Oil Prices Surge, Inflation Worries, Mortgage Rates Climbing - June 8, 2008

European central bank raises rates. Word on The Street is that the Fed might do that too when it meets June 24-25 to stem inflation. As mentioned in prior posts, what the Fed does doesn't affect mortgage rates directly, but it does influence the bond market, which will push mortgage rates around. Mortgage rates have been climbing (see last article on this blog). It's a great time to buy and lock in those rates before rates get higher.

Volatile week in oil. Early this week they were predicting retail gas prices should decline by the weekend. Then an Israeli cabinet minister stated that an attack on Iran is inevitable. That shot crude oil prices higher by record margins to a new record high on Friday, and expectations of $5 per gallon unleaded prices before the end of the year, especially if hurricanes hit the Gulf.

Next week, I'll reveal where Obama and McCain stand on housing. Don't miss it!

Bullet Points (CAR, 6/5):
· A Reuters/University of Michigan survey reveals that twice as many homeowners expect their home value to fall in the coming year than believed their home value would drop a year ago. Twenty-eight percent of those surveyed in late April and early May said they expect their home to depreciate in value, up from 14 percent at this same time last year. Just 17 percent predicted their home will increase in value, down significantly from 35 percent in May 2007. Their outlook doesn’t improve much over the longer term: Only 58 percent reported they expect their home value to appreciate over the next five years, down from 65 percent a year ago. Concerns about month after month of home price declines and long-term prospects for inflation, energy costs and the job market were behind the more pessimistic response, survey participants said.
· Some 183,000 at-risk homeowners were rescued from the potential loss of their homes due to foreclosure in April, according to Hope Now, a coalition of mortgage lenders, servicers, investors and community groups that has offered help to troubled borrowers since July 2007. Hope Now said it completed more than 183,000 loan workouts in April, a 7.6 percent increase over March, bringing the total number of homeowners helped to more than 1.6 million. Most of the workouts involved the negotiation of repayment plans in which borrowers receive extra time to bring their loans current. However, the number of mortgage term modifications rose to 42 percent, or roughly 77,000 total workouts for the month. Even with the program, 80,926 families lost their home to foreclosure in April, the group said.
· Consumers who arrange a mortgage through a mortgage broker or who are African American, Latino or live in neighborhoods with lower numbers of college graduates generally pay more in closing costs, according to a recent study of 7,560 loans closed in May and June of 2001 through commercial lenders and insured by the Federal Housing Administration (FHA). Homebuyers who worked through a mortgage broker paid $300 to $425 more in closing costs than those who worked through direct lenders. African Americans paid an additional $415, while Latinos paid an additional $365, on average. Consumers in neighborhoods where there were larger numbers of college-educated adults paid on average $1,100 less that homebuyers paid in neighborhoods where there were fewer college graduates. The study concluded that buyers who obtain so-called “no cost loans” (where there is no cost for points, appraisals or title insurance) generally are better off than those who “buy down” their interest rate but pay more in fees or points.

· Next weekend: Thunder On The Lot – Antique and Customized Cars and Motorcycles. Sat and Sunday ($5 Sat, Free Sun, $5 parking), Antelope Valley Fairgrounds. http://www.thunderonthelot.com, or 661-265-6000.
· Though outside our area, the Pasadena Chalk Festival will be happening next weekend at Paseo Colorado. 626-795-9100
· Landlord Training Class for certification under Palmdale’s Partners Against Crime Program – June 17 and 19, 6-10pm, must attend both classes, $20. Must register with Palmdale Community Safety Supervisor, Kelly Long, 661-267-5172 or Crime Prevention Officer Vicky Razo, 661-267-5181.

HOMEOWNER LOAN WORKOUTS HIT RECORD LEVELS IN APRIL - Roughly 183,000 at-risk homeowners were provided loan workouts in April, 23,000 more than in March, according to a new report from HOPE NOW, a private sector alliance of mortgage servicers, counselors, and investors working to prevent home foreclosures across the country. The April numbers represent the highest number of workouts provided through HOPE NOW since the program was launched in July 2007, according to the alliance. (CAR, 6/4)

CALIFORNIA CONSUMER CONFIDENCE SLIPS TO RECORD LEVELS ACCORDING TO NEW REPORT - California consumers' outlook on current and future economic conditions and their plans for future spending fell sharply during the second quarter on concerns over mounting gasoline prices, job security, and the broader economy, according to the A. Gary Anderson Center's California Composite Index of Consumer Sentiment. (CAR, 6/4)
Foundation Set for Healthy Housing Market - Toll Brothers CEO Robert Toll told analysts that the foundation for a healthy housing market is in place: low interest rates, a low unemployment rate, a rising population, and increasing wealth. With home prices at 2002 and 2003 levels, the stage is set. (AP, 6/4)

Clearing up traffic jams. An LA Times graphic on Sunday, June 08, shows how slowing down but not stopping as you approach a traffic jam prevents a larger backup from forming.

Hands Free In Car - On July 1, a new law goes into effect requiring adults driving vehicles to use hands-free devices while talking on the cellphone. You can still text and use the phone, but you can’t put your phone by your ear. Those under 18 are not allowed to use cellphones at all while behind the wheel. There is NO grace period where you get only a warning. You can get more information at the CHP website, http://www.chp.ca.gov, near the bottom of the main page.

"Mortgage fraud ground zero" – FBI agent in an article in USA Today states Las Vegas is “mortgage fraud ground zero.” Nationwide, MortgageDaily.com says fraudulent mortgages topped $4 billion last year from $1.6 billion the prior year. (6/3)

Most common mortgage scams –
· Bait and switch. The home owner is presented with what appears to be an application for refinancing, but in reality it's title transfer papers. Once the home owner signs, he loses his home.
· Upfront fees. Scammers ask for money to be used for locating rescue funding. Once the home owner pays, the scam artist disappears.
· Bankruptcy ploys. An attorney – or someone who pretends to be – persuades the home owner that filing for bankruptcy will save the house. The only one who wins is the person who pockets the fees he charges to file.
· Rent-to-buy. Fraudsters offer to buy the property with a provision that the home owner will pay rent while building equity. Once the title is transferred, the former home owner is locked out.
· Fraudulent refinance deals. A scammer offers to use his higher credit score to secure a refinance deal, but first the home owner has to hand over title to the house.
It pays to be knowledgeable! (Forbes, 5/23)

REOs Surging - Lenders and investors in mortgages owned about 660,000 foreclosed homes in April, up from 493,000 in January and 231,000 in January 2007, according to First American CoreLogic, a research firm. That’s one in seven previously owned homes currently for sale nationwide. (WSJ, 6/2)

Bernanke says rate “well positioned,” watching dollar (Bloomberg, 6/3) - Federal Reserve Chairman Ben Bernanke Tuesday signaled he is finished cutting interest rates for now and has turned his attention to concerns about inflation in the world’s foreign exchange markets in the wake of the U.S. dollar’s 16 percent decline against the Euro over the past year. Speaking to the International Monetary Conference, Bernanke stated that, “For now, policy seems well positioned to promote moderate growth and price stability over time. We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate.”
* Observers called Bernanke’s statement a “strong defense of the dollar” and a sign that the Fed believes a weaker U.S. dollar would be detrimental. Declines over the past year against the Euro and more recent oil price surges have increased fears of inflation. These fears are one reason the Fed is not expected to pare interest rates further at least through October.
* Bernanke called financial market conditions “strained” and reiterated that U.S. consumers face challenges from declining home prices and stricter mortgage and other lending standards, a weaker job market and higher energy costs. He added that economic growth will remain limited until home prices and the housing market show clearer signs of stabilization.

Banks miss an easy housing fix (CNNMoney.com, 5/28) - Mortgage lenders say they are there to help homeowners who are having trouble making their monthly payments but who can’t sell their home for what it is worth in today’s market. But real estate agents and others say both homeowners and the banks themselves lose out when banks are unable to close so-called “short sale” transactions.
* In a short sale, homesellers ask their lender to accept a buyer’s offer that is less than the amount needed to pay off the balance of the mortgage. Lenders who agree to a short sale also typically agree to forgive the remaining debt.
* Many call short sales a win-win for lenders and homeowners. The homeowner avoids foreclosure and banks avoid the cost of carrying the property through the lengthy foreclosure process, not to mention the hassles of selling an empty property in a market saturated with other foreclosures.
* On average, lenders lose approximately 19 percent of a mortgage’s value with a short sale but lose an average of 40 percent on mortgages that proceed to foreclosure, according to one source.
The problem with short sales? Like other foreclosure mitigation efforts, the challenge is in determining which financial entity “owns” the loan and, thus, has the final say on a short sale offer. Banks also have been slow to ramp up internal processes needed to review and approve short sale packages. Delays and last-minute dickering often prolong or even derail transaction closings and creates frustration for potential homebuyers and their real estate agents.

Lose homes, pay more tax (NY Times, 5/30) - Investors in second or multiple homes stand to be among the biggest losers from the housing downturn. That’s because proposed mortgage bailout programs don’t address second homes and investment properties. Many owners of multiple properties don’t realize that investments they thought would help them build long-term wealth may in fact leave them in bankruptcy and facing a sizeable tax debt.
* Homeowners who borrowed against the value of their second home, or who financed the purchase of their second home and subsequent homes by pledging their primary home or other properties as security, may be liable for taxes on the difference in value should they sell any of their properties for a price less than the value owed on the mortgage.
* Under the Mortgage Forgiveness Debt Relief Act, a homeowner doesn’t have to pay taxes on forgiven debt if the collateral behind the mortgage is owner-occupied. That provision doesn’t apply to a growing number of homeowners renting out their second home or investment property. Of some 7.5 million vacation homes, only about 10 percent are considered owner-occupied, according to the NATIONAL ASSOCIATION of REALTORS® (NAR). Many of these homeowners borrowed against the ever-increasing (or so it seemed) value of these properties to finance improvements or to buy other properties.
* There may be a way out for some, one bankruptcy lawyer counsels: Get a lender to agree that foreclosure “fully satisfies all obligations under the loan.” That might protect the seller from having to pay taxes on the forgiven debt – although one attorney said, “I sure don’t want to be the one litigating it” in court.

Mortgage Rates Climbing - Freddie Mac reports a slight gain in the 30-year fixed mortgage rate to 6.09 percent during the week ended June 5 from 6.08 percent the prior week, marking a nearly three-month high. The increase can be attributed to concerns about inflation, with investors and analysts interpreting recent comments by Federal Reserve Chairman Ben Bernanke to mean an end to interest-rate cuts as the central bank moves to prevent out-of-control inflation. (via Baltimore Sun, 6/6)

Fast Facts
· Calif. median home price - April 08: $403,870(Source: C.A.R.)
· Calif. highest median home price by C.A.R. region April 08: Santa Barbara So. Coast $1,170.000(Source: C.A.R.)
· Calif. lowest median home price by C.A.R. region April 08: High Desert $210,860(Source: C.A.R.)
· Calif. First-time Buyer Affordability Index - First Quarter 08: 44 percent (Source: C.A.R.)
· Mortgage rates - week ending 05/30/08 30-yr. fixed: 6.08% Fees/points: 0.6% 15-yr. fixed: 5.66% Fees/points: 0.6% 1-yr. adjustable: 5.22 % Fees/points: 0.6% (Source: Freddie Mac)

Sources: The Baltimore Sun, USA Today, Freddie Mac, California Association of REALTORS®, KNX-AM, Los Angeles Times, Antelope Valley Press, Forbes, Wall Street Journal, Bloomberg.com, Associated Press, CNNMoney.com, New York Times.

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