how that would be done isn't totally clear. It also allows the Secretary to use loan guarantees and credit enhancement to avoid foreclosures, though on a press call Treasury officials declined to elaborate on these provisions. Servicers have been under pressure to modify loans since the mortgage meltdown began a year ago. However, they say the biggest roadblock to changing loan terms are the investors who hold the securities created from those mortgages. (KNX-AM, 9/28, CNNMoney, 9/28)

In a separate bill, the Senate on a 78-12 vote sent a $634 billion measure to President Bush, who was expected to sign it even though it spends more money and contains more pet projects than he would have liked. The measure is needed to keep the government operating beyond the current budget year, which ends Tuesday. As a result, the legislation is one of the few bills this election year that simply must pass. Bush's signature would mean Congress could avoid a lame-duck session after the Nov. 4 election. (CNNMoney, 9/27)

Homeowner Help At Last - The Hope for Homeowners program, which begins Oct. 1, allows borrowers who can't meet their current mortgage terms to refinance into more affordable, fixed-rate loans backed by the Federal Housing Administration. The legislation also calls for changes to strengthen the Hope for Homeowners program to increase eligibility and improve the tools available to prevent foreclosures, but did not specify the enhancements.
(CNNMoney, 9/28)

Banks in a Domino Effect - In a week where WaMu was acquired by JPMorgan Chase, Wachovia is the subject of a bidding war between Citigroup and Wells Fargo. Across the Pond, the governments of Belgium, Luxembourg and the Netherlands agreed late on Sunday evening to invest £9bn in huge financial services group Fortis, in effect nationalizing it. Plus Spanish bank Santander will take over 20-billion British Pounds to take over UK's Bradford & Bingley a year after Northern Rock collapsed and was nationalized by the British government. (NYTimes, 9/28, BBC, 9/28)

Emergency Rate Cut - Some economists think that the Federal Reserve will try to boost battered confidence in banks and the economy by cutting the Federal Funds Rage by at least a quarter percentage point as early as Tuesday, although the Fed's next scheduled meeting to discuss interest rates is a two-day session that ends on October 29. (CNNMoney, 9/26)

Current Mortgage Rates:

• 30-year fixed - 5.98%
• 15-year fixed - 5.65%
• 5/1 ARM - 5.98% (CNNMoney, 9/25)
  

Schwarzenegger signs 10 housing-related bills, vetoes one - The bill he vetoed would have banned negative amortization loans, in which homeowners pay less than the interest on their loan and can end up owing more than their homes are worth. It also would have prevented mortgage brokers from steering borrowers into more profitable but higher-risk loans if those buyers actually qualified for lower-cost mortgages. In addition, prepayment penalties would have been capped. Schwarzenegger said he vetoed the bill because it would have applied only to state-regulated brokers, leading to unequal protections for consumers. He also said it could have prompted unfair lawsuits against brokers. Lieu's bill was part of a more ambitious package of eight Assembly bills earlier this year aimed at risky lending practices. Four of the eight died in a Senate committee after bankers and mortgage brokers objected, and two others were watered down. Among the housing bills the governor signed are ones that will allow more oversight of mortgage brokers, require brokers to disclose more information to consumers and regulators, and help create new mortgage-refinancing programs. (CNN, 9/26)


Sources: CNNMoney, New York Times, BBC, KNX-AM, CNN

30-Year Mortgage Rates Reach 7-Month Low , Sunday, September 21, 2008

Freddie Mac reports a decline in the 30-year fixed mortgage rate to 5.78 percent during the week ended Sept. 18 from 5.93 percent the prior week, marking the lowest level in seven months. During the same period, the 15-year mortgage rate dropped to 5.35 percent from 5.54 percent. Meanwhile, interest on five-year adjustable mortgages slipped to 5.67 percent from 5.87 percent; and the one-year ARM slid to 5.03 percent from 5.21 percent. (San Diego Union-Tribune, 09/19/08)

$700 Billion Proposed Bailout of the Banking System - According to the administration's proposal, the federal government would buy up as much as $700 billion of illiquid mortgage assets at a deep discount from banks. The Treasury Department would run the program directly, unlike the savings and loan crisis of the 1990s when Congress created the Resolution Trust Company to spearhead a financial bailout. Lawmakers are reviewing the plan and have scheduled hearings on the matter in the next few days. (CNN, 9/21)

The Federal Reserve voted yesterday to keep the federal funds target rate at 2 percent, where it has been since April. (Investor’s Business Daily, 09/16/2008)

The housing market is a year away from improvement, says Steven Preston, secretary of the U.S. Department of Housing and Urban Development. Preston predicts that it will be “the middle of next year or well into next year” before “we begin to see more consistency in buyers coming back into the marketplace.” The recovery from the housing crisis in 2009 is likely to be regional in nature, the HUD secretary says. “The crisis will begin abating in a number of regions of the country. That is what I am hopeful of. But I think it will be more intractable in other regions,” he says. “It is going to be some time” before recovery comes to certain communities in California, Florida, Arizona, and Nevada. (Christian Science Monitor, 09/16/08)

Refinance Applications Jump 88% from prior week - Homeowners rushed to take advantage of the drop in interest rates following the government's takeover of Fannie Mae and Freddie Mac, data released Wednesday showed. Applications by homeowners looking to refinance their mortgages spiked 88% last week, according to the Mortgage Bankers Association. Refinances accounted for nearly 52% of all application activity, up from 36% the previous week, the trade group said. The volume of purchase applications also edged up last week by 5%. The average rate for traditional, 30-year fixed-rate mortgages dropped to 5.82% from 6.06% the prior week. The average rate for 15-year fixed-rate mortgages, often a popular option for refinancing a home, fell to 5.54% from 5.73%. (CNN, 9/17)

Home Values Fall 34% in Southern California - The cost of new and resale homes and condos dropped to $330,000 last month in a six-county region. It was down from $500,000 in August 2007 and down 5.2% from $348,000 in July, MDA DataQuick said. A total of 19,366 homes and condos were sold last month, up about 9% from August 2007 but down almost 5% from July. MDA DataQuick president John Walsh said much of the sales activity has been logged in lower-priced inland areas where the market has been driven by foreclosures. Foreclosures accounted for almost 46% of all resold properties last month, up from 10% in August 2007 and almost 44% in July. (CNN, 9/17)

Sources: CNNMoney, Christian Science Monitor, Investor's Business Daily, San Diego Union-Tribune.

Interest Rates Drop – Sunday, September 14, 2008

With the government conservatorship of Freddie Mac and Fannie Mae a week ago, mortgage interest rates dropped significantly the past week. Rates on 30-year fixed-rate mortgages (FRMs) averaged 5.93% for the week ended September 11, with an average 0.7 point discount. That's down from an average 6.35% last week, and down from an average of 6.31% recorded during the same week last year. Experts think these rates will pull the final holdout buyers off the fence and promote a turn-around in the housing market that we are already beginning to see in some markets. A 15-year FRM averaged 5.54%, falling from 5.90% last week and 5.97% from a year ago. The five-year adjustable rate mortgage (ARM) dropped to 5.87% from 5.97% last week, and 6.17% a year ago. One-year ARMs averaged 5.21%, a slight increase from a week ago when it stood at 5.15%. That's down from a year ago when the rate averaged 5.66%. (CNNMoney, 9/10, 9/11)

Other points regarding the government conservatorship of Freddie & Fannie:

· Under the conservatorship, the FHFA has the authority to take up to an 80 percent stake in the companies, and will review both GSEs’ financial condition quarterly. The federal government also may inject capital into Fannie Mae and Freddie Mac, if needed. Both GSEs will be allowed to increase their mortgage funding over the next year and a half, and their stock will continue to trade, with stockholders retaining all rights in the stock’s financial worth. However, the plan does call for a 10 percent reduction per year to GSEs’ portfolios, beginning in 2010, until they have been reduced to $250 billion.

· Although the conservatorship has resulted in lower interest rates for consumers, and restored investor confidence, C.A.R. is concerned that the Treasury and the new CEOs will change the mission and role of GSEs. Without GSEs, mortgage capital eventually will be less predictable and more expensive. This may result in adjustable-rate mortgages becoming the standard loan for home buyers, as well as higher down payment requirements, and the possible disappearance of the 30-year fixed-rate mortgage.

· C.A.R. supports a structure that maintains GSEs in their current countercyclical roles and is urging lawmakers to support continued government involvement in supporting the institutional secondary market. As a result of these concerns, C.A.R. will be asking Congress to enact legislation to ensure GSEs continue to fulfill their congressional mission of supplying an affordable and stable flow of capital for home loans. (CAR, 9/11)

Your home: When it’s wise to downsize - As a result of reaching retirement age and becoming empty nesters, more baby boomers are choosing to downsize from large, multi-room homes to ones with less square footage. While some buyers are choosing to downsize to save money, others -- especially those still in the workforce -- are opting for a lifestyle change, such as a shorter commute; the convenience of an onsite fitness center, often found in condominium communities; or energy savings. (CNNMoney, 9/5)

· Some buyers are choosing to downsize to condominiums, as they are often located in close-proximity to shops, restaurants, transportation; and everyday needs such as grocery stores, dry cleaners, or the pharmacy. Although this is convenient, buyers who wish to save money by downsizing should weigh all the facts before making the decision to downsize. While most single-family homes incur costs such as property taxes, utilities, and home maintenance, most condominium communities require owners to pay monthly homeowner association (HOA) fees, and sometimes special assessments. The monthly dues and special assessments are generally used for items such as replacing a swimming pool, upgrading the community clubhouse, or adding new amenities. Buyers concerned about these costs should ask how much HOA fees have risen over the past five years, and whether the association has plans for new assessments in the near future.

· Even with the added costs, many buyers will realize an annual savings when downsizing. Some experts estimate that the average annual savings in utility costs and property taxes could be as high as $3,900 if a buyer downsizes from a 2,800-square-foot residence to one that is 1,800 square feet.

· Buyers who are at or near retirement should consider acquiring a mortgage loan with a 15-year maturity or a traditional 30-year, fixed-rate loan that does not charge a prepayment penalty. Although payments on a 15-year mortgage are higher and the interest rate is only about .10 percent lower than a traditional 30-year, fixed-rate loan, borrowers can save approximately $141,000 in interest over the life of the loan.

· If a borrower elects for a traditional, 30-year, fixed-rate loan, they should consider one without a pre-payment penalty. This allows the borrower to make extra payments each month and pay off the mortgage more quickly, without adding additional pressure should their financial situation change. (CAR, 9/11)

Fast Facts: · Calif. median home price - July 08: $350.760(Source: C.A.R.) · Calif. highest median home price by C.A.R. region July 08: Santa Barbara So. Coast $940,000(Source: C.A.R.) · Calif. lowest median home price by C.A.R. region July 08: High Desert $177,330(Source: C.A.R.) · Calif. First-time Buyer Affordability Index - Second Quarter 08: 48 percent (Source: C.A.R.)

A sincere thank you to all of you who donated to Danielle's Avon Walk. With your help, not only did she meet her goal, but she surpassed it, raising nearly $2000. She tells me that she has never walked so far for so long ever (39 miles), and has ended up with sunburn and plenty of water blisters on her feet. But she has never had so much fun raising money for a good cause. Thank you again!

Sources: California Association of REALTORS®, CNNMoney.

Current Valley Housing Analyses and Freddie Mac/Fannie Mae Takeover, Sunday, September 7, 2008

San Fernando Valley home sales surged 16% during July as buyers raced to grab bargains; median price down 31%

Buyers jumped into the resale housing market during July, pushing sales of existing single-family homes in the San Fernando Valley up 16.2 percent from a year ago and 6.9 percent higher than the June tally, the Southland Regional Association of Realtors reported on Thursday, Aug. 29.

While still at historically low levels, sales have increased every month this year since January.

Realtors across the San Fernando Valley report a resurgence of multiple offers on properties as buyers compete with each other over the most favorably priced homes. Many of those offers present ridiculously low prices which have virtually no chance of being accepted, especially by banks that have little negotiating latitude as they try to recoup investments on foreclosed properties.

As lenders adjust to new rules, lenders will start writing loans in the higher price ranges, thus fueling a resurgence in that segment of the market, too.

Because buyers are striving to take advantage of a rare opportunity to buy a single-family home at a favorable price, condominium sales lagged during July.

A total of 205 condos sold, down 25.7 percent from a year ago and off 10.9 percent from this June. Condo sales had been moving up every month since January with July being the first decline this year in month-to-month condo activity.

The real numbers of foreclosures and short sales are likely to wane in the coming months, especially as lenders implement new procedures and the recently-approved economic stimulus package plus other moves by federal authorities begin to take effect.

The single-family median price of $435,000 was down 31.0 percent compared to a year ago. However, it did post a modest gain compared to June, up 1.0 percent. The median has been falling since the record high of $655,000 was set in June 2007.

The condo median of $280,000 was off $127,500 or 31.3 percent compared to July 2007. The condo record high of $415,000 was set in February 2006.

Link said he expects the market to remain busy and perhaps pick up added momentum in the coming months. Pending escrows – a measure of future resale activity – support that view.

There were 1,141 open escrows at the end of July, 39.2 percent higher than a year ago and up 1.2 percent from this June. It marked the third consecutive month that the pending sale total has topped the 1,100 benchmark. The inventory of homes for sale while higher than just a few years ago is not excessive.

There were 6,950 active listings throughout the San Fernando Valley at the end of July, down 3.4 percent from a year ago. Of that total, single-family homes accounted for 75 percent of the active listings.

At the current pace of sales, the active inventory represents a 7.5-month supply – slightly higher than the 5- to 6-month supply deemed to represent a balanced market.

By comparison, the inventory during the recession of the 1990s hit a record high of 14,976 in July 1992 and the inventory compared to pace of sales was three-times higher at a 23-month supply.

Contrary to an inaccurate public perception, the active inventory in the San Fernando Valley has been trending lower since November 2007 when it stood at 7,505.

Buyers confident the housing market is recovering push Santa Clarita Valley home sales up 22%

Sales of existing single-family homes increased 22.2 percent throughout the Santa Clarita Valley during July with the 237 closed escrows up 43 transactions from the 194 total of a year ago, the Southland Regional Association of Realtors reported on Thursday, Aug. 28.

Home sales increased on a month-to-month basis for the sixth consecutive month, rising 3.5 percent in July compared to June.

Condominium sales also increased, rising 2.4 percent for a total of 85 closed escrows, two sales higher than a year ago and 10 sales ahead or 13.3 percent higher than this June.

While the market will not return to normal until foreclosed properties and so-called “short sales” work their way through the system, statistics released by the Southland Regional Association of Realtors indicate that the market has changed direction.

In a growing number of instances, Realtors across the Valley report, multiple offers have reappeared as people strive to capture homes that sold at much higher prices just a short while ago. Chastain-Shine said that one property listed at $450,000 recently attracted 32 purchase offer.

Most of the activity is concentrated on homes listed for less than $500,000, she said, which has the effect of pulling the overall median price lower.

The median price of single-family homes sold last month was $441,000, down 22.6 percent from a year ago, well below the record high of $643,000 set in April 2006. The median has been sliding on a consistent basis since then and its drop has accelerated as buyers focus on entry-level-priced housing.

The condo median price of $285,000 was down 20.8 percent from a year ago and unchanged on a month-to-month basis. While still above 20 percent, the decline in the median price for both single-family homes and condos appears to be slowing as sales activity begins to pick up.

That perspective was bolstered by statistics reporting pending escrows – a measure of future sales activity. The number of open escrows at the end of July increased 33.9 percent compared to a year ago and gained 3.5 percent over this June.

While higher than during the sellers’ boom market, the inventory of homes currently listed for sale is not excessive, despite the public’s inaccurate perception that there is a vast backlog of homes for sale.

There were 1,722 active listings throughout the Santa Clarita Valley at the end of July, down 24.6 percent from a year ago and 8.4 percent lower than this June, the Association reported. Of that total, 73 percent of the listings were single-family homes.

At the current pace of sales, the inventory represents a 5.5-month supply. Industry experts believe a balanced market – where neither buyer nor seller hold sway – appears when there is a 5- to 6-month supply.

The mismatch between the public’s view and reality often leads to fruitless negotiations as buyers think sellers must accept ridiculously low purchase offers.

Professional representation, especially when negotiating with a bank, is more vital than ever. Completing a purchase successfully today requires market knowledge and experience on the part of the Realtor and a realistic, informed view regarding prices on the part of the buyer.

Feds Takeover Fannie Mae and Freddie Mac - Federal officials on Sunday unveiled an extraordinary takeover of Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back. The move, which extends as much as $200 billion in Treasury support to the two companies. I believe this move affects the investors to Freddie Mac and Fannie Mae significantly, and we will see the market reaction on Monday. I do not see a big effect to current buyer and sellers. Taxpayers generally may be hit in the long term as more government funds are diverted to these two companies. (CNNMoney, 9/7)

Sources: Southland Regional Association of REALTORS®, CNNMoney.