On December 16, Fannie Mae sent lenders the following bulletin:
Fannie Mae requires that established condominium projects consisting of attached units have an owner-occupancy ratio of at least 51 percent at the time the loan is originated (purchase or refinance) if the mortgage loan being delivered is secured by an investment property. Established projects where borrowers will occupy the unit or use the unit as a second home are not subject to any owner-occupancy ratios.
Due to current market conditions, many condominium projects are experiencing higher numbers of financial institution- owned REO units, which many lenders may be counting as non-owner-occupied under Fannie Mae’s current requirements.
Fannie Mae is clarifying its condominium project owner-occupancy ratio policy to include REO units that are for sale (not rented) as owner-occupied units in the owneroccupancy ratio.
When an investor applies to Fannie for loan, Fannie requires that at least 51% of the units in the complex are owner occupied. In the past, any vacant unit that had been foreclosed on and was bank-owned was considered non-owner occupied. Under this new policy, Fannie says it will now count bank-owned REO units that are listed for sale, but are not rented, as if they are owner-occupied when computing the 51 percent ratio.
This will help investors qualify for Fannie Mae loans and, hopefully, help stimulate sales of units that have been languishing on the market.
Friday, December 26, 2008
Monday, December 15, 2008
Meet Your New Landlord - Fannie Mae
Yesterday, Fannie Mae announced that it would allow existing tenants to remain in foreclosed properties owned by the company. In many states, when a home goes into foreclosure the tenant may be immediately evicted, even though they have a lease and their rent is paid on time.
Fannie Mae will now offer renters in foreclosed properties month-to-month leases until the property is resold. “While it may be sometimes tougher for us to sell a property when people are in it, we understand that lots of people are in tough situations right now,” said Chuck Greener, a Fannie Mae spokesman. “If a renter wants to stay in their home, we’ll make that happen. And if they want to move out, in many cases we’ll help them pay for the move.”
Fannie Mae will now offer renters in foreclosed properties month-to-month leases until the property is resold. “While it may be sometimes tougher for us to sell a property when people are in it, we understand that lots of people are in tough situations right now,” said Chuck Greener, a Fannie Mae spokesman. “If a renter wants to stay in their home, we’ll make that happen. And if they want to move out, in many cases we’ll help them pay for the move.”
Thursday, December 11, 2008
Credit Cards Become More Expensive
Be very careful if you use your credit cards this holiday season. Towards the end of November, reports started surfacing that credit card companies were increasing their interest rates for anyone without a spotless payment history. It can not be a coincidence that this increase just happens to have coincided with the holiday buying season.
I'm not talking about small increases. Numerous companies have doubled their rates as well as increased fees, even as the Federal Government slashed the cost of funds to banks to a record low 1%. New "use" fees are appearing on bills, and minimum payment amounts are also creeping up. Even store credit cards are increasing rates. And some, like Home Depot, are lowering credit limits for buyers whose credit scores have dropped.
Like everyone else, banks and retailers are looking for ways to lower risk and increase their net. If you must use credit cards, make sure you review your latest bills for changes to fees and interest rates. If you don't check, you may find that $50 toy you charged is costing you a lot more than you thought.
I'm not talking about small increases. Numerous companies have doubled their rates as well as increased fees, even as the Federal Government slashed the cost of funds to banks to a record low 1%. New "use" fees are appearing on bills, and minimum payment amounts are also creeping up. Even store credit cards are increasing rates. And some, like Home Depot, are lowering credit limits for buyers whose credit scores have dropped.
Like everyone else, banks and retailers are looking for ways to lower risk and increase their net. If you must use credit cards, make sure you review your latest bills for changes to fees and interest rates. If you don't check, you may find that $50 toy you charged is costing you a lot more than you thought.
Sunday, December 7, 2008
Tax Credit For First Time Homebuyers
As part of the Housing and Economic Recovery Act of 2008, a tax credit was designed for first time homebuyers. I have been getting a lot of questions asking exactly who is eligable. Below is an article from the IRS website that clearly explains who can receive this credit, and how it is repaid.
Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years
IR-2008-106, Sept. 16, 2008
WASHINGTON — First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.
Available for a limited time only, the credit:
Applies to home purchases after April 8, 2008, and before July 1, 2009.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers.
The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.
This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the credit, even if you buy a main home:
Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue bonds.
You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.
Q. How and when is the credit repaid?
A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
However, some exceptions apply to the repayment rule. They include:
If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years
IR-2008-106, Sept. 16, 2008
WASHINGTON — First-time homebuyers should begin planning now to take advantage of a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008.
Available for a limited time only, the credit:
Applies to home purchases after April 8, 2008, and before July 1, 2009.
Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.
However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.
Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further instructions on claiming the first-time homebuyer credit, will be included in 2008 tax forms and instructions and be available later this year on IRS.gov, the IRS Web site.
If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit.
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.
If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers.
The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.
This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the credit, even if you buy a main home:
Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue bonds.
You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.
Q. How and when is the credit repaid?
A. The first-time homebuyer credit is similar to a 15-year interest-free loan. Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.
You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
However, some exceptions apply to the repayment rule. They include:
If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
Thursday, December 4, 2008
Fraud Alert From the US Treasury
The U.S. Department of Treasury, Office of Inspector General (OIG), is investigating incidences whereby individuals are using fraudulent promissory notes and bonds to attempt to purchase vehicles and real estate. The OIG has been notified of numerous occurrences throughout the United States where fraudulent documents were used to attempt to purchase vehicles. Treasury OIG has also been made aware of incidents in Arizona and Colorado where similar fraudulent documents were used to attempt to purchase homes and an office building.
The fraudulent documents are not referenced as “U.S. Treasury” bonds or promissory notes. They are referenced as “personal promissory note” and “private offset bond;” however, they have the name of Henry Paulson, Secretary, U.S. Treasury, on the face of the documents.
Treasury OIG has learned that the only type of hard-copy bond issued by the U.S. Treasury that a citizen can purchase today is a savings bond. All other bonds are electronic and the buyer would not receive a hard-copy document. Finally, Paulson’s name should not appear on any document listed as a private bond or promissory note since these items are not backed or guaranteed by the U.S. Treasury.
If you have any information regarding this type of fraudulent activity, we request that you contact the U.S. Department of Treasury, Office of Inspector General (OIG), Office of Investigations Hotline, at 800/359-3898 or e-mail Hotline@oig.treas.gov. REALTORS® approached by a person giving these or similar circumstances should consider the potential for fraud. Should you suspect fraudulent activity, it is recommended that you contact the OIG Hotline and your local law enforcement agency immediately. Additional information regarding this and other similar fraud schemes can be found atthe following Department of Treasury Web site:http://www.treasurydirect.gov/instit/statreg/fraud/fraud_bogussightdraft.htm
The fraudulent documents are not referenced as “U.S. Treasury” bonds or promissory notes. They are referenced as “personal promissory note” and “private offset bond;” however, they have the name of Henry Paulson, Secretary, U.S. Treasury, on the face of the documents.
Treasury OIG has learned that the only type of hard-copy bond issued by the U.S. Treasury that a citizen can purchase today is a savings bond. All other bonds are electronic and the buyer would not receive a hard-copy document. Finally, Paulson’s name should not appear on any document listed as a private bond or promissory note since these items are not backed or guaranteed by the U.S. Treasury.
If you have any information regarding this type of fraudulent activity, we request that you contact the U.S. Department of Treasury, Office of Inspector General (OIG), Office of Investigations Hotline, at 800/359-3898 or e-mail Hotline@oig.treas.gov. REALTORS® approached by a person giving these or similar circumstances should consider the potential for fraud. Should you suspect fraudulent activity, it is recommended that you contact the OIG Hotline and your local law enforcement agency immediately. Additional information regarding this and other similar fraud schemes can be found atthe following Department of Treasury Web site:http://www.treasurydirect.gov/instit/statreg/fraud/fraud_bogussightdraft.htm
Early Holiday Gifts From the US Treasury?
In a speech earlier this week, Treasury Secretary Henry Paulson said: "The most important thing we can do to mitigate foreclosures and progress through the housing correction is to reduce the cost of mortgage finance, so more families can afford to buy a home and so homeowners can refinance into more affordable mortgages." Today, rumors are flying around Washington that, perhaps as early as Monday, the Treasury will announce a plan that would lower mortgage rates to 4.5% for 30 year, fixed rate loans.
The hope is that, with rates historically low, more buyers will have the incentive to buy now. This would decrease the oversupply of housing stock and stabilize prices. Homeowners who are struggling with loan payments will be able to refinance to a more sustainable payment, thus stemming foreclosures. It would also address the criticism that the present bailout is only addressing the problems of financial institutions, not individuals.
No one is saying anything "officially". But it has been my experience that these sorts of leaks don't happen unless plans are already in the works. The specifics may be tweaked, but I expect to see some sort of announcement next week. Now that's what I call a nice holiday present!
The hope is that, with rates historically low, more buyers will have the incentive to buy now. This would decrease the oversupply of housing stock and stabilize prices. Homeowners who are struggling with loan payments will be able to refinance to a more sustainable payment, thus stemming foreclosures. It would also address the criticism that the present bailout is only addressing the problems of financial institutions, not individuals.
No one is saying anything "officially". But it has been my experience that these sorts of leaks don't happen unless plans are already in the works. The specifics may be tweaked, but I expect to see some sort of announcement next week. Now that's what I call a nice holiday present!
Thursday, November 20, 2008
Freddie Mac and Fannie Mae Suspend Foreclosures Between November 26, 2008 and January 9, 2009
Freddie Mac News Release:
McLean, VA – Freddie Mac (NYSE: FRE) today announced it has ordered its national network of mortgage servicers and foreclosure attorneys to suspend all foreclosure sales and evictions involving occupied single family and 2-4 unit properties with Freddie Mac-owned mortgages between November 26, 2008 and January 9, 2009. The suspension will help servicers implement the Streamlined Modification Program recently announced by Freddie Mac, Fannie Mae, the Federal Housing Finance Agency (FHFA), HOPE Now and 27 mortgage servicers. The temporary suspension is also expected to give servicers more time to help borrowers avoid foreclosure.
Specifically, Freddie Mac servicers and foreclosure attorneys were told to contact as quickly as possible an estimated 6,000 borrowers with foreclosure sales scheduled between November 26, 2008 and January 9, 2009. If the property is occupied, the servicers and foreclosure attorneys will halt the sale. This temporary suspension of foreclosure sales will not apply to vacant single family properties. Additionally, no evictions will be completed between November 26 and January 9.
“By working closely with FHFA and our servicers, Freddie Mac is on track to help three out of every five troubled borrowers with Freddie Mac-owned loans avoid foreclosure this year,” said Freddie Mac Chief Executive Officer David M. Moffett. “Today’s announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays.”
Moffett said that by delaying these foreclosure sales, the nation’s servicers will have the opportunity to work with more borrowers who could qualify for a modification under the new Streamlined Modification program scheduled to begin by December 15.
“Today’s announcement has the potential to enable more families struggling in these extraordinary times to take advantage of this vital new initiative developed with FHFA, the Treasury Department and the mortgage finance industry,” said Moffett.
Moffett also emphasized that lenders servicing Freddie Mac-owned mortgages will continue to work with borrowers to consider all workout options Freddie Mac employs to help distressed borrowers who can and want to stay in their homes, such as permanent rate reductions and mortgage term extension modifications.
This year, Freddie Mac expects to approve 84,000 workouts for the estimated 140,000 who are delinquent on Freddie Mac-owned mortgages. (For more about Freddie Mac workout options, see freddiemac.com/avoiding_foreclosure.)
Freddie Mac's temporary suspension of foreclosure sales is the latest in a series of efforts to help troubled borrowers. Other recent initiatives have included, delegating expanded workout authority to servicers, doubling the amount of money servicers are paid for successful workouts, and paying non-profit organizations to reach out to worried borrowers.
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.
Fannie Mae News Release:
WASHINGTON, DC -- In order to support the streamlined modification program announced on November 11, 2008, Fannie Mae (NYSE:FNM) today issued a notice to its loan servicing organizations and retained foreclosure attorneys directing them to suspend foreclosure sales on occupied single-family properties as well as the completion of evictions from occupied single-family properties scheduled to occur from November 26, 2008 until January 9, 2009.
The temporary suspension of foreclosures is designed to allow affected borrowers facing foreclosure to retain their homes while Fannie Mae works with mortgage servicers to implement the streamlined modification program scheduled to launch December 15. Foreclosure attorneys and loan servicers will be instructed to use the additional time to reach out to borrowers who have defaulted on their loans and continue to pursue workout options. The initiative applies to loans owned or securitized by Fannie Mae.
The streamlined modification program is aimed at the highest risk borrower who has missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy. The program creates a fast-track method for getting troubled borrowers into an affordable monthly payment through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payments on part of the principal. Servicers have flexibility in the approach, but the objective is to create a more affordable payment for borrowers at risk of foreclosure.
"The streamlined modification program by Fannie Mae, Freddie Mac, Hope Now and 27 mortgage servicers is an important step forward in addressing the systemic issues driving the increase in foreclosures," said Fannie Mae President and Chief Executive Officer Herb Allison. "Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes. We encourage other servicers of non-GSE mortgages to participate in the streamlined modification program to bolster our collective efforts to stem the foreclosure crisis."
Fannie Mae will be working with foreclosure attorneys and servicers to reach out to the more than 10,000 borrowers the company estimates would be affected during this period. Borrowers who have Fannie Mae loans that are scheduled for foreclosure between November 26, 2008 and January 9, 2009, will be contacted directly by the attorney handling the foreclosure. If the home is occupied, Fannie Mae has instructed servicers and attorneys to suspend the foreclosure.
Allison also said Fannie Mae's loan servicers are prepared to work with borrowers during this period, even if previous workout efforts have been unsuccessful. As part of the company's "Second Look" initiative, Fannie Mae personnel have been reviewing seriously delinquent loans to determine if the borrower has been contacted and all workout options have been exhausted.
The streamlined modification program and temporary suspension of foreclosures are two of a series of steps Fannie Mae has taken to expand its foreclosure prevention efforts, which are designed to give loan servicers and foreclosure attorneys tools to find the best solution for a borrower in financial trouble. Fannie Mae and its many partners in the housing industry urge borrowers in financial difficulty to reach out to their loan servicers, regardless of whether they are facing imminent foreclosure. Solutions may be available that could make an existing mortgage more affordable.
"Fannie Mae is committed to working with FHFA to implement the streamlined modification program as quickly as possible to help prevent unnecessary foreclosures," Allison said. "We must and will do more."
McLean, VA – Freddie Mac (NYSE: FRE) today announced it has ordered its national network of mortgage servicers and foreclosure attorneys to suspend all foreclosure sales and evictions involving occupied single family and 2-4 unit properties with Freddie Mac-owned mortgages between November 26, 2008 and January 9, 2009. The suspension will help servicers implement the Streamlined Modification Program recently announced by Freddie Mac, Fannie Mae, the Federal Housing Finance Agency (FHFA), HOPE Now and 27 mortgage servicers. The temporary suspension is also expected to give servicers more time to help borrowers avoid foreclosure.
Specifically, Freddie Mac servicers and foreclosure attorneys were told to contact as quickly as possible an estimated 6,000 borrowers with foreclosure sales scheduled between November 26, 2008 and January 9, 2009. If the property is occupied, the servicers and foreclosure attorneys will halt the sale. This temporary suspension of foreclosure sales will not apply to vacant single family properties. Additionally, no evictions will be completed between November 26 and January 9.
“By working closely with FHFA and our servicers, Freddie Mac is on track to help three out of every five troubled borrowers with Freddie Mac-owned loans avoid foreclosure this year,” said Freddie Mac Chief Executive Officer David M. Moffett. “Today’s announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays.”
Moffett said that by delaying these foreclosure sales, the nation’s servicers will have the opportunity to work with more borrowers who could qualify for a modification under the new Streamlined Modification program scheduled to begin by December 15.
“Today’s announcement has the potential to enable more families struggling in these extraordinary times to take advantage of this vital new initiative developed with FHFA, the Treasury Department and the mortgage finance industry,” said Moffett.
Moffett also emphasized that lenders servicing Freddie Mac-owned mortgages will continue to work with borrowers to consider all workout options Freddie Mac employs to help distressed borrowers who can and want to stay in their homes, such as permanent rate reductions and mortgage term extension modifications.
This year, Freddie Mac expects to approve 84,000 workouts for the estimated 140,000 who are delinquent on Freddie Mac-owned mortgages. (For more about Freddie Mac workout options, see freddiemac.com/avoiding_foreclosure.)
Freddie Mac's temporary suspension of foreclosure sales is the latest in a series of efforts to help troubled borrowers. Other recent initiatives have included, delegating expanded workout authority to servicers, doubling the amount of money servicers are paid for successful workouts, and paying non-profit organizations to reach out to worried borrowers.
Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.
Fannie Mae News Release:
WASHINGTON, DC -- In order to support the streamlined modification program announced on November 11, 2008, Fannie Mae (NYSE:FNM) today issued a notice to its loan servicing organizations and retained foreclosure attorneys directing them to suspend foreclosure sales on occupied single-family properties as well as the completion of evictions from occupied single-family properties scheduled to occur from November 26, 2008 until January 9, 2009.
The temporary suspension of foreclosures is designed to allow affected borrowers facing foreclosure to retain their homes while Fannie Mae works with mortgage servicers to implement the streamlined modification program scheduled to launch December 15. Foreclosure attorneys and loan servicers will be instructed to use the additional time to reach out to borrowers who have defaulted on their loans and continue to pursue workout options. The initiative applies to loans owned or securitized by Fannie Mae.
The streamlined modification program is aimed at the highest risk borrower who has missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy. The program creates a fast-track method for getting troubled borrowers into an affordable monthly payment through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payments on part of the principal. Servicers have flexibility in the approach, but the objective is to create a more affordable payment for borrowers at risk of foreclosure.
"The streamlined modification program by Fannie Mae, Freddie Mac, Hope Now and 27 mortgage servicers is an important step forward in addressing the systemic issues driving the increase in foreclosures," said Fannie Mae President and Chief Executive Officer Herb Allison. "Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes. We encourage other servicers of non-GSE mortgages to participate in the streamlined modification program to bolster our collective efforts to stem the foreclosure crisis."
Fannie Mae will be working with foreclosure attorneys and servicers to reach out to the more than 10,000 borrowers the company estimates would be affected during this period. Borrowers who have Fannie Mae loans that are scheduled for foreclosure between November 26, 2008 and January 9, 2009, will be contacted directly by the attorney handling the foreclosure. If the home is occupied, Fannie Mae has instructed servicers and attorneys to suspend the foreclosure.
Allison also said Fannie Mae's loan servicers are prepared to work with borrowers during this period, even if previous workout efforts have been unsuccessful. As part of the company's "Second Look" initiative, Fannie Mae personnel have been reviewing seriously delinquent loans to determine if the borrower has been contacted and all workout options have been exhausted.
The streamlined modification program and temporary suspension of foreclosures are two of a series of steps Fannie Mae has taken to expand its foreclosure prevention efforts, which are designed to give loan servicers and foreclosure attorneys tools to find the best solution for a borrower in financial trouble. Fannie Mae and its many partners in the housing industry urge borrowers in financial difficulty to reach out to their loan servicers, regardless of whether they are facing imminent foreclosure. Solutions may be available that could make an existing mortgage more affordable.
"Fannie Mae is committed to working with FHFA to implement the streamlined modification program as quickly as possible to help prevent unnecessary foreclosures," Allison said. "We must and will do more."
Thursday, November 13, 2008
Home Equity - Use It or Lose It?
People who are lucky enough to still have a home equity line of credit are thinking that it may be time to pull out any remaining balance. It seems like a reasonable idea, a way to increase your cash reserves. Besides, with home values dropping, the lender may decrease - or cancel - that equity line. So why not grab that money while you still can?
Even some financial planners are counseling their clients to max out their equity lines. "Banks are reducing their commitment on home equity loans. If you think you will need it, it's a good time to take advantage of it before it goes away," said Bob Kresak, a certified financial planner and managing partner of the Founders Financial Network.
For some, this may be wise advice. By cashing out the equity line and placing the money in a secure account, the funds are now "liquid". That means that they are readily available in case they are needed.
But don't forget that this money is not free. Every penny you borrow against your home must be paid back - with interest. And that's the problem. If the loan against your home's equity costs you 5% interest, but you place it in a savings account that gets you 3% interest, you are losing 2% every month. In addition, the money you borrow will show up on your credit report and may lower your credit score. In fact, if you take out the maximum amount allowed by the lender, this will certainly have a negative affect on your credit rating.
So should you pull all the equity out of your home? The answer is... it depends. Can you invest the funds in something that will give you at least a good a return as the loan costs you each month? Is that investment secure? And finally, are you anticipating an expense (medical bills, college tuition) where the cost of borrowing the money someplace else would be more expensive than borrowing against your home? Like all loans, the home equity line of credit is a financial tool. Just be sure to use it wisely.
Even some financial planners are counseling their clients to max out their equity lines. "Banks are reducing their commitment on home equity loans. If you think you will need it, it's a good time to take advantage of it before it goes away," said Bob Kresak, a certified financial planner and managing partner of the Founders Financial Network.
For some, this may be wise advice. By cashing out the equity line and placing the money in a secure account, the funds are now "liquid". That means that they are readily available in case they are needed.
But don't forget that this money is not free. Every penny you borrow against your home must be paid back - with interest. And that's the problem. If the loan against your home's equity costs you 5% interest, but you place it in a savings account that gets you 3% interest, you are losing 2% every month. In addition, the money you borrow will show up on your credit report and may lower your credit score. In fact, if you take out the maximum amount allowed by the lender, this will certainly have a negative affect on your credit rating.
So should you pull all the equity out of your home? The answer is... it depends. Can you invest the funds in something that will give you at least a good a return as the loan costs you each month? Is that investment secure? And finally, are you anticipating an expense (medical bills, college tuition) where the cost of borrowing the money someplace else would be more expensive than borrowing against your home? Like all loans, the home equity line of credit is a financial tool. Just be sure to use it wisely.
Tuesday, November 11, 2008
Banks Limit Foreclosures
Yesterday, Citigroup announced that it was putting a moratorium on instigating new foreclosures as well as on completing foreclosures now in process. With this announcement, they join Morgan Stanley Chase, the Federal Deposit Insurance Corporation (FDIC,) and a Bank of America (which now holds Countrywide's loans) in attempting to stop foreclosures of single family homes.
The moratorium will be available to homeowners if they meet several criteria; they must want to stay in their home, be willing to work in good faith with the bank to resolve their problems, and have the income to afford payments on a restructured mortgage.
But Citigroup is not just waiting until borrowers go into default before helping them find new loan payment solutions. Over the next six months, the bank plans to contact about one-half million homeowners, about one-third of the bank's own borrowers, who are current on their mortgage payments now but are at risk of falling behind in the near future.
Banks are finally realizing that working with borrowers to prevent foreclosures, while expensive in the short term, is ultimately less costly than taking, managing, and marketing the foreclosed homes.
If you are having problems meeting your home loan obligations, call your bank. You may find that they are now willing to help you find a solution.
The moratorium will be available to homeowners if they meet several criteria; they must want to stay in their home, be willing to work in good faith with the bank to resolve their problems, and have the income to afford payments on a restructured mortgage.
But Citigroup is not just waiting until borrowers go into default before helping them find new loan payment solutions. Over the next six months, the bank plans to contact about one-half million homeowners, about one-third of the bank's own borrowers, who are current on their mortgage payments now but are at risk of falling behind in the near future.
Banks are finally realizing that working with borrowers to prevent foreclosures, while expensive in the short term, is ultimately less costly than taking, managing, and marketing the foreclosed homes.
If you are having problems meeting your home loan obligations, call your bank. You may find that they are now willing to help you find a solution.
Monday, November 3, 2008
Remodel Safely: Protect yourself and the Environment while saving Money
This article was submitted by the editorial staff at the Mesothelioma Cancer Center.
There are many things to consider when remodeling or buying buying an older home. Homes built before 1980 could easily contain asbestos. Of course, even homes build after 1980 still may contain products that are worth taking note of. As technology and long-terms cost efficiency is constantly evolving, so too is our need for environmentally and health safe building materials. If you are interested in remodeling, saving money and improving your environmental standing in the world, then here is some information to get a project started in the right direction.
In the Beginning
If you’ve thought about remodeling a home that was built before 1980, you’ll probably be faced with a number of toxic materials during the process, not the least of which will be asbestos. Asbestos insulation was used in millions of homes during the housing boom of the 20th century and though it’s safe to be around when it’s enclosed or in good condition, damaged asbestos can be a real problem. It can cause dfferent types of mesothelioma, such as peritoneal mesothelioma and pericardial mesothelioma. In addition, removing asbestos in order to replace it with a healthy alternative can be a pain as well – it needs to be removed by a licensed professional – but the end result is well worth the time and expense.
Asbestos Removal
Nonregulated asbestos material can be legally performed by homeowners, regular contractors, or licensed asbestos abatement contractors as long as the National Emissions Standards for Hazardous Air Pollutants (NESHAP) are not violated.
The health risks involved in handling non regulated asbestos materials is small but the removal should be done in a manner that will minimize the release of fibers due to breakage. It is recommended, because breakage in inevitable, that one wears asbestos related safety equipment including a disposable tyvek suit, gloves and must be medically able to wear a half mask respirator with High Efficiency Particulate Air (HEPA) filters, and adhere to the principles of wet removal and without visible emissions.
Removal in workplaces, schools and public facilities must be done by a licensed asbestos abatement contractor.
Disposal
The best way to dispose of asbestos is to bury it or any way that will prevent it from becoming airborne.
Service area landfills will often accept large amounts of asbestos provided it is properly contained or shipped in bulk.
Clean ways to Insulate
Building Green
Most individuals give little thought to what’s being consumed when they turn on their lights or fire up their furnace. Few workers pay attention to whether or not they’ve turned the air conditioning off when they leave their office building or whether they left the faucets dripping in the company washroom.
In a world where electricity is expected at the flick of a switch and where water rarely fails to flow from the bathtub or shower, the Green Building Resource Center estimates that in the U.S., buildings account for:
36% of total energy use
65% of electricity consumption
30% of greenhouse gas emissions
30% of raw materials use
30% of waste output (equal to 136 million tons annually)
12% of potable water consumption
So many buildings. So much waste. And with the building boom continuing, despite present economic hardships, adherence to construction practices other than what’s become known as “green building” will surely continue to increase the proverbial “carbon footprint.”
Benefits of Green Construction
Thankfully, however, the idea of “building green” is gradually becoming much more than a trend. Builders and investors are recognizing that eco-friendly construction provides not only long-term positive environmental benefits but also immediate financial payoffs as well.
Cities throughout the U.S. and the world are also slowly recognizing the necessity of green construction practices in the remodeling and renovating of older residential and commercial facilities, taking advantage of loans offered to them by various foundations, designated for the purpose of upgrading lighting and heating and cooling systems in aging buildings, where the most energy is consumed.
Such initiatives also prompt the need for healthier and more cost-efficient options in the world of building materials. Indeed, the United Nations Environmental Program says that the use of recycled building materials, like cotton fiber insulation, in addition to the installation of energy saving appliances and the maximization of natural lighting in a building, can reduce energy use energy use by 25 to 35 percent. In some best-case scenarios, they say, results have been as high as 80 percent.
The United States Green Building Council (USGBC), in a study conducted in 2003, estimated a savings of $50-$65 per square foot for well-constructed green buildings in the U.S. (see table below) during that year. The numbers continue to improve as more eco-friendly options become available, and those kinds of figures have finally begun to attract those who thought eco-friendly construction was just a bunch of hogwash.
Type of Benefit ------------------------------ 20-year Net Present Value / sq. feet
Green Remodeling
While the remodeling of existing older buildings to make them more energy efficient is certainly a necessity, it doesn’t come without its hazards. Remember, older homes and commercial buildings probably contain all sorts of toxins, most notably asbestos. The miracle of the 20th century building industry, touted for its amazing heat- and fire-resistant properties, this hazardous mineral can be found in attics, wrapped around pipes and furnaces, and even in walls, floors, and ceilings, especially in buildings constructed prior to 1980.
Once the asbestos is addressed and then removed by a licensed professional and disposed of properly, green insulation options should be given serious consideration. The Department of Energy says heating and cooling accounts for 50-70 percent of the energy used in the average American home so finding sound and healthy insulation options are a necessity. Today, these options can save natural resources as well. Eco-friendly insulations are often made of recycled materials and include cellulose (old shredded newspapers treated for fire resistance), cotton fiber (usually made of recycled batted denim), and spray polyurethane foam.
Statistics show that the foam, for example, can cut energy costs by about 35 percent annually, according to studies done by manufacturers. The other projects claim similar figures. And because these are recycled materials, less waste is going to the nation’s already crowded landfills.
Formal listing of Insulation Alternatives
Cotton fiber – This has become the favored insulation of many green builders or remodelers. Made of recycled batted material, such as denim, this fiber insulation is then treated with a chemical to make it fireproof. However, cotton fiber insulation is non-toxic and produces no off-gasses, making it a healthy choice.
Cellulose – Who would have believed that someday we’d be insulating our homes with recycled newsprint? Well, that’s exactly what cellulose is and it’s become one of the most popular new green insulating materials. Chemically treated to reduce mold and promote heat and fire resistance, figures show that cellulose can reduce air conditioning and heating bills up to about 20 percent each year.
Icynene – This water-based spray polyurethane foam keeps a home very tight, allowing little opportunity for things like mold to form. This healthy insulation also contains no polybrominated diphenyl ethers (PBDE), which are often found in spray foam insulation products. PBDEs can be quite toxic and are already banned in some states. Icynene also contains no hydrochlorofluorocarbons, which are believed to prompt global warming.
There are many things to consider when remodeling or buying buying an older home. Homes built before 1980 could easily contain asbestos. Of course, even homes build after 1980 still may contain products that are worth taking note of. As technology and long-terms cost efficiency is constantly evolving, so too is our need for environmentally and health safe building materials. If you are interested in remodeling, saving money and improving your environmental standing in the world, then here is some information to get a project started in the right direction.
In the Beginning
If you’ve thought about remodeling a home that was built before 1980, you’ll probably be faced with a number of toxic materials during the process, not the least of which will be asbestos. Asbestos insulation was used in millions of homes during the housing boom of the 20th century and though it’s safe to be around when it’s enclosed or in good condition, damaged asbestos can be a real problem. It can cause dfferent types of mesothelioma, such as peritoneal mesothelioma and pericardial mesothelioma. In addition, removing asbestos in order to replace it with a healthy alternative can be a pain as well – it needs to be removed by a licensed professional – but the end result is well worth the time and expense.
Asbestos Removal
Nonregulated asbestos material can be legally performed by homeowners, regular contractors, or licensed asbestos abatement contractors as long as the National Emissions Standards for Hazardous Air Pollutants (NESHAP) are not violated.
The health risks involved in handling non regulated asbestos materials is small but the removal should be done in a manner that will minimize the release of fibers due to breakage. It is recommended, because breakage in inevitable, that one wears asbestos related safety equipment including a disposable tyvek suit, gloves and must be medically able to wear a half mask respirator with High Efficiency Particulate Air (HEPA) filters, and adhere to the principles of wet removal and without visible emissions.
Removal in workplaces, schools and public facilities must be done by a licensed asbestos abatement contractor.
Disposal
The best way to dispose of asbestos is to bury it or any way that will prevent it from becoming airborne.
Service area landfills will often accept large amounts of asbestos provided it is properly contained or shipped in bulk.
Clean ways to Insulate
Building Green
Most individuals give little thought to what’s being consumed when they turn on their lights or fire up their furnace. Few workers pay attention to whether or not they’ve turned the air conditioning off when they leave their office building or whether they left the faucets dripping in the company washroom.
In a world where electricity is expected at the flick of a switch and where water rarely fails to flow from the bathtub or shower, the Green Building Resource Center estimates that in the U.S., buildings account for:
36% of total energy use
65% of electricity consumption
30% of greenhouse gas emissions
30% of raw materials use
30% of waste output (equal to 136 million tons annually)
12% of potable water consumption
So many buildings. So much waste. And with the building boom continuing, despite present economic hardships, adherence to construction practices other than what’s become known as “green building” will surely continue to increase the proverbial “carbon footprint.”
Benefits of Green Construction
Thankfully, however, the idea of “building green” is gradually becoming much more than a trend. Builders and investors are recognizing that eco-friendly construction provides not only long-term positive environmental benefits but also immediate financial payoffs as well.
Cities throughout the U.S. and the world are also slowly recognizing the necessity of green construction practices in the remodeling and renovating of older residential and commercial facilities, taking advantage of loans offered to them by various foundations, designated for the purpose of upgrading lighting and heating and cooling systems in aging buildings, where the most energy is consumed.
Such initiatives also prompt the need for healthier and more cost-efficient options in the world of building materials. Indeed, the United Nations Environmental Program says that the use of recycled building materials, like cotton fiber insulation, in addition to the installation of energy saving appliances and the maximization of natural lighting in a building, can reduce energy use energy use by 25 to 35 percent. In some best-case scenarios, they say, results have been as high as 80 percent.
The United States Green Building Council (USGBC), in a study conducted in 2003, estimated a savings of $50-$65 per square foot for well-constructed green buildings in the U.S. (see table below) during that year. The numbers continue to improve as more eco-friendly options become available, and those kinds of figures have finally begun to attract those who thought eco-friendly construction was just a bunch of hogwash.
Type of Benefit ------------------------------ 20-year Net Present Value / sq. feet
Energy Savings ------------------------------$5.80
Emissions Savings ---------------------------$1.20
Water Savings --------------------------------$0.50
Operations and Maintenance Savings ---------$8.50
Productivity and Health Benefits --------------$36.90 - $55.30
Subtotal ---------------------------------------$52.90 - $71.30
Initial Investment in Green Building Practices --$3.00 - $5.00
Total 20-year Net Benefit ----------------------$50 - $65
Emissions Savings ---------------------------$1.20
Water Savings --------------------------------$0.50
Operations and Maintenance Savings ---------$8.50
Productivity and Health Benefits --------------$36.90 - $55.30
Subtotal ---------------------------------------$52.90 - $71.30
Initial Investment in Green Building Practices --$3.00 - $5.00
Total 20-year Net Benefit ----------------------$50 - $65
Green Remodeling
While the remodeling of existing older buildings to make them more energy efficient is certainly a necessity, it doesn’t come without its hazards. Remember, older homes and commercial buildings probably contain all sorts of toxins, most notably asbestos. The miracle of the 20th century building industry, touted for its amazing heat- and fire-resistant properties, this hazardous mineral can be found in attics, wrapped around pipes and furnaces, and even in walls, floors, and ceilings, especially in buildings constructed prior to 1980.
Once the asbestos is addressed and then removed by a licensed professional and disposed of properly, green insulation options should be given serious consideration. The Department of Energy says heating and cooling accounts for 50-70 percent of the energy used in the average American home so finding sound and healthy insulation options are a necessity. Today, these options can save natural resources as well. Eco-friendly insulations are often made of recycled materials and include cellulose (old shredded newspapers treated for fire resistance), cotton fiber (usually made of recycled batted denim), and spray polyurethane foam.
Statistics show that the foam, for example, can cut energy costs by about 35 percent annually, according to studies done by manufacturers. The other projects claim similar figures. And because these are recycled materials, less waste is going to the nation’s already crowded landfills.
Formal listing of Insulation Alternatives
Cotton fiber – This has become the favored insulation of many green builders or remodelers. Made of recycled batted material, such as denim, this fiber insulation is then treated with a chemical to make it fireproof. However, cotton fiber insulation is non-toxic and produces no off-gasses, making it a healthy choice.
Cellulose – Who would have believed that someday we’d be insulating our homes with recycled newsprint? Well, that’s exactly what cellulose is and it’s become one of the most popular new green insulating materials. Chemically treated to reduce mold and promote heat and fire resistance, figures show that cellulose can reduce air conditioning and heating bills up to about 20 percent each year.
Icynene – This water-based spray polyurethane foam keeps a home very tight, allowing little opportunity for things like mold to form. This healthy insulation also contains no polybrominated diphenyl ethers (PBDE), which are often found in spray foam insulation products. PBDEs can be quite toxic and are already banned in some states. Icynene also contains no hydrochlorofluorocarbons, which are believed to prompt global warming.
Thursday, October 30, 2008
Defaulting on the Dream
The Pew Charitable Trust has just released "Defaulting on the Dream: States Respond to America's Foreclosure Crisis" . This is a state-by-state breakdown of the effects of the mortgage crisis. It details the scope of the problem, as well as identifies state-specific resources for borrowers who are in financial trouble. If you want an in-depth report on the current mortgage crisis, or just want to know if your state is offering help for homeowners, this is the place to look.
Thursday, October 23, 2008
Is a Lease-Option a Good Idea?
In the last few months, I have gotten a lot of inquiries about lease-options. First, let's define the term. In a lease-option, the buyer/tenant rents the property from the seller/landlord for a specified period of time. At any point during the lease, the buyer/tenant has the right to purchase the property at a price that was pre-determined in the lease-option. To compensate the seller/landlord, the buyer/tenant gives the owner a specific amount of non-refundable option money when the option is signed. In addition, the buyer/tenant usually pays above-market rent, with a certain amount to be used towards the down payment.
Let's look at an example. Fred wants to put a lease-option on Mary's house for 1 year. Fred and Mary agree that, if the purchase goes through, the price of the home will be $100,000. Fred agrees to give Mary $5,000 option money and agrees to pay $800 per month in rent, even though similar homes are renting for $500 per month. Mary agrees to allow Fred to rent the home for 1 year. At any point during that year, Mary agrees that Fred can buy her house for $100,000. In addition, Mary agrees to set aside $300 per month of Fred's rent. If Fred buys the house, this $300 per month surplus will be used as part of Fred's down payment. If Fred rents for 12 months before buying, he will have "saved" $3,600 to be used towards the purchase. If Fred decides not to buy the home, Mary keeps the extra money and Fred moves out at the end of the lease.
For the seller, a lease-option may be a way to sell a home during times when home sales are slow. But there are real advantages for the buyer as well. Especially today, when mortgage money is hard to come by, credit and income requirements are tougher, and mortgage lenders want to see more down payment money, a lease-option allows a buyer/tenant the time to work on his credit and down-payment savings, while securing the property he wants to buy now.
Other advantages for the buyer/tenant include the ability to live in the home and community before permanently committing to them. This gives the buyer/tenant the chance to try out both the house and the neighborhood to see if he really likes living there. Also, the lease-option acts as a price shield. If prices continue to fall, the buyer/tenant can walk away at the end of the lease without buying. If prices go up, the seller/landlord is locked in to the agreed upon price.
The lease-option agreement must be carefully crafted to make sure that all parties are protected and that no one is paying too much or too little for the purchase, the option money, or the monthly rent. But the biggest risk is one of foreclosure. If the seller/landlord loses the home to the bank during the option period, the tenant/buyer has no recourse other than to sue the seller/landlord. If the seller/landlord has just gone through foreclosure, chances are he doesn't have a lot of money, so even if the buyer/tenant wins, he may not be able to collect.
Before you enter into the lease-option, you can try to protect yourself by investigating what loans are presently on the property and how much the seller pays each month. If their monthly mortgage payments are much higher than the rent, the seller may have problems meeting their obligations. If you do enter into a lease-option, you may want to record it with the County Recorder. That way, if the seller tries to get another loan, the new lender will be notified of the lease-option.
Let's look at an example. Fred wants to put a lease-option on Mary's house for 1 year. Fred and Mary agree that, if the purchase goes through, the price of the home will be $100,000. Fred agrees to give Mary $5,000 option money and agrees to pay $800 per month in rent, even though similar homes are renting for $500 per month. Mary agrees to allow Fred to rent the home for 1 year. At any point during that year, Mary agrees that Fred can buy her house for $100,000. In addition, Mary agrees to set aside $300 per month of Fred's rent. If Fred buys the house, this $300 per month surplus will be used as part of Fred's down payment. If Fred rents for 12 months before buying, he will have "saved" $3,600 to be used towards the purchase. If Fred decides not to buy the home, Mary keeps the extra money and Fred moves out at the end of the lease.
For the seller, a lease-option may be a way to sell a home during times when home sales are slow. But there are real advantages for the buyer as well. Especially today, when mortgage money is hard to come by, credit and income requirements are tougher, and mortgage lenders want to see more down payment money, a lease-option allows a buyer/tenant the time to work on his credit and down-payment savings, while securing the property he wants to buy now.
Other advantages for the buyer/tenant include the ability to live in the home and community before permanently committing to them. This gives the buyer/tenant the chance to try out both the house and the neighborhood to see if he really likes living there. Also, the lease-option acts as a price shield. If prices continue to fall, the buyer/tenant can walk away at the end of the lease without buying. If prices go up, the seller/landlord is locked in to the agreed upon price.
The lease-option agreement must be carefully crafted to make sure that all parties are protected and that no one is paying too much or too little for the purchase, the option money, or the monthly rent. But the biggest risk is one of foreclosure. If the seller/landlord loses the home to the bank during the option period, the tenant/buyer has no recourse other than to sue the seller/landlord. If the seller/landlord has just gone through foreclosure, chances are he doesn't have a lot of money, so even if the buyer/tenant wins, he may not be able to collect.
Before you enter into the lease-option, you can try to protect yourself by investigating what loans are presently on the property and how much the seller pays each month. If their monthly mortgage payments are much higher than the rent, the seller may have problems meeting their obligations. If you do enter into a lease-option, you may want to record it with the County Recorder. That way, if the seller tries to get another loan, the new lender will be notified of the lease-option.
Monday, October 20, 2008
Can I Still Get a Loan?
In a word - yes. Even in these horrible economic times, banks are still making home loans. But the days of signing your name on an application and walking out of the bank with a check are over. Banks are back to wanting to see 20% as a down payment and credit scores 720 or above.
If you can't meet these requirements, don't give up. FHA offers loans with 5%, 3% and even 0% down payments. They have special programs for teachers and police officers, as well as programs for low income borrowers.
For more information, look at their website. It outlines all their programs and requirements. You can even apply on line.
If you can't meet these requirements, don't give up. FHA offers loans with 5%, 3% and even 0% down payments. They have special programs for teachers and police officers, as well as programs for low income borrowers.
For more information, look at their website. It outlines all their programs and requirements. You can even apply on line.
Monday, October 13, 2008
On-Line Title Insurance Could Save You Money
When you buy or refinance property, you are required to purchase an insurance policy that protects the buyer or lender from any financial losses due to defects in the title. The title company searches back through the records and reviews all the previous owners (the "chain of title"), thereby insuring you against such things as a forged deed. Usually, the person paying for the insurance gets to chose the title company. In the case of a purchase, that is usually the buyer, and in the case of a refinance, that is usually the borrower. Since most of us rarely have the need of a title insurer, we're happy to use the company recommended by our realtor or lender. But you may want to reconsider that.
Entitle Direct Insurance has just made title insurance available over the Internet. They are presently only offering services in Alabama, Arkansas, California, Delaware, Florida, Illinois, Louisiana, Massachusetts, Maryland, Mississippi, Pennsylvania, South Carolina and Virginia. But they expect to be available in almost all states by the end of this year. They claim to offer a 35% savings over "brick and mortar" title companies.
They also offer a "Control Panel" service, free to all borrowers, whether they purchase title policies from EDI or not. The core of this service is an online folder that contains all information relevant to the transaction, and which is continually updated as the loan moves toward closing. EDI assigns a closing specialist to each borrower who monitors the entire process, and will alert the borrower to any tasks that need to be completed before the closing.
If you need title insurance, it's worth comparing EDI's pricing with your local title insurance company. Whether or not you buy EDI's insurance, you may want to use the Control Panel. One word of caution - in order for the Control Panel to be effective, you need to make sure other parties to the transaction - Realtors, attorneys, lenders - agree to download their documentation into your file. Otherwise the information you see in the Control Panel will be incomplete and out of date.
Though the first of its kind, it's just a matter of time before other title companies offer similar on-line products, thereby driving the prices down even further. Meanwhile, it makes sense to at least check EDI's pricing before hiring a title company.
If any of you use EDI, I would be very interested to hear about your experiences with them.
Entitle Direct Insurance has just made title insurance available over the Internet. They are presently only offering services in Alabama, Arkansas, California, Delaware, Florida, Illinois, Louisiana, Massachusetts, Maryland, Mississippi, Pennsylvania, South Carolina and Virginia. But they expect to be available in almost all states by the end of this year. They claim to offer a 35% savings over "brick and mortar" title companies.
They also offer a "Control Panel" service, free to all borrowers, whether they purchase title policies from EDI or not. The core of this service is an online folder that contains all information relevant to the transaction, and which is continually updated as the loan moves toward closing. EDI assigns a closing specialist to each borrower who monitors the entire process, and will alert the borrower to any tasks that need to be completed before the closing.
If you need title insurance, it's worth comparing EDI's pricing with your local title insurance company. Whether or not you buy EDI's insurance, you may want to use the Control Panel. One word of caution - in order for the Control Panel to be effective, you need to make sure other parties to the transaction - Realtors, attorneys, lenders - agree to download their documentation into your file. Otherwise the information you see in the Control Panel will be incomplete and out of date.
Though the first of its kind, it's just a matter of time before other title companies offer similar on-line products, thereby driving the prices down even further. Meanwhile, it makes sense to at least check EDI's pricing before hiring a title company.
If any of you use EDI, I would be very interested to hear about your experiences with them.
Monday, October 6, 2008
Bank of America Agrees to Restructure Countrywide Mortgages
For many, Countrywide Financial is the poster child for predatory lenders. Their abuses were so egregious that in June, a lawsuit was filed against them for making bad loans. Soon after the filing, Countrywide was acquired by Bank of America.
Today, in order to settle this lawsuit, Bank of America announced that it would spend up to 8.4 billion dollars to restructure Countrywide's loan portfolio. In a statement, the bank said the program is intended to benefit those borrowers who "financed their homes with subprime loans or pay-option adjustable-rate mortgages serviced by Countrywide and originated prior to Dec. 31, 2007."
Starting December 1, counselors will begin a proactively outreach to customers that could result in interest rate and principal reductions for nearly 400,000 Countrywide customers nationwide. In addition, foreclosure sales will be temporarily frozen for those borrowers who are likely to qualify for the program.
"With this settlement, homeowners will receive direct relief from the catastrophic damage caused by Countrywide," California Attorney General Jerry Brown said in a statement. "Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford."
Today, in order to settle this lawsuit, Bank of America announced that it would spend up to 8.4 billion dollars to restructure Countrywide's loan portfolio. In a statement, the bank said the program is intended to benefit those borrowers who "financed their homes with subprime loans or pay-option adjustable-rate mortgages serviced by Countrywide and originated prior to Dec. 31, 2007."
Starting December 1, counselors will begin a proactively outreach to customers that could result in interest rate and principal reductions for nearly 400,000 Countrywide customers nationwide. In addition, foreclosure sales will be temporarily frozen for those borrowers who are likely to qualify for the program.
"With this settlement, homeowners will receive direct relief from the catastrophic damage caused by Countrywide," California Attorney General Jerry Brown said in a statement. "Countrywide's lending practices turned the American dream into a nightmare for tens of thousands of families by putting them into loans they couldn't understand and ultimately couldn't afford."
Thursday, October 2, 2008
Are Foreclosure Modifications Helping Borrowers?
In case you have been wondering if lenders are really helping borrowers stay out of foreclosure, we now have the answer -- and it's not encouraging.
On Monday, the Foreclosure Prevention Working Group issued its third quarterly report, covering February through May, 2008. The report concluded that industry measures to keep homeowners out of foreclosure have decreased. "Nearly eight out of ten seriously delinquent borrowers are not on track for any loan work-out or loss mitigation assistance to enable them to avoid foreclosure....Too many homeowners face foreclosure without receiving any meaningful assistance by their mortgage servicer, a reality that is growing worse rather than better, as the number of delinquent loans, prime and subprime, increases."
The report also said that new efforts to prevent foreclosures are on the decline, suggesting that loan modification approaches have now been tailored to a limited group of homeowners. Instead of expanding loan modification for a broader set of homeowners, mitigation efforts are being focused on selling homes before foreclosure, rather than helping people stay in their homes.
For those who have received help, there is also discouraging news. The report finds that one out of five loan modifications made in the past year is currently delinquent. Thus it would appear that a significant number of modifications offered to homeowners have not been sustainable. Recent reports indicate that many loan modifications are not providing any monthly payment relief to struggling homeowners. The report expressed a concern that unrealistic or 'band-aid' modifications have only exacerbated and prolonged the current foreclosure crisis.
The report concludes "While some progress has been made in preventing foreclosures, the empirical evidence is profoundly disappointing."
On Monday, the Foreclosure Prevention Working Group issued its third quarterly report, covering February through May, 2008. The report concluded that industry measures to keep homeowners out of foreclosure have decreased. "Nearly eight out of ten seriously delinquent borrowers are not on track for any loan work-out or loss mitigation assistance to enable them to avoid foreclosure....Too many homeowners face foreclosure without receiving any meaningful assistance by their mortgage servicer, a reality that is growing worse rather than better, as the number of delinquent loans, prime and subprime, increases."
The report also said that new efforts to prevent foreclosures are on the decline, suggesting that loan modification approaches have now been tailored to a limited group of homeowners. Instead of expanding loan modification for a broader set of homeowners, mitigation efforts are being focused on selling homes before foreclosure, rather than helping people stay in their homes.
For those who have received help, there is also discouraging news. The report finds that one out of five loan modifications made in the past year is currently delinquent. Thus it would appear that a significant number of modifications offered to homeowners have not been sustainable. Recent reports indicate that many loan modifications are not providing any monthly payment relief to struggling homeowners. The report expressed a concern that unrealistic or 'band-aid' modifications have only exacerbated and prolonged the current foreclosure crisis.
The report concludes "While some progress has been made in preventing foreclosures, the empirical evidence is profoundly disappointing."
Friday, September 19, 2008
HELOC - Here Today, Gone Tomorrow?
The news is filled with the possibility of the global economy grinding to a halt due to a lack of credit. But for many of us, this has already occurred. For years, American homeowners used their homes as credit cards, borrowing against the equity via a Home Equity Line of Credit (HELOC). These loans supported a wide variety of purchase such as medical expenses, college tuition, and vacations. But the spending spree is now over.
HELOC's are a line of credit based on the equity in your home. The lender assesses the value of your home, subtracts any existing loans, and if they feel there is sufficient equity, they offer a maximum loan amount. For example, if your home is valued at $100,000 and you have a $50,000 first mortgage, the remaining equity is $50,000. Based on this calculation, the lender may offer you a line of credit of up to $30,000. You do not borrow the money all at once. Rather, like a credit card, you use as much as you need, up to the $30,000 limit.
But as the economy weakens and housing values decline, HELOC's are becoming more rare. Many banks and savings and loans no longer offer these loans. And those who do, are requiring a larger amount of equity before they will consider allowing a HELOC.
For those of you who already have a HELOC, you may discover that your lender has frozen the loan and you can no longer access the funds. This means that even though you have not used up the full amount in your equity line, you could find that funds in the account are no longer available. Without prior notice, the bank could suspend the account if they find that the home's value has dropped so low as to not support the loan. And you could find yourself in the uncomfortable position of writing a check from your HELOC account only to have the check bounce.
If you have a HELOC and think you will need the funds in the near future, you may want to pull out the balance of your remaining credit line now, before the credit line is frozen. But do not make this decision lightly. In today's precarious financial times, HELOC's should only be used for absolute necessities. And they should never be used unless you are certain you will be able to pay the additional monthly costs.
HELOC's are a line of credit based on the equity in your home. The lender assesses the value of your home, subtracts any existing loans, and if they feel there is sufficient equity, they offer a maximum loan amount. For example, if your home is valued at $100,000 and you have a $50,000 first mortgage, the remaining equity is $50,000. Based on this calculation, the lender may offer you a line of credit of up to $30,000. You do not borrow the money all at once. Rather, like a credit card, you use as much as you need, up to the $30,000 limit.
But as the economy weakens and housing values decline, HELOC's are becoming more rare. Many banks and savings and loans no longer offer these loans. And those who do, are requiring a larger amount of equity before they will consider allowing a HELOC.
For those of you who already have a HELOC, you may discover that your lender has frozen the loan and you can no longer access the funds. This means that even though you have not used up the full amount in your equity line, you could find that funds in the account are no longer available. Without prior notice, the bank could suspend the account if they find that the home's value has dropped so low as to not support the loan. And you could find yourself in the uncomfortable position of writing a check from your HELOC account only to have the check bounce.
If you have a HELOC and think you will need the funds in the near future, you may want to pull out the balance of your remaining credit line now, before the credit line is frozen. But do not make this decision lightly. In today's precarious financial times, HELOC's should only be used for absolute necessities. And they should never be used unless you are certain you will be able to pay the additional monthly costs.
Tuesday, September 16, 2008
Are Your Deposits Safe?
I have received a number of calls and emails from clients asking if their deposits are safe or if they should pull their money out of their banks. Most deposits are insured by the Federal Deposit Insurance Corporation (FDIC), up to $100,000. If your bank or savings association is insured, and if your accounts come under the insurance limits, your money should be safe.
To check whether your bank or savings association is insured by the FDIC, call toll-free 1-877-275-3342, use Bank Find, or look for the official FDIC sign where deposits are received.
To find out if your deposit amounts are fully insured, go to EDIE. This calulator on the FDIC site will help you determine if your deposits adhere to the insurance limits.
To check whether your bank or savings association is insured by the FDIC, call toll-free 1-877-275-3342, use Bank Find, or look for the official FDIC sign where deposits are received.
To find out if your deposit amounts are fully insured, go to EDIE. This calulator on the FDIC site will help you determine if your deposits adhere to the insurance limits.
What To Know Before You Co-Sign A Loan
Today it is difficult, even for strong borrowers, to get a loan. To give them the extra edge needed for loan approval, some borrowers are asking friends or relatives to act as a co-signer on their debt. Before you decide whether or not to comply, make sure you know what you're getting in to.
Simply put, you are being asked to guarantee the debt. If the borrower does not pay, you will have to. You could be required to pay the entire amount of the debt in one lump sum, plus any late fees or collection costs. So before you sign, make sure that you can afford to pay this amount if you have to.
Some studies show that three of every four co-signers ends up paying the loan. And when you think about it, this makes sense. If the primary borrower could qualify for the loan, then the creditor would not have required a co-signer.
If you do decide to co-sign, make sure you can afford to pay the loan. If you're asked to pay and can't, you could be sued or your credit rating could be damaged. Also, be aware that this loan will show up on your credit report, even if the primary borrower is making timely payments. This is a debt for which you are liable, so it will affect your credit rating.
Finally, ask the lender to agree, in writing, to notify you if the borrower misses a payment. That way you may be able to jump in and start making the payments without having to immediately repay the entire loan amount.
Simply put, you are being asked to guarantee the debt. If the borrower does not pay, you will have to. You could be required to pay the entire amount of the debt in one lump sum, plus any late fees or collection costs. So before you sign, make sure that you can afford to pay this amount if you have to.
Some studies show that three of every four co-signers ends up paying the loan. And when you think about it, this makes sense. If the primary borrower could qualify for the loan, then the creditor would not have required a co-signer.
If you do decide to co-sign, make sure you can afford to pay the loan. If you're asked to pay and can't, you could be sued or your credit rating could be damaged. Also, be aware that this loan will show up on your credit report, even if the primary borrower is making timely payments. This is a debt for which you are liable, so it will affect your credit rating.
Finally, ask the lender to agree, in writing, to notify you if the borrower misses a payment. That way you may be able to jump in and start making the payments without having to immediately repay the entire loan amount.
Tuesday, September 9, 2008
Freddie and Fannie - the Morning After
On Sunday, the federal government took over the management of Freddie Mac and Fannie Mae. Yesterday, the financial markets responded with hyperbolic glee. Pronouncements were made claiming this would save the real estate industry and, on Wall Street, stocks shot up over 300 points.
But today is the day after. And, in the light of this new dawn, people are starting to ask whether we really have our financial White Knight. Is this takeover going to save us? In a word - no. Will it help? Yes. Here's why.
Fannie Mae and Freddie Mac buy loans from banks and package those loans as mortgage-backed securities which they then sell to investors. By purchasing the loans from banks, the banks get their capital back which they then can use to make more loans. This cycle of lending money, selling the loan, and relending the money keeps funds flowing through the banking industry. In other words, there is money available for you to borrow. So what happened?
As concerns began to surface about sub-prime loans and higher-than-normal default rates, investors got nervous. They began to question the quality of the mortgage-backed securities that Freddie and Fannie were peddling. And then they started to question whether these mortgage giants would fail. Many stopped buying the securities and money stopped flowing through the system. Simply put, the money well dried up. That's why, for the past few weeks, even borrowers with great credit and good down payments were having a hard time finding money to borrow. And the money they did find was expensive.
Freddie and Fannie were on the verge of failing. And if they failed, the US financial industry would sustain a mortal wound. Fannie and Freddie are involved in $5.4 trillion worth of mortgage debt. Simply put, they are just too big for the government to allow them to collapse.
So the feds designed a bail-out. They replaced senior management and agreed to purchase $5 billion in Freddie and Fannie mortgage-backed securities. By keeping the companies solvent they are trying to restore faith in the system. They are trying to calm investors' nerves so that mortgage money will, once again, be available.
This will help some of us. Funds will be available to borrow, and the cost of borrowing will probably go down marginally. But it will not help people who have poor credit or a low down payment, so-called "A- or B paper" borrowers. It will not help people who do not have the equity in their homes to refinance before their interest rates increase.
Sunday's move was just a first step - a tourniquet to stop the heavy bleeding so that the patient did not die. It was not a cure. Over the next few months, you can expect to hear lots of opinions coming out of Washington and Wall Street as to what to do next. You can bet that, as with any serious illness, the cure will be long, painful and expensive. And the US taxpayer gets to pay the bill.
But today is the day after. And, in the light of this new dawn, people are starting to ask whether we really have our financial White Knight. Is this takeover going to save us? In a word - no. Will it help? Yes. Here's why.
Fannie Mae and Freddie Mac buy loans from banks and package those loans as mortgage-backed securities which they then sell to investors. By purchasing the loans from banks, the banks get their capital back which they then can use to make more loans. This cycle of lending money, selling the loan, and relending the money keeps funds flowing through the banking industry. In other words, there is money available for you to borrow. So what happened?
As concerns began to surface about sub-prime loans and higher-than-normal default rates, investors got nervous. They began to question the quality of the mortgage-backed securities that Freddie and Fannie were peddling. And then they started to question whether these mortgage giants would fail. Many stopped buying the securities and money stopped flowing through the system. Simply put, the money well dried up. That's why, for the past few weeks, even borrowers with great credit and good down payments were having a hard time finding money to borrow. And the money they did find was expensive.
Freddie and Fannie were on the verge of failing. And if they failed, the US financial industry would sustain a mortal wound. Fannie and Freddie are involved in $5.4 trillion worth of mortgage debt. Simply put, they are just too big for the government to allow them to collapse.
So the feds designed a bail-out. They replaced senior management and agreed to purchase $5 billion in Freddie and Fannie mortgage-backed securities. By keeping the companies solvent they are trying to restore faith in the system. They are trying to calm investors' nerves so that mortgage money will, once again, be available.
This will help some of us. Funds will be available to borrow, and the cost of borrowing will probably go down marginally. But it will not help people who have poor credit or a low down payment, so-called "A- or B paper" borrowers. It will not help people who do not have the equity in their homes to refinance before their interest rates increase.
Sunday's move was just a first step - a tourniquet to stop the heavy bleeding so that the patient did not die. It was not a cure. Over the next few months, you can expect to hear lots of opinions coming out of Washington and Wall Street as to what to do next. You can bet that, as with any serious illness, the cure will be long, painful and expensive. And the US taxpayer gets to pay the bill.
Sunday, September 7, 2008
US Unveils Takeover of Two Mortgage Giants
This article is from the New York Times, September 7, 2008
By EDMUND L. ANDREWS
WASHINGTON -- The Treasury Department seized control of Fannie Mae and Freddie Mac, the nation’s giant quasi-public mortgage finance companies, and announced a four-part rescue plan that includes an open-ended guarantee from the Treasury Department to provide as much capital as they need to stave off insolvency.
At a news conference on Sunday morning, Treasury Secretary Henry M. Paulson Jr. also announced that he had dismissed the chief executives of both companies and replaced them with two long-time financial executives. Herbert M. Allison, currently chairman of TIAA-CREF, the huge pension fund for teachers, will take over Fannie Mae and replace the chief executive, Daniel Mudd. David M. Moffett, currently a senior adviser at the Carlyle Group, one of the country’s biggest private equity firms, will replace Richard Syron as chief executive of Freddie Mac.
“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” Mr. Paulson said. “This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation.”
Mr. Paulson refused to say how much capital the government might eventually have to provide, or what the ultimate cost to taxpayers might be.
The companies are likely to need tens of billions of dollars over the next year, but the ultimate cost to taxpayers will largely depend on how and how fast the housing and mortgage markets recover from their current crisis.
Mr. Paulson’s plan begins with a pledge to provide extra cash by buying up a new series of preferred shares that would offer dividends and be senior to both both the existing preferred shares and the common stock that investors around the world already hold.
The two companies would be allowed to “modestly increase” the size of their existing investment portfolios until the end of 2009, which means they will be allowed to use some of their new taxpayer-supplied capital to buy up and hold new mortgages in investment portfolios.
But in a strong indication of Mr. Paulson’s long-term intention to wind down the companies’ portfolios, the Treasury plan states that they must shrink their portfolios by 10 percent a year until they each total $250 billion. They now hold more than $700 billion apiece.
That covenant in the agreement responds to many in the Bush administration and in the private sector who had argued for years that Fannie and Freddie posed “systemic risks” to the entire economy because they had acquired more than $5 trillion in assets with only the thinnest of capital cushions to shield them from losses.
Treasury officials had little choice. With the credit markets still in a tailspin and investors deeply reluctant to buy up mortgages with even a hint of risk, Fannie Mae and Freddie Mac currently guarantee about 70 percent of all new home loans, according to James B. Lockhart, the director of the Federal Housing Finance Agency.
Mr. Paulson said the Treasury Department would provide as much money as needed to keep the companies’ capital reserves from falling below the levels that would trigger rules that automatically put them into receivership.
In addition, the Treasury Department will create a “Secured Lending Credit Facility,” a back-up source of borrowing for the companies in the event they cannot borrow enough money on the open market to finance their main business of buying mortgages and re-selling them as pools of mortgage-backed securities.
In a possibly unprecedented move into their private markets, the Treasury Department will also buy up billions of dollars in Fannie and Freddie mortgage securities on the open market. This move is likely to make it much easier for the companies to finance somewhat riskier loans.
By EDMUND L. ANDREWS
WASHINGTON -- The Treasury Department seized control of Fannie Mae and Freddie Mac, the nation’s giant quasi-public mortgage finance companies, and announced a four-part rescue plan that includes an open-ended guarantee from the Treasury Department to provide as much capital as they need to stave off insolvency.
At a news conference on Sunday morning, Treasury Secretary Henry M. Paulson Jr. also announced that he had dismissed the chief executives of both companies and replaced them with two long-time financial executives. Herbert M. Allison, currently chairman of TIAA-CREF, the huge pension fund for teachers, will take over Fannie Mae and replace the chief executive, Daniel Mudd. David M. Moffett, currently a senior adviser at the Carlyle Group, one of the country’s biggest private equity firms, will replace Richard Syron as chief executive of Freddie Mac.
“Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe,” Mr. Paulson said. “This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation.”
Mr. Paulson refused to say how much capital the government might eventually have to provide, or what the ultimate cost to taxpayers might be.
The companies are likely to need tens of billions of dollars over the next year, but the ultimate cost to taxpayers will largely depend on how and how fast the housing and mortgage markets recover from their current crisis.
Mr. Paulson’s plan begins with a pledge to provide extra cash by buying up a new series of preferred shares that would offer dividends and be senior to both both the existing preferred shares and the common stock that investors around the world already hold.
The two companies would be allowed to “modestly increase” the size of their existing investment portfolios until the end of 2009, which means they will be allowed to use some of their new taxpayer-supplied capital to buy up and hold new mortgages in investment portfolios.
But in a strong indication of Mr. Paulson’s long-term intention to wind down the companies’ portfolios, the Treasury plan states that they must shrink their portfolios by 10 percent a year until they each total $250 billion. They now hold more than $700 billion apiece.
That covenant in the agreement responds to many in the Bush administration and in the private sector who had argued for years that Fannie and Freddie posed “systemic risks” to the entire economy because they had acquired more than $5 trillion in assets with only the thinnest of capital cushions to shield them from losses.
Treasury officials had little choice. With the credit markets still in a tailspin and investors deeply reluctant to buy up mortgages with even a hint of risk, Fannie Mae and Freddie Mac currently guarantee about 70 percent of all new home loans, according to James B. Lockhart, the director of the Federal Housing Finance Agency.
Mr. Paulson said the Treasury Department would provide as much money as needed to keep the companies’ capital reserves from falling below the levels that would trigger rules that automatically put them into receivership.
In addition, the Treasury Department will create a “Secured Lending Credit Facility,” a back-up source of borrowing for the companies in the event they cannot borrow enough money on the open market to finance their main business of buying mortgages and re-selling them as pools of mortgage-backed securities.
In a possibly unprecedented move into their private markets, the Treasury Department will also buy up billions of dollars in Fannie and Freddie mortgage securities on the open market. This move is likely to make it much easier for the companies to finance somewhat riskier loans.
Monday, August 25, 2008
Freddie and Fannie's Woes Means Higher Costs For Borrowers
Freddie Mac and Fannie Mae, the two government-sponsored companies that buy most mortgages issued by United States lenders, are clamping down on the type and quality of the loans they buy. They are demanding that borrowers have larger cash reserves, better credit scores and second home appraisals. In addition, they have doubled the fees they charge to many lenders in an effort to raise revenue. The result is that borrowers can expect higher interest rates, more fees and closing costs, bigger down payments and fewer loan choices.
Fannie Mae announced that it will no longer purchase "Alt-A" loans. So someone with less-than-perfect credit or with less than a 20 percent down payment will have difficulty finding a lender. In addition, the increase in lender fees will be passed on to the borrower. For a $300,000 loan, that could work out to an extra $750 in closing costs.
If you want to refinance your home, you have the double whammy of a decreased home value and an increase in lending requirements. Even those with excellent credit will not be able to take cash out of their home if, after the loan, they have less than 15 percent equity in the home. Previously, the threshold was 10 percent. And if your credit score is low, refinancing will be next to impossible.
Meanwhile, Freddie and Fannie's stock prices continue to fall. This instability makes investors shy away from putting funds into the lending industry, which further limits the funds available to lend. There is talk of a government bail-out, but nothing is settled. And until things stabilize, there is little hope that this tight lending environment will change.
Fannie Mae announced that it will no longer purchase "Alt-A" loans. So someone with less-than-perfect credit or with less than a 20 percent down payment will have difficulty finding a lender. In addition, the increase in lender fees will be passed on to the borrower. For a $300,000 loan, that could work out to an extra $750 in closing costs.
If you want to refinance your home, you have the double whammy of a decreased home value and an increase in lending requirements. Even those with excellent credit will not be able to take cash out of their home if, after the loan, they have less than 15 percent equity in the home. Previously, the threshold was 10 percent. And if your credit score is low, refinancing will be next to impossible.
Meanwhile, Freddie and Fannie's stock prices continue to fall. This instability makes investors shy away from putting funds into the lending industry, which further limits the funds available to lend. There is talk of a government bail-out, but nothing is settled. And until things stabilize, there is little hope that this tight lending environment will change.
Wednesday, August 13, 2008
Option ARMs a Headache for Lenders
Countrywide Financial Corp. said in a regulatory filing Monday that the average borrower with an option adjustable-rate loan now owes 95 percent of the value of his home, up from 76 percent when the loan was made.
Seventy-two percent are making less than full interest payments and 12.4 percent are at least 90 days delinquent. The average FICO credit score has dropped to 680 from an original 715. The U.S. median is 723.
Bank of America has said about 66 percent of the option ARMs went to California and Florida borrowers.
Bank of America is not the only big lender with option ARM headaches.
Wachovia Corp said borrowers in its $122 billion "Pick-a-Pay" option ARM portfolio owed 85 percent of what their homes were worth on June 30, up from an original 71 percent. In California's Central Valley, the average was 109 percent. The average overall FICO score was down to 661 from 675.
Source: Reuters News, Jonathan Stempel (08/12/2008)
Seventy-two percent are making less than full interest payments and 12.4 percent are at least 90 days delinquent. The average FICO credit score has dropped to 680 from an original 715. The U.S. median is 723.
Bank of America has said about 66 percent of the option ARMs went to California and Florida borrowers.
Bank of America is not the only big lender with option ARM headaches.
Wachovia Corp said borrowers in its $122 billion "Pick-a-Pay" option ARM portfolio owed 85 percent of what their homes were worth on June 30, up from an original 71 percent. In California's Central Valley, the average was 109 percent. The average overall FICO score was down to 661 from 675.
Source: Reuters News, Jonathan Stempel (08/12/2008)
Thursday, August 7, 2008
US Homes Selling - But Not Necessarily to Us
Someone has figured out that US real estate is a real bargain. But that "someone" may not be from the US. From May 2007 to May 2008 it is estimated that between 150,000 and 190,000 US homes were sold to foreign nationals. The combination of the weak dollar and the decrease in home prices has made our real estate look like quite a deal to foreign buyers.
Purchases were made throughout the country, but the most popular states for international buyers were Florida, California, Texas, Arizona, New York, Washington and Nevada. The top six countries of origin for foreign home buyers were Canada, the United Kingdom, Mexico, China, India and Germany. This year, Canada replaced Mexico as the country with the largest share of foreign buyers in the U.S.
Typically, these buyers are looking for a vacation home. Ten percent pay all cash. And they tend to buy more expensive homes. More than 14 percent of properties sold to international buyers sold in excess of $750,000. Foreign buyers also show a greater preference for condos and townhouses compared to domestic buyers.
Purchases were made throughout the country, but the most popular states for international buyers were Florida, California, Texas, Arizona, New York, Washington and Nevada. The top six countries of origin for foreign home buyers were Canada, the United Kingdom, Mexico, China, India and Germany. This year, Canada replaced Mexico as the country with the largest share of foreign buyers in the U.S.
Typically, these buyers are looking for a vacation home. Ten percent pay all cash. And they tend to buy more expensive homes. More than 14 percent of properties sold to international buyers sold in excess of $750,000. Foreign buyers also show a greater preference for condos and townhouses compared to domestic buyers.
Tuesday, August 5, 2008
The Next Wave of Defaults?
Just as defaults on sub-prime loans are showing signs of diminishing, a new wave of lending problems may be about to hit. Defaults by homeowners with good credit are on the rise.
Many of these borrowers have interest only loans, commonly referred to as "option ARM" loans. When these loans adjust, the borrower is required to make payments that includes interest plus principal. Unlike sub-prime loans, which typically adjusted upwards after two or three years, these option ARM loans usually had a five to seven year period before the borrower was required to pay both principal and interest. For many, that grace period is now coming to an end.
Even if a borrower's interest rate remains unchanged, the additional principal payment (on top of the interest payment) could mean an increase of 50% in the monthly payment. Because lending requirements have tightened and home values have declined, these borrowers can not refinance their loans. And with property values down, some homeowners can not sell at a price that will cover the loan amount.
Lenders are starting to see defaults on these loans, and there is concern in that as these option ARMs adjust, a new flood of delinquencies will hit the banking industry.
Many of these borrowers have interest only loans, commonly referred to as "option ARM" loans. When these loans adjust, the borrower is required to make payments that includes interest plus principal. Unlike sub-prime loans, which typically adjusted upwards after two or three years, these option ARM loans usually had a five to seven year period before the borrower was required to pay both principal and interest. For many, that grace period is now coming to an end.
Even if a borrower's interest rate remains unchanged, the additional principal payment (on top of the interest payment) could mean an increase of 50% in the monthly payment. Because lending requirements have tightened and home values have declined, these borrowers can not refinance their loans. And with property values down, some homeowners can not sell at a price that will cover the loan amount.
Lenders are starting to see defaults on these loans, and there is concern in that as these option ARMs adjust, a new flood of delinquencies will hit the banking industry.
Friday, August 1, 2008
It's Not Much, But At Least It's Something...
In an effort to try and encourage loan servicers to work with borrowers who are trying to modify their loan payments, Freddie Mac has set up a rewards program for servicers who successfully renegotiate Freddie Mac-owned loans.
Starting today, Freddie is paying servicers the following:
$500 for each repayment plan;
$800 for each loan modification; and
$2,200 for each short sale.
Freddie also will reimburse a servicer the advertising costs involved in telling borrowers about these options. If the advertising results in the borrower contacting the servicer, Freddie will pay the servicers up to $15 per mortgage for leaving a door hanger, and up to $50 per mortgage for knocking on a door.
It's not much, but it's something. And in these tough times, lenders are looking to make every penny they can. So maybe this will be just the incentive servicers need in order to make them more amenable to working with homeowners.
Starting today, Freddie is paying servicers the following:
$500 for each repayment plan;
$800 for each loan modification; and
$2,200 for each short sale.
Freddie also will reimburse a servicer the advertising costs involved in telling borrowers about these options. If the advertising results in the borrower contacting the servicer, Freddie will pay the servicers up to $15 per mortgage for leaving a door hanger, and up to $50 per mortgage for knocking on a door.
It's not much, but it's something. And in these tough times, lenders are looking to make every penny they can. So maybe this will be just the incentive servicers need in order to make them more amenable to working with homeowners.
Friday, July 25, 2008
New Housing Bill Has Benefits For Many Borrowers
You probably have heard that a housing bail-out bill has been passed by the House of Representative. The Senate is expected to pass it as well, and President Bush has already said he will sign it. It's a complicated bill, but today's New York Times has an excellent article explaining some of the provisions in the bill that may help homeowners, even those who are not worried about losing their homes to foreclosure.
Housing Bill Has Something for Nearly Everyone
By RON LIEBER
Published: July 25, 2008
If you are ignoring the housing bailout bill because you think it benefits only troubled homeowners, you may miss out on a windfall.
The bill, expected to be passed by the Senate in the next few days and then signed by President Bush, does offer incentives to certain overextended borrowers and their mortgage lenders.
But it also includes many handouts to first-time homebuyers, longtime homeowners, returning veterans and senior citizens seeking to tap their home equity without getting hit with big fees. Millions of people have the potential to benefit in some way.
Huge numbers of people buying homes for the first time, for instance, will be eligible for what amounts to an interest-free loan from the government. Meanwhile, older Americans will now be able to borrow more and possibly pay less for reverse mortgages that allow them tap the equity in their homes.
Whether larding up the bill with all these benefits is good for taxpayers is a debate for another part of the newspaper. But there is no shame in taking advantage of what is offered. In fact, you would be foolish not to.
Here are some of the new benefits:
RENEGOTIATING MORTGAGES Part of the bill is devoted to the creation of a program that may allow some people to cancel their old mortgage loans and replace them with new fixed-rate loans lasting at least 30 years. The amount of the new loans would be no more than 90 percent of what their property is actually worth now.
So who is eligible? You need to have originated your troubled loan or loans on or before Jan. 1, 2008. The loans in question must be on your primary residence. Vacation homes and investment properties are ineligible. You will also need to verify your income, which many borrowers did not have to do in recent years.
Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income. So if you were earning $5,000 a month and had housing payments of $3,000, you are eligible. But if you had payments of just $1,400, you would not be, presumably because that loan is affordable given the size of your income.
Lenders, however, are not required to give you a better deal under the new law, even if you do meet the qualifications. They may not be willing to negotiate unless they think you are truly on the cusp of foreclosure.
If you manage to get a new loan, you cannot take out a home equity loan for at least five years after you get the new mortgage. You will also have to pay a 1.5 percent fee each year on the remaining balance. Finally, you have to hand over no less than 50 percent of any appreciation on the home to the government once you sell. Sell the house in less than five years, and you will have to turn over as much as all of the gain.
This program ends on Sept. 30, 2011. While it does not officially take effect until Oct. 1, lenders may be willing to start their negotiations with borrowers now.
BREAK FOR FIRST-TIME BUYERS If you are buying a home for the first time, and it is your primary residence, you are eligible for a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. With a tax credit, you subtract the credit amount from the total you would otherwise pay to the Internal Revenue Service. So if you owe $1,500 and you qualify for the credit, you would end up getting a $6,000 refund.
There are two big catches, though. If you earn a modified adjusted gross income of more than $75,000, or $150,000 if you are married and filing your tax return jointly, the credit starts to phase out. For single people, it phases out completely at $95,000 of annual income, while for married people filing jointly, it phases out at $170,000.
But you have to pay back the credit over the next 15 years, in equal amounts each year when you pay your federal taxes. That makes this more like an interest-free loan than a true credit. According to the National Association of Realtors, there were about 2.5 million first-time home buyers in 2007. A large proportion of them would have qualified for this credit, but whether it is enough to push would-be buyers over the edge this year remains to be seen.
The tax credit is retroactive to home purchases on April 9, 2008, and expires on July 1, 2009. If you purchase a home from Jan. 1, 2009 to June 30, 2009, you can claim the tax credit on your 2008 tax return.
ADDITIONAL DEDUCTION If you are a homeowner who takes the standard deduction on your federal income taxes and does not itemize, this one is for you. You can now take an additional federal tax deduction of $500, or $1,000 if you are married and filing your tax returns jointly. Again, this one is gravy; you get it in addition to the standard deduction.
Since itemizers are often people who pay a lot of mortgage interest, this deduction will generally benefit people who pay little or none, like those who have paid off their mortgages entirely or close to it. There is one hitch here: you will need to report the property taxes you paid on your tax form. If they are less than $500 (or $1,000 if you are married and filing a joint return), your deduction will be limited to the amount of the property tax you paid.
REVERSE MORTGAGE CHANGES Reverse mortgages allow older Americans, generally 62 and older, to get a lump sum or a monthly check that comes out of their home equity. They do not have to pay the money back until they stop living there permanently or their heirs sell the house.
The problem with these loans, however, is that they often come with high fees. Moreover, some salespeople pressure borrowers who are applying for the loan to purchase annuities, long-term care insurance or other financial products that are not necessarily in the borrower’s best interest.
The bill tries to address both issues. First, it limits origination fees on reverse mortgages at 2 percent of any loan up to $200,000 and 1 percent beyond that, up to a maximum of $6,000.
The bill also states explicitly that borrowers cannot be forced to purchase an annuity or other financial or insurance product as a condition of qualifying for a reverse mortgage.
Finally, the bill raises the maximum amount that people can borrow. Before, the limits were set on a county by county basis, according to AARP’s legislative policy director, David Certner. The biggest allowable mortgage available anywhere was just over $400,000. Now, there is a nationwide cap of $625,500.
REDEFINITION OF JUMBO LOANS Often, if you want the mortgage loan with the lowest possible interest rate, it has to be small enough to be purchased by Fannie Mae or Freddie Mac from whatever bank or other institution originated it.
Under the new bill, Fannie and Freddie have permanent authority to buy bigger loans in areas with high housing costs. (Temporary measures allow them to buy bigger loans, but those expire on Dec. 31.) They can buy loans up to 115 percent of the local median home price, though they cannot buy any loans larger than $625,500. Any larger loan will generally be a jumbo loan, which will cost more in interest.
A BREAK FOR VETERANS Lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by someone returning from the military. Lenders must also wait a year before raising interest rates on a mortgage held by someone returning from military service.
These provisions expire on Dec. 31, 2010.
Housing Bill Has Something for Nearly Everyone
By RON LIEBER
Published: July 25, 2008
If you are ignoring the housing bailout bill because you think it benefits only troubled homeowners, you may miss out on a windfall.
The bill, expected to be passed by the Senate in the next few days and then signed by President Bush, does offer incentives to certain overextended borrowers and their mortgage lenders.
But it also includes many handouts to first-time homebuyers, longtime homeowners, returning veterans and senior citizens seeking to tap their home equity without getting hit with big fees. Millions of people have the potential to benefit in some way.
Huge numbers of people buying homes for the first time, for instance, will be eligible for what amounts to an interest-free loan from the government. Meanwhile, older Americans will now be able to borrow more and possibly pay less for reverse mortgages that allow them tap the equity in their homes.
Whether larding up the bill with all these benefits is good for taxpayers is a debate for another part of the newspaper. But there is no shame in taking advantage of what is offered. In fact, you would be foolish not to.
Here are some of the new benefits:
RENEGOTIATING MORTGAGES Part of the bill is devoted to the creation of a program that may allow some people to cancel their old mortgage loans and replace them with new fixed-rate loans lasting at least 30 years. The amount of the new loans would be no more than 90 percent of what their property is actually worth now.
So who is eligible? You need to have originated your troubled loan or loans on or before Jan. 1, 2008. The loans in question must be on your primary residence. Vacation homes and investment properties are ineligible. You will also need to verify your income, which many borrowers did not have to do in recent years.
Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income. So if you were earning $5,000 a month and had housing payments of $3,000, you are eligible. But if you had payments of just $1,400, you would not be, presumably because that loan is affordable given the size of your income.
Lenders, however, are not required to give you a better deal under the new law, even if you do meet the qualifications. They may not be willing to negotiate unless they think you are truly on the cusp of foreclosure.
If you manage to get a new loan, you cannot take out a home equity loan for at least five years after you get the new mortgage. You will also have to pay a 1.5 percent fee each year on the remaining balance. Finally, you have to hand over no less than 50 percent of any appreciation on the home to the government once you sell. Sell the house in less than five years, and you will have to turn over as much as all of the gain.
This program ends on Sept. 30, 2011. While it does not officially take effect until Oct. 1, lenders may be willing to start their negotiations with borrowers now.
BREAK FOR FIRST-TIME BUYERS If you are buying a home for the first time, and it is your primary residence, you are eligible for a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. With a tax credit, you subtract the credit amount from the total you would otherwise pay to the Internal Revenue Service. So if you owe $1,500 and you qualify for the credit, you would end up getting a $6,000 refund.
There are two big catches, though. If you earn a modified adjusted gross income of more than $75,000, or $150,000 if you are married and filing your tax return jointly, the credit starts to phase out. For single people, it phases out completely at $95,000 of annual income, while for married people filing jointly, it phases out at $170,000.
But you have to pay back the credit over the next 15 years, in equal amounts each year when you pay your federal taxes. That makes this more like an interest-free loan than a true credit. According to the National Association of Realtors, there were about 2.5 million first-time home buyers in 2007. A large proportion of them would have qualified for this credit, but whether it is enough to push would-be buyers over the edge this year remains to be seen.
The tax credit is retroactive to home purchases on April 9, 2008, and expires on July 1, 2009. If you purchase a home from Jan. 1, 2009 to June 30, 2009, you can claim the tax credit on your 2008 tax return.
ADDITIONAL DEDUCTION If you are a homeowner who takes the standard deduction on your federal income taxes and does not itemize, this one is for you. You can now take an additional federal tax deduction of $500, or $1,000 if you are married and filing your tax returns jointly. Again, this one is gravy; you get it in addition to the standard deduction.
Since itemizers are often people who pay a lot of mortgage interest, this deduction will generally benefit people who pay little or none, like those who have paid off their mortgages entirely or close to it. There is one hitch here: you will need to report the property taxes you paid on your tax form. If they are less than $500 (or $1,000 if you are married and filing a joint return), your deduction will be limited to the amount of the property tax you paid.
REVERSE MORTGAGE CHANGES Reverse mortgages allow older Americans, generally 62 and older, to get a lump sum or a monthly check that comes out of their home equity. They do not have to pay the money back until they stop living there permanently or their heirs sell the house.
The problem with these loans, however, is that they often come with high fees. Moreover, some salespeople pressure borrowers who are applying for the loan to purchase annuities, long-term care insurance or other financial products that are not necessarily in the borrower’s best interest.
The bill tries to address both issues. First, it limits origination fees on reverse mortgages at 2 percent of any loan up to $200,000 and 1 percent beyond that, up to a maximum of $6,000.
The bill also states explicitly that borrowers cannot be forced to purchase an annuity or other financial or insurance product as a condition of qualifying for a reverse mortgage.
Finally, the bill raises the maximum amount that people can borrow. Before, the limits were set on a county by county basis, according to AARP’s legislative policy director, David Certner. The biggest allowable mortgage available anywhere was just over $400,000. Now, there is a nationwide cap of $625,500.
REDEFINITION OF JUMBO LOANS Often, if you want the mortgage loan with the lowest possible interest rate, it has to be small enough to be purchased by Fannie Mae or Freddie Mac from whatever bank or other institution originated it.
Under the new bill, Fannie and Freddie have permanent authority to buy bigger loans in areas with high housing costs. (Temporary measures allow them to buy bigger loans, but those expire on Dec. 31.) They can buy loans up to 115 percent of the local median home price, though they cannot buy any loans larger than $625,500. Any larger loan will generally be a jumbo loan, which will cost more in interest.
A BREAK FOR VETERANS Lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by someone returning from the military. Lenders must also wait a year before raising interest rates on a mortgage held by someone returning from military service.
These provisions expire on Dec. 31, 2010.
Monday, July 14, 2008
Federal Reserve Adopts New Lending Rules
At today's meeting on mortgage rules, Federal Reserve Chairman, Ben Bernanke, said "it seems clear that unfair or deceptive acts and practices by lenders resulted in the extension of many loans, particularly high cost loans that were inappropriate for or misled borrowers".
In an effort to stop lenders from making loans to people who really can not afford them, the following rules have been adopted:
Lenders must prove a borrower's income;
High-risk borrowers must set up a savings fund (impound account) for taxes and insurance;
Lenders are restricted from penalizing risky borrowers who pay loans off early; and
Lenders are required to considering a borrower's ability to repay the loan from sources other than the home's value.
Predictably, consumer advocates believe that the new rules do not go far enough to protect borrowers, while the lending industry insist these restrictions will limit the loans they generate, thereby further deepening the housing crisis.
In an effort to stop lenders from making loans to people who really can not afford them, the following rules have been adopted:
Lenders must prove a borrower's income;
High-risk borrowers must set up a savings fund (impound account) for taxes and insurance;
Lenders are restricted from penalizing risky borrowers who pay loans off early; and
Lenders are required to considering a borrower's ability to repay the loan from sources other than the home's value.
Predictably, consumer advocates believe that the new rules do not go far enough to protect borrowers, while the lending industry insist these restrictions will limit the loans they generate, thereby further deepening the housing crisis.
Thursday, July 10, 2008
Harvard Releases 2008 Housing Report
Harvard University's Joint Center for Housing Studies has released it's 2008 report on the State of the Nation's Housing. You can see the entire report at: http://www.jchs.harvard.edu/publications/markets/son2008/index.htm.
Here is the press release sent out with the report:
New York, NY - The nation is in the throes of a housing downturn that is shaping up to be the worst in a generation, finds The State of the Nation’s Housing report issued today by the Joint Center for Housing Studies of Harvard University. While the falloff in housing starts, new home sales, and existing home sales already rivals the worst downturns in the post World War II era, home price declines and mortgage defaults are the worst on records that date back to the 1960s and 1970s.
“The slump in housing markets has not yet run its full course,” concludes Nicolas P. Retsinas, the director of the Joint Center for Housing Studies. “Mortgage rates have barely responded to the aggressive easing of the Federal Reserve, the supply of for-sale vacant units continues to grow, and much tighter underwriting is locking many would-be homebuyers out of the market. With home prices falling in most metropolitan areas, homeowners are tightening their belts, remodeling less, and staying on the sidelines.”
The report observes that the number of homeowners paying more than half their income on housing rocketed from 6.5 million in 2001 to 8.8 million in 2006. This reflects looser lender enforcement of debt-to-income caps and the widespread use of mortgages that have been resetting to higher payments. With so many stretched thin and home prices falling in many areas, foreclosures are skyrocketing. The number of homes entering foreclosure nearly doubled to 1.3 million in 2007 from about 660,000 in 2005. The report concludes that these high levels of foreclosures will continue to exert extreme downward pressure on prices, especially in low-income and minority areas, where riskier subprime loans are most heavily concentrated.
The problems created by overheated housing markets going bust are not confined just to housing, the report finds. “As losses on securities backed by subprime mortgages escalated, few investors wanted to purchase them, the market value of these securities plummeted, and the Federal Reserve had to take unprecedented steps to prevent the failure of major financial institutions,” explains Eric S. Belsky, the Center’s executive director. “This has tightened the availability of credit well beyond the confines of just the mortgage market. On top of this, declines in residential construction shaved nearly a percentage point from national economic growth in 2007.”
The study presents a dispiriting picture of how severe and structurally ingrained housing affordability challenges have become. By 2006, 17.7 million households—about 15.8 percent of all households—were spending more than half their income on housing, an increase of 3.8 million just since 2001. Even 34 percent of households with incomes equivalent to 1-2 times the federal minimum wage, and 15 percent with incomes equivalent to 2-3 times this wage, spend more than half their incomes on housing. With the economy spinning out a growing proportion of full and part-time jobs with wages in these ranges, prospects for a meaningful reduction in affordability problems remain dim.
This year’s State of the Nation’s Housing report finds that demand for new homes has dropped well below projected long run demand. House price deflation, tight credit, and consumer concerns over the direction of the economy have kept buyers at bay and some households from forming. The somber conclusion is that if the economy slips into recession or job losses keep racking up, household growth and homeownership demand could fall even more.
On the other hand, the report sounds a more optimistic note about the medium to long-term. “At some point demand will bounce back,” notes Retsinas. “Historically, housing markets recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability. It is difficult to judge how far away from these conditions we may be. It will take longer this time to rebound given the unusually high levels of foreclosures and constrained credit markets.” Barring a prolonged period of serious economic decline, however, the report concludes that the outlook for household growth is about 14.5 million over the next ten years. The main risk to the long-run outlook, the report notes, is a dip in the level of immigration from its recent 1.2 million a year pace due to weaker labor markets.
2008 marks the 20th year that the Joint Center for Housing Studies has produced an annual report summarizing national housing trends for a wide audience of policymakers, practitioners, industry decision makers, academics, affordable housing advocates, and public sector leaders. The State of the Nation’s Housing is supported by a broad-based coalition of organizations that seek to address the nation’s housing challenges and opportunities, and each year the report’s presentation of critical data and analysis provides timely and relevant information to help meet these goals.
Harvard’s Joint Center for Housing Studies is the nation’s leading center for information and research on housing in the United States. Established in 1959, the Joint Center is a collaborative unit affiliated with the Harvard Graduate School of Design and the Harvard Kennedy School. The Director of the Joint Center for Housing Studies is Nicolas P. Retsinas. The Center’s research and additional information about its programs and activities are available at www.jchs.harvard.edu.
The Joint Center uses current data from the Census Bureau, the U.S. Department of Housing and Urban Development, the Bureau of Economic Analysis, the Bureau of Labor Statistics, the Federal Housing Finance Board, the Federal Reserve Board, First American CoreLogic, Freddie Mac, Inside Mortgage Finance, MPF Yieldstar, Moody’s Economy.com, the Mortgage Bankers Association of America, the National Association of Homebuilders, the National Council of Real Estate Investment Fiduciaries, the National Association of Realtors®, the Panel Study of Income Dynamics, and S&P/Case Shiller® US National Home Price Index to develop its findings.
Here is the press release sent out with the report:
New York, NY - The nation is in the throes of a housing downturn that is shaping up to be the worst in a generation, finds The State of the Nation’s Housing report issued today by the Joint Center for Housing Studies of Harvard University. While the falloff in housing starts, new home sales, and existing home sales already rivals the worst downturns in the post World War II era, home price declines and mortgage defaults are the worst on records that date back to the 1960s and 1970s.
“The slump in housing markets has not yet run its full course,” concludes Nicolas P. Retsinas, the director of the Joint Center for Housing Studies. “Mortgage rates have barely responded to the aggressive easing of the Federal Reserve, the supply of for-sale vacant units continues to grow, and much tighter underwriting is locking many would-be homebuyers out of the market. With home prices falling in most metropolitan areas, homeowners are tightening their belts, remodeling less, and staying on the sidelines.”
The report observes that the number of homeowners paying more than half their income on housing rocketed from 6.5 million in 2001 to 8.8 million in 2006. This reflects looser lender enforcement of debt-to-income caps and the widespread use of mortgages that have been resetting to higher payments. With so many stretched thin and home prices falling in many areas, foreclosures are skyrocketing. The number of homes entering foreclosure nearly doubled to 1.3 million in 2007 from about 660,000 in 2005. The report concludes that these high levels of foreclosures will continue to exert extreme downward pressure on prices, especially in low-income and minority areas, where riskier subprime loans are most heavily concentrated.
The problems created by overheated housing markets going bust are not confined just to housing, the report finds. “As losses on securities backed by subprime mortgages escalated, few investors wanted to purchase them, the market value of these securities plummeted, and the Federal Reserve had to take unprecedented steps to prevent the failure of major financial institutions,” explains Eric S. Belsky, the Center’s executive director. “This has tightened the availability of credit well beyond the confines of just the mortgage market. On top of this, declines in residential construction shaved nearly a percentage point from national economic growth in 2007.”
The study presents a dispiriting picture of how severe and structurally ingrained housing affordability challenges have become. By 2006, 17.7 million households—about 15.8 percent of all households—were spending more than half their income on housing, an increase of 3.8 million just since 2001. Even 34 percent of households with incomes equivalent to 1-2 times the federal minimum wage, and 15 percent with incomes equivalent to 2-3 times this wage, spend more than half their incomes on housing. With the economy spinning out a growing proportion of full and part-time jobs with wages in these ranges, prospects for a meaningful reduction in affordability problems remain dim.
This year’s State of the Nation’s Housing report finds that demand for new homes has dropped well below projected long run demand. House price deflation, tight credit, and consumer concerns over the direction of the economy have kept buyers at bay and some households from forming. The somber conclusion is that if the economy slips into recession or job losses keep racking up, household growth and homeownership demand could fall even more.
On the other hand, the report sounds a more optimistic note about the medium to long-term. “At some point demand will bounce back,” notes Retsinas. “Historically, housing markets recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability. It is difficult to judge how far away from these conditions we may be. It will take longer this time to rebound given the unusually high levels of foreclosures and constrained credit markets.” Barring a prolonged period of serious economic decline, however, the report concludes that the outlook for household growth is about 14.5 million over the next ten years. The main risk to the long-run outlook, the report notes, is a dip in the level of immigration from its recent 1.2 million a year pace due to weaker labor markets.
2008 marks the 20th year that the Joint Center for Housing Studies has produced an annual report summarizing national housing trends for a wide audience of policymakers, practitioners, industry decision makers, academics, affordable housing advocates, and public sector leaders. The State of the Nation’s Housing is supported by a broad-based coalition of organizations that seek to address the nation’s housing challenges and opportunities, and each year the report’s presentation of critical data and analysis provides timely and relevant information to help meet these goals.
Harvard’s Joint Center for Housing Studies is the nation’s leading center for information and research on housing in the United States. Established in 1959, the Joint Center is a collaborative unit affiliated with the Harvard Graduate School of Design and the Harvard Kennedy School. The Director of the Joint Center for Housing Studies is Nicolas P. Retsinas. The Center’s research and additional information about its programs and activities are available at www.jchs.harvard.edu.
The Joint Center uses current data from the Census Bureau, the U.S. Department of Housing and Urban Development, the Bureau of Economic Analysis, the Bureau of Labor Statistics, the Federal Housing Finance Board, the Federal Reserve Board, First American CoreLogic, Freddie Mac, Inside Mortgage Finance, MPF Yieldstar, Moody’s Economy.com, the Mortgage Bankers Association of America, the National Association of Homebuilders, the National Council of Real Estate Investment Fiduciaries, the National Association of Realtors®, the Panel Study of Income Dynamics, and S&P/Case Shiller® US National Home Price Index to develop its findings.
Thursday, July 3, 2008
Next Trouble Spot - Home Equity Loans
The latest area to feel the strain of the economic crisis is home equity loans. According to the American Bankers Association, late payments on home-equity lines of credit rose to an 11-year high in the first quarter of 2008.
This is particularly troubling, since this type of debt is usually kept current by most borrowers, even during economically difficult times. In an effort to preserve their homes, borrowers will stop making payments on car loans or credit card balances before they will allow equity lines to default.
"That people are now having trouble making payments on home-equity lines is a clear sign of the extent of the pressure on the household budgets," explains Joel Naroff, President, Naroff Economic Advisors.
This is particularly troubling, since this type of debt is usually kept current by most borrowers, even during economically difficult times. In an effort to preserve their homes, borrowers will stop making payments on car loans or credit card balances before they will allow equity lines to default.
"That people are now having trouble making payments on home-equity lines is a clear sign of the extent of the pressure on the household budgets," explains Joel Naroff, President, Naroff Economic Advisors.
Sunday, June 29, 2008
Mortgage Payment Fraud Alert
A new scam has started to appear regarding loan payments. As many of you know, when you get a home loan, the loan is often sold to a servicing company. This allows the lender to recoup the money they loaned you and lend it to someone else. Once the loan is sold, you make your payments to the loan servicer, not the original lender.
Recently, some borrowers have been receiving letters informing them that their loan has been sold and they are to send all future loan payments to the new servicer. The problem is, the loan was not sold. So the unsuspecting borrower sends their loan payment to the new address. A couple of months go by and they receive a letter from the real lender telling them that their loan is in default. The borrower tries to contact the "servicer" only to find that they have closed up shop and have moved on to a new state and new name. The borrower now is out the money they sent to the crooks, and has late fees on their loan.
In an attempt to stop this fraud, lenders have set up a protocol for the transfer of a loan. Two letters are now sent - one from your lender telling you they have sold the loan, one from the servicer telling you they are now taking over the loan. If you receive a letter telling you your loan has been sold, you should contact your original lender to verify that they have, in fact, sold the loan.
Recently, some borrowers have been receiving letters informing them that their loan has been sold and they are to send all future loan payments to the new servicer. The problem is, the loan was not sold. So the unsuspecting borrower sends their loan payment to the new address. A couple of months go by and they receive a letter from the real lender telling them that their loan is in default. The borrower tries to contact the "servicer" only to find that they have closed up shop and have moved on to a new state and new name. The borrower now is out the money they sent to the crooks, and has late fees on their loan.
In an attempt to stop this fraud, lenders have set up a protocol for the transfer of a loan. Two letters are now sent - one from your lender telling you they have sold the loan, one from the servicer telling you they are now taking over the loan. If you receive a letter telling you your loan has been sold, you should contact your original lender to verify that they have, in fact, sold the loan.
Friday, June 27, 2008
FHA Amends "Anti-Flipping" Rule
The following is a press release from HUD dated June 26, 2008
WASHINGTON - In an effort to stabilize declining home values in certain neighborhoods, the Bush Administration today announced a temporary policy that will extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties.
For one year, the Federal Housing Administration (FHA) will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. The properties, which must purchased by owner-occupants, will no longer be subject to the customary 90-day waiting period.
“A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery,” said Brian D. Montgomery, Assistant Secretary of Housing-Federal Housing Commissioner. “The action we take today will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.”
FHA’s new temporary policy will help stabilize neighborhoods experiencing high rates of foreclosure by reducing the inventory of unsold properties. Many foreclosed properties remain vacant for months, inviting vandalism and reducing values of surrounding homes. To address that sizeable inventory, lenders have hired companies that specialize in the marketing and disposition of foreclosed homes. It’s reasonable and appropriate that these firms have the ability to sell the properties to borrowers using FHA financing.
With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition is intended to prevent property “flipping,” a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. FHA’s new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.
WASHINGTON - In an effort to stabilize declining home values in certain neighborhoods, the Bush Administration today announced a temporary policy that will extend government-backed mortgage insurance and allow for the immediate sale of vacant foreclosed properties.
For one year, the Federal Housing Administration (FHA) will insure foreclosed properties marketed and sold by property disposition firms on behalf of lenders. The properties, which must purchased by owner-occupants, will no longer be subject to the customary 90-day waiting period.
“A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery,” said Brian D. Montgomery, Assistant Secretary of Housing-Federal Housing Commissioner. “The action we take today will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.”
FHA’s new temporary policy will help stabilize neighborhoods experiencing high rates of foreclosure by reducing the inventory of unsold properties. Many foreclosed properties remain vacant for months, inviting vandalism and reducing values of surrounding homes. To address that sizeable inventory, lenders have hired companies that specialize in the marketing and disposition of foreclosed homes. It’s reasonable and appropriate that these firms have the ability to sell the properties to borrowers using FHA financing.
With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This prohibition is intended to prevent property “flipping,” a predatory practice that strips a home of its equity before being quickly resold at an inflated price to an unsuspecting buyer. FHA’s new policy will permit the immediate sale of foreclosed properties to legitimate borrowers wishing to use FHA-insured financing.
Thursday, June 26, 2008
Insuring Vacant Homes
As homes languish on the market, many homeowners are vacating their homes. This can be for a variety of reasons. They may have to move for a job relocation; they may have purchased another home; or they may be negotiating a short sale with the lender and have made other living arrangements. Whatever the reason, a vacant home may cause a problem with your insurance coverage.
Insurance companies consider vacant homes to be a high risk for vandalism and theft. And if there is a fire or a burst water pipe, no one is there to report it, so the resulting damage can be much greater. You need to check your policy to see if your vacant home is covered. If not, you should consider getting vacant homeowners coverage. Ask your existing insurer if they offer the policy. But you should also comparison shop with other insurers for the best rate. Coverage may also be available through some state-run insurance plans, such as Fair Access to Insurance Requirements (FAIR) Plan.
If you can't get - or afford - vacant homeowners insurance, you might want to consider these options:
Stay in the home until it's sold. If more than one person now resides in the home, perhaps one could remain while the other moves;
Discuss the pros and cons of renting the home with your Realtor. If you decide this is a good option, you may need to change your insurance to reflect that the property is now a rental. But that insurance will be cheaper than vacant home insurance; or
Hire a house-sitter, or allow a friend or relation live in the home until it sells.
Even if you can't have someone live into the house, try to make it look like someone is living there. Keep the home and yard maintained. Periodically enter the home to make sure there are no leaks, cracked windows, etc. Don't allow the mail, newspapers or deliveries to pile up.
You may want to install a security system. Consider putting the lights on timers and make sure the windows are covered. You might ask a neighbor to park in the driveway.
Whatever you do, don't commit fraud by lying to your insurance company. Most policies allow you to leave the home vacant for a certain period of time before you are required to switch to a vacant home policy. If leave your home vacant longer than your current policy permits and the place is damaged or destroyed, the insurer can challenge the claim.
Insurance companies consider vacant homes to be a high risk for vandalism and theft. And if there is a fire or a burst water pipe, no one is there to report it, so the resulting damage can be much greater. You need to check your policy to see if your vacant home is covered. If not, you should consider getting vacant homeowners coverage. Ask your existing insurer if they offer the policy. But you should also comparison shop with other insurers for the best rate. Coverage may also be available through some state-run insurance plans, such as Fair Access to Insurance Requirements (FAIR) Plan.
If you can't get - or afford - vacant homeowners insurance, you might want to consider these options:
Stay in the home until it's sold. If more than one person now resides in the home, perhaps one could remain while the other moves;
Discuss the pros and cons of renting the home with your Realtor. If you decide this is a good option, you may need to change your insurance to reflect that the property is now a rental. But that insurance will be cheaper than vacant home insurance; or
Hire a house-sitter, or allow a friend or relation live in the home until it sells.
Even if you can't have someone live into the house, try to make it look like someone is living there. Keep the home and yard maintained. Periodically enter the home to make sure there are no leaks, cracked windows, etc. Don't allow the mail, newspapers or deliveries to pile up.
You may want to install a security system. Consider putting the lights on timers and make sure the windows are covered. You might ask a neighbor to park in the driveway.
Whatever you do, don't commit fraud by lying to your insurance company. Most policies allow you to leave the home vacant for a certain period of time before you are required to switch to a vacant home policy. If leave your home vacant longer than your current policy permits and the place is damaged or destroyed, the insurer can challenge the claim.
Tuesday, June 24, 2008
Home-Value Web Sites Miss the Mark
This article comes from the Associate Press (06/23/2008)
Online home-value sites offer some useful tools, but their estimates are often wrong.
"The percentage of error on these estimates is still very large," says Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate. If there are not many comparable sales in one area, for example, she says, "the estimates will have huge errors in them."
Zillow.com and Cyberhomes.com rely on computer-generated automated models to estimate values. The models help compensate for the fact that many neighborhoods don’t have enough sales to generate accurate values based on experience.
But these computer models don’t reflect home condition, improvements and may not even accurately convey property descriptions.
Marty Frame, general manager of Cyberhomes.com, says the data on the site is best used as a way to form an overall impression of a neighborhood."
Our goal is to provide you all this information and let you cherry-pick the things that are most interesting to you," Frame says. "You're going to look at an estimate and say, "that makes sense' or 'that doesn't make any sense."
Online home-value sites offer some useful tools, but their estimates are often wrong.
"The percentage of error on these estimates is still very large," says Delores Conway, director of the Casden Forecast at the University of Southern California Lusk Center for Real Estate. If there are not many comparable sales in one area, for example, she says, "the estimates will have huge errors in them."
Zillow.com and Cyberhomes.com rely on computer-generated automated models to estimate values. The models help compensate for the fact that many neighborhoods don’t have enough sales to generate accurate values based on experience.
But these computer models don’t reflect home condition, improvements and may not even accurately convey property descriptions.
Marty Frame, general manager of Cyberhomes.com, says the data on the site is best used as a way to form an overall impression of a neighborhood."
Our goal is to provide you all this information and let you cherry-pick the things that are most interesting to you," Frame says. "You're going to look at an estimate and say, "that makes sense' or 'that doesn't make any sense."
Monday, June 23, 2008
How Did We Get Into This Credit Mess?
Journalists are very good at reporting the problems caused by the credit crisis - foreclosures, plummeting property values, destroyed credit ratings - but not so good at giving a jargon-free explanation of how this happened. So here goes...
In 2001, the US was officially in a recession. What helped pull us out was an upswing in residential real estate purchases and an overall increase in consumer spending. This was fueled by easy credit. People were tapping into their home equity to pay for everything from college educations to Hawaii vacations. As more people borrowed, lenders drooled over the money made from loan fees and wanted more. So new loan products flooded the market, each of which required less from the borrower in order to qualify - less down payment, less income verification, less credit-worthiness.
These sub-prime loans became prevalent because banks were no longer the driving force behind the lending industry. That role was turned over to non-bank (and non-regulated) financial institutions who packaged these loans into large bundles called mortgage-backed securities (one security typically holds 1,000 mortgages), and sold them to investors.
But why would investors buy these securities if they included risky loans? Because some Wall Street analysts designed risk-pricing models which said that loans are less risky when bundled in large groups then when held individually. If you invest in one real estate loan and the borrower defaults, your investment is in trouble. But if you invest in 1,0000 loans and one defaults, the loss is easily absorbed into the profit from the 999 good loans. And the underlying premise of those models was that, since the Great Depression, US real estate values had never gone down year-over-year on a national basis. Investors knew real estate-backed securities would always be a safe bet.
And what about the borrowers? Why would they take out a loan they could not afford? They knew that, when their 1% adjustable rate loan jumped to 9% in a few years, they would not be able to "pay the piper". Like the Wall Street analysts, borrowers were also aware that real estate was a sure thing. They knew they would be able to sell the home and make a great profit. Would-be homeowners who, a few years before, would have waited to save up a down payment, jumped at the chance to buy now with nothing down. Real estate speculators figured they could buy with cheap money and sell at a profit before their loan rates increased. Everybody would make out OK because everybody was sure that real estate values would continue to increase.
And then the rates on these loans started to rise. As the "teaser" rates expired and the "real" loan rates started to adjust up, the homeowners did exactly what they had planned. They put their homes on the market and waited for the buyers to come flooding in so they could sell the house, pay off the loan, and pocket a nice profit.
But there were just too many loans adjusting upward at the same time, so there were too many sellers trying to move their properties at the same time. In order to get rid of the homes, sellers started to drop their prices. Eventually, prices became so low that, even if they did sell, the proceeds would no longer cover the debt owed on the home. So some sellers walked away from the property, letting the bank foreclose.
Banks are not in business of owning real estate, so they were eager to get rid of their foreclosed properties as quickly as possible. These institutional sellers dropped prices even lower. This forced individual sellers to follow suit. This spiral continued until now, for the first time since the Depression of the 1930's, property values have dropped throughout the entire country.
Monday, June 16, 2008
Thieves Strip Vacant Houses
Foreclosures are wreaking havoc, not only with the lives of the former owners, but with entire areas. Empty houses cause blight in what were formerly a well-maintained neighborhoods. Pools have become breeding grounds for mosquitoes. And now there is another problem - copper theft.
With the rise in the cost of copper, empty homes are being stripped of their copper pipes, fixtures, and even lawn ornaments. An average house can yield $1,200 in used copper. And it's not just foreclosed homes that are at risk. Homes under renovation, where the plumbing is being replaced, or where the owners are on vacation are also being targeted.
Many states are trying to pass laws that require proof of ownership before used copper can be purchased. But until that happens, the best defense is local. If you see suspicious activity in a house you know to be vacant, call the police.
With the rise in the cost of copper, empty homes are being stripped of their copper pipes, fixtures, and even lawn ornaments. An average house can yield $1,200 in used copper. And it's not just foreclosed homes that are at risk. Homes under renovation, where the plumbing is being replaced, or where the owners are on vacation are also being targeted.
Many states are trying to pass laws that require proof of ownership before used copper can be purchased. But until that happens, the best defense is local. If you see suspicious activity in a house you know to be vacant, call the police.
Monday, June 9, 2008
New Wave of Bank Defaults are on the Horizon
Banks have been struggling to deal with home mortgage defaults. But even as the number of home defaults seems to be growing, a new group of borrowers is about to enter the default crisis.
Home builders, condominium developers, and land speculators are facing growing problems making payments on their loans. There is no money to build and, even if the home gets built, there are no buyers. According to an article in the Wall Street Journal, those banks which are heavily tied to home construction loans have begun to dump them, many at steep discounts, a precursor to billions of dollars in new losses.
In testimony before the Senate Banking Committee on Thursday several bank regulators testified on the seriousness of the situation. Federal Deposit Insurance Corporation Chairman Sheila Bair pointed to banks that are not diversified or with high exposures to residential construction and development as being of particular concern. Also smaller banks are not in a good position to offset losses. Even larger banks in states like Nevada and Arizona that have been hard hit by the housing crisis are already reeling from home loan defaults and may not be able to survive another round of write-offs in the building sector.
Home builders, condominium developers, and land speculators are facing growing problems making payments on their loans. There is no money to build and, even if the home gets built, there are no buyers. According to an article in the Wall Street Journal, those banks which are heavily tied to home construction loans have begun to dump them, many at steep discounts, a precursor to billions of dollars in new losses.
In testimony before the Senate Banking Committee on Thursday several bank regulators testified on the seriousness of the situation. Federal Deposit Insurance Corporation Chairman Sheila Bair pointed to banks that are not diversified or with high exposures to residential construction and development as being of particular concern. Also smaller banks are not in a good position to offset losses. Even larger banks in states like Nevada and Arizona that have been hard hit by the housing crisis are already reeling from home loan defaults and may not be able to survive another round of write-offs in the building sector.
Sunday, June 1, 2008
TransUnion Lawsuit Settled And You May Benefit
TransUnion, one of the three largest credit reporting agencies, has just settled a class-action lawsuit. They were accused of selling the private credit information of American consumers to marketers who then used that data to sell products and services back to the consumer.
Ken McEldowney with Consumer Action said, "TransUnion was getting deep into credit reports to get information to tailor lists that were valuable for other companies. This is by far the largest class action ever and the largest ever involving privacy violations. It sends a strong message to organizations that hold your private information."
If you have used a credit card or carried any kind of debt or loan account in the past 21 years, you are probably entitled to benefit from this unprecedented $10-billion dollar lawsuit settlement. The tentative settlement gives a majority of Americans free round-the-clock access to their credit reports and credit scores. Additionally, consumers would receive e-mails updating them about any significant changes to their credit files, such as late payments or accounts opened in their names.
In addition to getting free credit monitoring, consumers can claim a portion of the settlement money by registering at listclassaction.com, starting June 16. But people are being warned NOT to respond to emails claiming to be from TransUnion. It could be a trick by spammers posing as the credit agency and going after your private information. TransUnion said it will only communicate through that website.
Ken McEldowney with Consumer Action said, "TransUnion was getting deep into credit reports to get information to tailor lists that were valuable for other companies. This is by far the largest class action ever and the largest ever involving privacy violations. It sends a strong message to organizations that hold your private information."
If you have used a credit card or carried any kind of debt or loan account in the past 21 years, you are probably entitled to benefit from this unprecedented $10-billion dollar lawsuit settlement. The tentative settlement gives a majority of Americans free round-the-clock access to their credit reports and credit scores. Additionally, consumers would receive e-mails updating them about any significant changes to their credit files, such as late payments or accounts opened in their names.
In addition to getting free credit monitoring, consumers can claim a portion of the settlement money by registering at listclassaction.com, starting June 16. But people are being warned NOT to respond to emails claiming to be from TransUnion. It could be a trick by spammers posing as the credit agency and going after your private information. TransUnion said it will only communicate through that website.
Wednesday, May 28, 2008
Lenders Held Accountable For Bad Loans
Most lenders sell their loans on the secondary market the moment the deal is closed. This allows the lender to get back the cash they just loaned out, keeping as profit the loan fees they collected from the borrower. They can then lend the money again, collect more fees, - a cycle that keeps money flowing to borrowers and profit streaming into the bank.
In order to sell these loans, the bank must guarantee that there is no fraud in the loan package. For example, the borrower's income can not be inflated or the appraisal can not be inaccurate. And to keep the bank "honest", they must sign an agreement that says if fraud is found, the bank must buy back the loan.
To no one's surprise, not every loan is completely factual. In the past, the odds were pretty good that one or two lies could easily slip through the system. And if the borrower did have problems making a loan payment, the home could always be sold for a profit, since everyone knows that real estate never decreases in value...
Well - now that the bottom has fallen out of the real estate market and borrowers are defaulting at record numbers, the secondary market is taking a long, hard look at the loans they purchased. Freddie Mac and Fannie Mae, the largest purchasers of real estate loans, are reviewing every loan that defaults. If they find fraud, they are requiring the lenders to buy back the sub-standard loans.
Of course, banks are not eager to do this, partially because they do not want the non-performing loans, but also because many banks to not have the cash reserves to buy the loans. Lawsuits are being filed and the government is considering requiring banks to keep a larger cash reserve. And even if the real estate market revives soon, you can bet these loan fraud problems will affect real estate lending for many years.
In order to sell these loans, the bank must guarantee that there is no fraud in the loan package. For example, the borrower's income can not be inflated or the appraisal can not be inaccurate. And to keep the bank "honest", they must sign an agreement that says if fraud is found, the bank must buy back the loan.
To no one's surprise, not every loan is completely factual. In the past, the odds were pretty good that one or two lies could easily slip through the system. And if the borrower did have problems making a loan payment, the home could always be sold for a profit, since everyone knows that real estate never decreases in value...
Well - now that the bottom has fallen out of the real estate market and borrowers are defaulting at record numbers, the secondary market is taking a long, hard look at the loans they purchased. Freddie Mac and Fannie Mae, the largest purchasers of real estate loans, are reviewing every loan that defaults. If they find fraud, they are requiring the lenders to buy back the sub-standard loans.
Of course, banks are not eager to do this, partially because they do not want the non-performing loans, but also because many banks to not have the cash reserves to buy the loans. Lawsuits are being filed and the government is considering requiring banks to keep a larger cash reserve. And even if the real estate market revives soon, you can bet these loan fraud problems will affect real estate lending for many years.
Tuesday, May 27, 2008
We Need Your Help
A request has gone out to the real estate and mortgage industry asking for ideas on how to stem the mortgage and housing crisis. So I'm asking....
Do you have any ideas that might help pull the country out of this mess? If you do, please email me. I'll post the best responses here, and I'll also pass them along to the folks correlating this data.
THANKS!
Do you have any ideas that might help pull the country out of this mess? If you do, please email me. I'll post the best responses here, and I'll also pass them along to the folks correlating this data.
THANKS!
Friday, May 16, 2008
Realtors Help Defeat "Declining Market" Policy
On May 2, I told you how Fannie Mae's "declining market" concept was seen by many as just another name for redlining. (See Declining Market Just A New Name For Redlining?). This program requires borrowers in "declining markets" to have 5% more equity in homes they wanted to purchase or refinance if they want to get a loan backed by Fannie Mae.
This policy was strongly denounced by the National Association of Realtors (NAR), who claimed that it was bad for the housing market because it discouraged consumers from buying homes in markets hardest-hit by foreclosures. "It stigmatized communities with lower sales and prices," said Dick Gaylord, president of the NAR.
NAR met several times this spring with Fannie Mae officials and sent letters reflecting members' unease with the policy. “We heard the concerns of NAR and we reviewed and determined that changes in our policy were needed,” said Gwen MuseEvans, Fannie Mae vice president for credit policy and controls.
So, effective June 1, the policy will change, allowing borrowers to get loans up to 95 percent loan-to-value, even in markets in which prices have been falling. “This new down payment policy reinforces our goal to support successful home-owning,” says Marianne Sullivan, Fannie Mae's senior vice president of credit policy and risk management for single-family homes.
This policy was strongly denounced by the National Association of Realtors (NAR), who claimed that it was bad for the housing market because it discouraged consumers from buying homes in markets hardest-hit by foreclosures. "It stigmatized communities with lower sales and prices," said Dick Gaylord, president of the NAR.
NAR met several times this spring with Fannie Mae officials and sent letters reflecting members' unease with the policy. “We heard the concerns of NAR and we reviewed and determined that changes in our policy were needed,” said Gwen MuseEvans, Fannie Mae vice president for credit policy and controls.
So, effective June 1, the policy will change, allowing borrowers to get loans up to 95 percent loan-to-value, even in markets in which prices have been falling. “This new down payment policy reinforces our goal to support successful home-owning,” says Marianne Sullivan, Fannie Mae's senior vice president of credit policy and risk management for single-family homes.
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