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We’ve been getting many questions on the Fannie Mae/Freddie Mac seizures by the U.S. Government.  Here is some information to help get your arms around the situation.

This from the Wall Street Journal

U.S. Seizes Mortgage Giants

Government Ousts CEOs of Fannie, Freddie;
Promises Up to $200 Billion in Capital
By JAMES R. HAGERTY, RUTH SIMON and DAMIAN PALETTA
September 8, 2008 11:31 a.m.

In its most dramatic market intervention in years, the U.S. government seized two of the nation’s largest financial companies, taking direct responsibility for firms that provide funding for around three-quarters of new home mortgages.

Treasury Secretary Henry Paulson announced plans Sunday to take control of troubled mortgage giants Fannie Mae and Freddie Mac and replace the companies’ chief executives.
Mr. Paulson on Monday said in a CNBC interview that the government’s takeover was necessary, but it was “not something I wanted to do.” …

The Treasury will acquire $1 billion of

(more…)

Fannie Mae has announced that they are lowering the maximum loan-to-value (LTV) ratios for a number of loan types. The three changes that will have the most impact follow:

Principal residence, cash-out refinance: Current max is 90%, new max is 85%. This means that if you refinance your primary residence, you can’t get more than 85% of the value if it’s a cash-out transaction.

Investment property purchase: Current LTV max is 90%, new max is 85%. This means purchasers of investment properties will need 15% down.

Investment property refinances (all types): Current max LTV is 90% for rate and term refinances and 85% for cash-out refi’s, new max is 75% for both. This means the most you can get with an investment property refi is 75% of the value.

The changes are not in effect yet for loans that are run through Fannie Mae’s automated underwriting system, and Fannie Mae has not announced when they will upgrade their underwriting software. They usually make upgrades relatively soon after making announcements.

With the bailout of Fannie Mae and Freddie Mac, there are sure to be some changes in a variety of areas.

Stay tuned. We will have follow up information when available.

The long term outlook for rates in the Denver Real Estate market, is so unstable it is tough to predict what we may be in for.  The US Dollar has strengthened lately, oil prices are coming down (which is good, but stability is more important)  I’m still worried that the price is too easily manipulated, and that it can go up, just as easy as it did for the previous few months.

Now for the mortgage market.  There is volatility, and that makes for uneasy buyer’s.  Rates have been swinging up and down lately.  So if you are in the process of getting a loan, make sure you find a comfortable point, and LOCK IN!

The good news is, RATES ARE STILL VERY GOOD!

The Federal Reserve held the line on Tuesday–leaving the Fed Funds Rate at 2.00% for the third straight meeting. The decision, however, was anything but cut-and-dry.

Earlier in the week, the Personal Consumption Expenditure data indicated that inflation climbed 0.8% overall in June, which is the highest inflation jump in 27 years. In addition, the report indicated that inflation now sits at 2.3%–above the Fed’s desired range of 1-2%.

Although the Fed ultimately left interest rates unchanged, inflation obviously remains a concern and the recent rise may lead to an interest rate hike by the Fed in the near future.

What Does This Mean to You? 
Many experts believe the housing market is nearing the bottom and may even be set to bounce back up. For now, home prices remain low, personal incomes are high, and interest rates are still very attractive.

If you have been weighing your options and waiting to see how things shake out, this is the ideal time to act–especially when we consider the new Housing and Economic Recovery Act benefits for home buyers:

Tax credits. First-time home buyers who purchase their primary residence between April 9, 2008 and July 1, 2009 are eligible for up to $7,500 in tax credit, as long as they haven’t owned a home in the last three years.

Down Payment Assistance…going, going, not gone yet. Another provision of the legislation eliminates some down payment assistance programs Oct 1, 2008…but they are still available right now. 

Bottom line…now is the ideal time to put together a home purchase strategy based on your unique situation.  Contact me if I can be of assistance.

The Housing and Economic Recovery Act of 2008, includes many positives for homebuyer’s.  None greater than the $7500 in Tax Credits for First Time Buyer’s.

Here’s the Lowdown.

• Any property, including condo’s and co-op’s, that will be used as a principal residence are eligible.
• Tax liability for the year of purchase is reduced by 10% of the cost of the purchase.  Not to exceed $7500.
• Full amount of credit is available to individuals with AGI of no more than $75,000 ($150,000 for joint returns.)  Credit phases out above the caps.
• Must be a FIRST TIME HOMEBUYER.  Meaning, you can not have owned a principle residence in the 3 previous years.
• Tax will be recaptured, at 6.67% per year, for 15 years.  If sold before 15 years,the remainder of credit will be recaptured on sale.  This basically means you need to pay back the credit over 15 years.
• The credit applies to any qualified purchase between April 9, 2008 until July 1, 2009.

There you have it.  A quick breakdown.  Please contact us for more information!

The housing bill that was signed this week included two major changes for FHA lending guidelines.  The changes are scheduled to kick in on October 1, 2008.

The first change is the minimum down payment requirement.  Currently FHA loans require 3% down.  On a $200,000 purchase this would be $6,000.  The housing bill will increase this minimum down to 3.5%.  On that same $200,000 home, the down payment will now be be $7,000.

The second major change is the elimination of seller funded downpayment assistance.  Currently the seller can contribute up to 6% to the buyer to cover their down payment and closing costs on an FHA loan.  These funds are deducted from the sellers equity and credited to the buyer at closing with a non-profit intermediary.  This has allowed buyers to take advantage of 100% financing.

One of the main reasons this is being eliminated is that FHA found the foreclosure rate to be about 80% higher on loans with down payment seller assistance verses FHA loans without.  There was also concern about inflated property values as a result of the seller funded DPA programs.

Moving forward the max the seller can contribute to the buyers closings costs and pre-paid items is 3% of the purchase price which has always been allowed.  The buyer will now be required to contribute the 3.5% for their the down payment.  Down payment assistance from a non-profit, employer, church or family member is still allowable and always has been.

Despite these changes, FHA loans will continue to be a good option for first time home buyers.

This week President Bush signed the $300 billion housing bill aimed at helping homeowners avoid foreclosure and it’s estimated that roughly 400,000 families will benefit. The changes are scheduled to begin October 1, 2008. It’s a very detailed bill but some of the highlights include:

FHA Changes

Mortgage limits for high cost areas will be increased to the greater of $417,000 or 115% of the local area median home price, capped at $625,000. The FHA floor will go from 48% to 65% of the current conforming loan limit or $271,050.

The FHA down payment requirement will now be 3.5% of the purchase price up from 3.0%.

Seller funded down payment assistance program (DPA) will be terminated on September 30. Other assistance programs provided by non profits or funded by churches, employers or family members remain intact.

Fannie and Freddie

The conforming loan limit will be increased to the greater of $417,000 or 115% of local area median home price up to $625,000.

The bill includes language to authorize the Treasury to make loans to and buy back stock from Fannie Mae and Freddie Mac, establish capital standards, management standards, review and approve new product offering to ensure future sound operations.

FHA Rescue Program

A special FHA refinance program will allow the refinance into fixed rate FHA products of up to $300 billion in distressed mortgages. A few of the details include:

· Homeowners currently living in their home with loans that were issued between January 2005 and June 2007.

· They must be spending at least 31% of their gross monthly income on their mortgage payment.

· They can be current or behind in their monthly payment but must prove they can not continue making the payment.

· Other debt such as home equity loan must be retired first and they can not obtain another home equity for 5 years unless they can prove it’s needed to pay for required maintenance to their home. In addition the new debt can not total more than 95% of the homes value and approval from FHA must also be granted.

· Homeowners will share in future profits by paying a 3% exit fee based on the principal balance to FHA when they sell or refinance.

· If the home is sold or refinanced within a year they will have to pay 100% of the profits to FHA. After a year that numbers drops to 90% and the profit percentage drops in 10% increments to the 5 year and stays at 50%.

Local Foreclosed Properties

The bill provides for $4 billion in neighborhood revitalization funds for local governments to purchase foreclosed properties.

Tax Incentives

A tax credit of $7,500 will be available for First Time Buyers who have or will purchase between April 8, 2008 and June 30, 2009. The Low Income Housing Tax Credit will also be expanded.

For questions on the new law, and how it may effect your purchase or sale, contact the Get Home Denver Team for all your real estate answers!

photo credit: TW Collins

Once you feel comfortable that you have a mortgage professional who can advise you, here are some secrets for shopping effectively.

First, just like anything else IF IT SEEMS TOO GOOD TO BE TRUE, IT PROBABLY IS. No one has a commodity on rates- interest rates all come from the same places, and if the rate sounds really unbelievable, ask a few more questions. Is there a prepayment penalty? Are there extra fees? What is the length of the lock-in agreement? If fees are discounted, is it built into a higher interest rate?

Second, YOU GET WHAT YOU PAY FOR. If you are looking for the cheapest deal out there, understand the risks, especially with the recent credit crunch you need a TRUE PROFESSIONAL on your side someone who is checking guidelines and is up to speed on the market changes. We have all heard the horror stories from friends and family about missed closing dates, or surprise changes at the last minute on interest rate or fees…usually due to working with discount or internet lenders who may have a serious lack of experience. Remember, the cheapest rate on the wrong strategy can cost you thousands more in the long run.

Third, MAKE CORRECT COMPARISONS. When looking at estimates, there is more to it than just the bottom line. You must compare apples to apples the Lender fees are the only costs that the Lender controls all other fees are third party costs. You may be familiar with the term “junk fees”. All Lenders have a fee to process your loan- simply the cost of doing business. Many Lenders have both a processing fee and a funding fee, typically these fees together do not exceed $1,200. If you see a number of other Lender fees listed I would ask your Mortgage Professional for more information.

A Lender is responsible for quoting the other fees associated with a mortgage loan such as title insurance, hazard insurance, appraisal, days of interest., ect.. Keep in mind since they are third party costs – they are often under-quoted up front by a lender to make their bottom line appear lower. Keep your eyes out for these discrepancies and be sure to ask questions about fees you do not understand.

Lately we have seen hidden discounts fees that are NOT included in the bottom line estimate. This hidden fee will appear in small print typed at the bottom of a good faith estimated “X” discount point to be charged ect… again- if it seems to good to be true it likely is.

Fourth, UNDERSTAND THAT INTEREST RATES AND CLOSING COSTS GO HAND IN HAND. A good way to view loans is either Cost, No Cost or Shared Cost– if you are looking for a no cost loan understand that this comes at the expense of a higher interest rate- there is no free lunch. It all depends on what your goals are.

For instance:

How long will you be in the property?

Are you close to retirement?

Is this your primary residence, 2^nd home or an investment property?

What’s more important to you right now cash on hand or a lower monthly payment?

Do you have any life changing events coming up a baby or kids leaving for college?

Is the seller paying any of your closing costs?

A professional advisor will be able to offer the best advice in terms of the balance between interest rate and closing costs that correctly fits your personal and financial goals.

Sample Analysis:

$250,000 Loan with 1% Origination Fee = $2,500 at 5.875% = $1,478.84 principal & interest payment

$250,000 Loan with 0% Origination Fee = $0 at 6.125% = $1,519.03 principal & interest payment

Difference of $40.19 per month divided by $2,500 = 62.20 months or 5.18 years to recoup my costs

Fifth, UNDERSTAND THAT INTEREST RATES CAN CHANGE DAILY, EVEN HOURLY. This means that if you are comparing Lender’s rates and fees – this is a moving target on an hourly basis. In order to have an accurate comparison – you must get these quotes within less than an hour of each other. Be sure the terms are the same- product and program. You also must know the length of the lock you are looking for, since longer rate locks typically have slightly higher rates.

As this is likely one of the largest financial purchases you will make- be smart, ask questions, and seek the advise of a professional advisor not just some one who will quote you the lowest rate out there.

photo credit: sosico

First and foremost in order to shop effectively you need to make sure you are working with a professional, someone who is interested in your goals and plans for the future. This is very likely your largest asset as well as your largest debt.

Ultimately what we are talking about here is a lien against your income – and what is the best way to manage that? You are looking for someone who can advise you not just quote rates and payments over the phone. Get a recommendation from your Realtor they often have professionals they like working with and have completed multiple transactions with in the past. Or it is always nice to have a warm introduction from friends or family especially when you are dealing with your personal financial well being.

Here are four simple things your Mortgage Lender MUST KNOW the answers to otherwise you need to seek another opinion.

What are mortgage interest rates based on?

Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. Often times the 10-year Treasury Note trends in the same direction as Mortgage Bonds, other times it moves in the completely opposite direction.

What is the next Economic Report or event that could cause interest rates to move?

A professional lender will have this at their fingertips.

Do you have access to live, real time, mortgage bond quotes? Mortgage Bonds and interest rates are moving in real time several times a day and you need to make sure you are talking with someone who will warn you in advance of a costly intra-day price change, Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? Of course not.

When The Fed “changes rates”, what does this mean… and what impact does this have on mortgage interest rates? The answer may surprise you.  When the Fed makes a move, they can change a rate called the “Federal Funds Rate”.  This is a very short- term rate that impacts things like- credit cards, Home Equity Lines of Credit, auto loans, etc… On the day of the Fed announcement, Mortgage rates most of the time will actually move in the opposite direction as the Fed change. Typically this is due to the dynamics within the financial markets in response to inflation.

FYI: PRIME is made up of the The Federal Funds Rate plus a margin of 3%. Today PRIME is at 5.00% = federal funds rate of 2.00% + a margin of 3.00% = 5.00%

I hope this helps you understand a little more about how interest rates work. Keep in mind rates are currently at 40 year lows now is an excellent time to learn more about purchasing. My next blog entry will highlight some more secrets for shopping effectively…

Look forward to your comments.

photo credit: amishsteve

There’s no simple answer to how the housing market got into this mess but the bottom line on the credit crunch is you do NOT have to have 720 fico with 20% down to get a loan.

What are Investors (Mortgage Lenders) looking for these days- credit, income and equity. These criteria still hold true, guidelines have tightened up but these are the main areas of concern for all investors.

Credit- what is your credit score? Scores range from 500-800. A credit score of 720 or higher is ideal. Anything over 680 is great. 680-650 is ok. 650 and below would be a perfect fit for FHA. Please look to future posts on the reason why all radio adds you hear now-a-days are all about” the new and improved FHA loans”…

Income- are you self employed (1099) or W2? If you are a self employed borrower all investors are looking for a two year history in the same line of work. If you are a W2 employee you will need a two year history of employment regardless of industry. By the way- Job gaps are acceptable for W2 employees and it is ok to be fresh out of school looking for a job with no history of previous employment.

Equity- are you looking for 100% financing or 80% financing, etc…

Investors determine their products and pricing based upon their layer of risk they are exposed to in the above three areas. There is one remaining category of importance to investors- occupancy. Will the property to be an investment property or do you intend to occupy the property as your primary residence?

We have seen the credit crunch eliminate more aggressive products such as 95% + non owner occupied financing, 103% financing, etc… don’t be fooled by all the press surrounding the mortgage industry. There are still many loans out there for both owner occupied and non owner occupied properties.

Best of luck during your home search, and feel free to contact the Get Home Denver Team with any questions!