LoanCentral's Real Estate Lending Blog

If you are wondering how the interest rate will affect your decision - check out LoanCentral's INTERACTIVE "Should I buy now" calculator!. Click and turn the dials!

IF President Obama signs the bill that Congress just passed - we will have the 1st time homebuyer tax credit extended for Purchase & Sales agreements under contract with qualified buyers before May 1st, 2010'

The bill was approved by the Senate last week by a unanimous vote of 98 - 0 oppossed! The House passed it today.

Remember that there are qualifications that must be met.

First - any home over $800,000 is not eligible even if the buyer meets the income limitations - this is new.

To be eligible for the credit - there are Income limits. Limits will be raised from $75,000 to $125,000 for individuals and from $125,000 to $225,000 for couples. So...  

INCOME LIMITATIONS for receiving the new Tax Credit

Existing Limits	New Limits
Individuals  $75,000	$125,000
Couples   $125,000	$225,000

The credit can be up to 10% of a home's purchase price.

The maximum credit remains at $8,000 for first-time homebuyers which is defined as someone who has NOT owned a home in the last 8 years...

The maximum credit for CURRENT homeowners is $6,500 IF they have been in their primary residence (owner occupied) for at least  of the last 8 years - and they must sell their home and buy a new one to qualify.

For additional details go to www.loancentral.com/homebuyertaxcredit

The 2009 Eastside Panel Event was a huge success again this year! Our very own George Charles is the founder of the event

The Eastside Real Estate Panel event came from a vision from LoanCentral's President and CEO George Charles. A vision that while local real estate agents and lenders compete with each other - we are still a community of professionals. If we share ideas, systems and tools amongst ourselves, the public perception of the real estate professional will be elevated and our production,  income and personal time with our families will benefit.

Each year we pull together the industry's top Realtors to share these ideas and systems with other local agents. This year we had nearly 300 people attend at the Westin in Bellevue with a goal of all net proceeds from the event going to Habitat for Humanity.

We did 2 panels this year, one for general real estate and a second for REO's and short sales which make up nearly 32% of all sales in the nation. We were able to get outstanding panelists for both events.

2009 Panelists along with the Founder of the Event
George Charles and Director Sheryl Mullins

Our Emcee's were Brian Combs, owner and Team Leader from Keller Williams in Vancouver Washington and Kendra Todd - the youngest person to win the acclaimed TV series "The Apprentice". For more information see www.EastsideAgentPanel.com

Could this be it? Could this be the low point for Interest rates?

Wall Street journal just released a study to show which Cities Will See Biggest Rebound after the recession. The following cities are reported as likely to be the hottest post-economic downturn destinations for young, brilliant, and highly mobile workers?

The Wall Street Journal surveyed and they chose cities based on economic diversity, lifestyle and their own personal prejudices.

Here’s the top-10 list:

    1. Washington, D.C. (tie)
    1. Seattle
        2. New York
        3. Portland, Ore.
        4. Austin, Texas
        5. San Jose, Calif.
        6. Denver
        7. Durham, N.C.
        8. Dallas
        9. Chicago
        10. Boston

MARKET UPDATE - WEEKLY

Don't forget about our Market Update which goes out each Friday on current events and trends in the Real Estate and Lending industry.

This loan is available through SBA (Small Business Administration) and is actually a part of the Economic Recovery Act. The new loan program is called ARC (For America's Recovery Capital), is an interest-free, deferred payment loan of up to $35,000.

One of its intended uses is to help businesses get out from under ruinous debt. The important note here is that the SBA recently clarified Real Estate agents qualify for this new program.

Thus, if real estate practitioners have maxed-out business credit cards (it has to be business-related debt; personal debt won't qualify), they can pay that debt off with the far-more attractive SBA loan. SBA's two flagship loans, known as the Section 7(a) and Section 504 loans, are also open to individuals.

On the 7(a) loans, the SBA says, "To assist small businesses during the economic downturn, the American Recovery and Reinvestment Act authorizes SBA to temporarily reduce or eliminate loan fees for borrowers . . . and raises the loan guarantee from the current level to 90 percent."

Check with your local bank to see if they participate in the SBA program...

The Treasury Department has announced guidelines for a national loan modification program intended to help 3 to 4 million homeowners stay in their homes. $ 75 BILLION of our taxpayer dollars are budgeted for this in the form of a federal subsidy.

It is a voluntary program which contains financial incentives for loan servicers and lenders. Prior to this, lenders had no incentive to spend resources on a borrower's request for a loan modification. In fact - there was a DIS-Incentive because they were not paid to do the modifications - but WERE paid to do loan foreclosures.

Under the new federal program, lenders will receive a $1,000 fee for doing loan modifications - and bonuses of up to $1,000 per hear for 3 years on modifications that actually work.

QUALIFICATIONS -To QUALIFY for a loan modification, the borrower must have a loan on their PRIMARY residence which was taken out PRIOR TO January 1st, 2009. The loan must be no greater than $729,750 AND they must have suffered a hardship which has caused their housing payments to exceed 31% of the household's gross monthly income. TTotal monthly debts should not exceed 55% of the gross household income. The borrower must also demonstrate that they can actually still afford the new modified loan.

Loan modifications may include short-term reductions in interest rates to as low as 2% to drive down housing payments to the 31% - 38% range. Other tools to bring down payments will be longer amortizations and forbearance or forgivenessof a portion of their principal loan amount.

IMPORTANT if you live in WASHINGTON STATE - there are a number of individuals that are claiming to be loan modification specialists in Washington. Loan Modifications are still in their infancy and as with short sales - borrowers are frustrated by difficulties getting through to lender representatives to help them through their struggles.

In Washington State - you must be LICENSED by the DFI (Department of Financial Institutions) or be a licensed attorney to represent a borrower in loan modifications. Others who are advertising these services for a fee may be violating the statute governing distressed properties and/or be actually charged with practicing law without a license. Be sure you have a qualified individual who is licensed if you need help with a loan modification.

First-Time Buyers have 199 days left to CLOSE on their new home to take advantage of the First Time Homebuyer Tax Credit. Qualified buyers include those that have not owned a primary residence in the last 3 years.

These homes need to CLOSE BEFORE DECEMBER 1st.

Remind your friends - this is a tax credit not a tax deduction. It’s time to remind first-time home buyers that in order to qualify for the government’s $8,000 gift in the form of a tax credit, the deal must close by Dec. 1.

Buyers should have a purchase contract signed soon so they have 45 to 60 days to arrange financing and safely close the deal - especially with the new HERA and TILA changes effective July 30th.

It’s Rates…. And Affordability that are important to buyers

Real Estate is the same as any other commodity – it has cycles. It is also subject to the “Laws” of supply and demand.

When supply drops – the demand increases and prices go up.

When the supply increases – the demand can falter and prices drop to stimulate more demand.

Recently interest rates have decreased to 40 year lows (See Interest Rate History Charts).

Rates have a direct impact on a prospective buyers’ ability to afford the home.

When they see rates at 8% on a $250,000 home. with 20% down their payment would be $1,746 per month ($ 1,467 P&I, $229 Taxes & $50 Homeowner insurance)

This borrower would need approx $74,850 per year to qualify for the home.

When rates get to their current levels for 30 year fixed at 5% - purchasing the SAME home, at the Same price, with the Same down payment would reflect a payment of $ 1,352.

($1,073 P&I, $229 Taxes and $50 Homeowners insurance) at a savings of $393 per month!

The same borrower in this scenario would need $ 58,000 per year to qualify – or $16,850 LESS income per year to buy the same home.

But WAIT… To further the example – what if the home they were looking at a while back was $250,000 – but today the price has dropped 20% to $200,000.

The 20% downpayment would be $10,000 less and the payment at 5% now would be $ 859 ($ 608 less than when they originally started looking at the home!) and their income required to qualify would be $ 28,051 LESS per year needing $ 46,810 per year rather than the original $74,851.

That’s a clear improvement in AFFORDABILITY!

Example 1 – Interest Rate Drops

Buyer looking at a house for $250,000 a while ago as rates began to drop

Sale Price	Down payment	Rate	P&I Payment	PITI	Income Required*
$ 250,000	20% = $50,000	8%	$ 1,467	$ 1,746	$ 74,851
$ 250,000	20% = $50,000	5%	$ 1,073	$ 1,352	$ 58,000
Difference				$ 394	$ 16,851

Example 2 – Prices drop and interest rates improved

Buyer started looking at a $250,000 home – which has dropped 20% in value… and rates are down

Taxes based on 1.1% of Sales price

    250K Sale price is $229/mth       200k sale price is $183/mth

    Insurance at $50 per month -     No PMI – 20% down

Lower housing prices and interest rates add up to AFFORDABILITY and affordability motivates buyers to buy. It also opens up a brand new group of buyers who did NOT qualify just a few months ago!

In addition – qualified first time homebuyers gain an additional $ 8,000 incentive from the government in the form of a Tax Credit if they close on their home before December 1^st 2009. (Tax credits are a dollar for dollar reduction in your income tax liability to Uncle Sam. If you owe $ 5,000 of taxes prior to the credit, then you could actually receive a $ 3,000 REFUND)

Bottomline- Great Rates at historical lows, plenty of housing inventory to choose from that is priced at a discount and quite a bit more AFFORDABLE than last year!

If you are in any segment of the Mortgage or Real Estate industry, please take a moment to read and sign this petition. This is the message I sent out to my sphere of influence here in the Seattle area.

Dear Fellow Agents and Loan Officers,

The new appraisal HVCC rule is now in effect for all FNMA and FHLMC loans and the speculation that it would lower service levels, delay loans and be more expensive to the consumer is proving to be true. I’m writing you to ask that you follow this link (www.hvccpetition.com ) and electronically sign this petition to repeal the new HVCC law.

It all started with a BANK (wamu) in New York, pressuring appraisers at Appraisal Management Companies (AMC's) to come in at value. There is and has been a process in place for appraisers to deal with these types of issues - we can clarify or adjust the current self-regulation – we don’t need new legislation.

Let me start by stating that this is NOT an Appraisal problem, it's an APPRAISER issue. Regulating the entire industry at a higher cost to the consumer is not a better answer than dealing with the "Few" appraisers or lenders who are not ethical and/or following the current rules. HVCC has created an environment where inexperienced appraisers are completing substandard work with a middle man (AMC's) adding no value to the process. The entire HVCC process results in poor service, poor appraisals and slower turn times for the consumer.

Interestingly enough, WAMU was a lender who was charged with a RESPA violation by negotiating lower credit reporting costs with national credit agencies because of their economies of scale - but did not pass on the lower costs to the consumer… I truly believe we are on the edge of what would be called a RESPA violation for lack of value added services the AMC's are being paid for.

In addition to poor quality work, there is a lack of communication from the AMC's and slower turn times for getting the appraisal back to be underwritten. This creates the need for longer lock periods and lock extensions which are again more expensive to the customer. (Example - A $417,000 conforming loan that needs a 1/4% lock extension or 15 more days to process due to the appraisal - costs the consumer an additional $ 1,042.50.)

Another issue that has surfaced is multiple appraisals being required if one lender cannot approve a transaction, or if the lenders pricing goes "out of the market" and the consumer goes to a different lender and HVCC requires another appraisal to be completed. (Artificially increasing rates above market is a common practice lenders use to temporarily slow things down when their processing and underwriting pipelines hit capacity.)

The mortgage industry is experiencing all of the above issues as a direct result of implementing the new HVCC at the cost to the consumer and economic recovery of the housing markets throughout the nation. Please take a moment to sign the petition to repeal this law and its unintended consequences.

Follow this link to sign the petition- just do it ! www.hvccpetition.com

Regards,

George Charles
President \ Designated Broker
LoanCentral

In a recent presentation to a group of realtors, HUD Secretary Donovan announced that borrowers would be allowed to use the $ 8,000 tax credit for their downpayment on HUD FHA Loans!

Then... S T O P,     W A I T

On May 14th - two days later, the Mortgagee Letter 2009-15 has been put on hold by HUD.

HUD’s recently released Mortgagee Letter 2009-15, before it was "Pulled", allowed government agencies and other authorized entities, including FHA approved lenders, to offer either long-term secondary financing; or “short-term or bridge” loans secured by the anticipated tax credit for first time homebuyers established by the American Recovery and Reinvestment Act of 2009 (ARRA) for purchases and loan closings made prior to December 1, 2009.

My gut says the program will be BACK... but until further guidance is received from HUD LoanCentral has provided specific direction on using first-time homebuyer tax credits for the down payment, we will have to wait!

UNLESS you are in Washington State! Some states have already beat the U.S. Department of Housing and Urban Development to the punch on making bridge loans available to households who want to claim the First-Time Homebuyer Tax Credit.

The Washington REALTORS® association was able to convince treasury officials that the money loaned to home buyers would not only be paid back when tax credits took effect, but also increase the state’s funds. Once we can figure out how to circumvent the current IRS regulations that require the IRS to send all refunds directly to the tax payer... we may see the Tax Credit become available for borrowers to use as their downpayment!

Fed Report: Real Estate Stabilizing in Key Cities
So here’s what the Fed says in their “Beige Book” for economic activity yesterday (April 15, 2009)

They state that real estate among several other industries continues to remain week. This is true across all 12 of the Federal Reserve Districts (See Color Coded picture above of the 12 Federal Reserve Districts)

With that said - here is reason for being optimistic based on their recent report. On the east coast – The Boston Fed reports that there are “Early signs of improvement” in the residential real estate sector. They also stated that the news was good in other areas around the country – in fact, the Beige book reports that we are experiencing “the most widespread rise in demand for residential mortgages in more than seven years”

Pending home sales is an important leading indicator for home sales throughout the US and here in Washington State. Pending sales looks ahead at closing which will occur in the next 30 to 90 days. Often “Closed Home Sales” is reported by the media – but in my opinion, that number is important, but is like looking in the rear view mirror.

This latest report on Pending home sales have increased which means that sales activity in the next few months, including reports on “Closed Home Purchases” will reflect an upward trend. The National Association of Realtors reported increases throughout most of the country for Pending Sales written in February. It was a slight increase of 2.1 % over January – but we can take all the good news we can right now.

Remember that reports on home sales and “Pendings” is simply a report on activity. This leads to important psychological conditions in our housing markets as we’ve seen when the media reports on the doom and gloom – sales decrease as buyers sit on the sidelines. Good news like this could lead buyers down the path to home ownership but there are no guarantees. If we can take the emotion out of it, forget the reports about what other buyers are doing around the country… and focus on the incredible HOME BUYING OPPORTUNITY that we are currently experiencing – the early adaptors who see the benefits will likely be rewarded handsomely as these are the times when wealth transfers.

Watch for my next blog post which I will go into more detail on why now is such a great time to buy.

Mortgage Interest Rates hit ANOTHER record low

Monthly Freddie Mac tracks the national interest rates for mortgage loans in it’s Primary Mortgage Market Survey. This week mortgage rates hit ANOTHER RECORD LOW !

This is the 4^th time in 2009 that Mortgage Rates for a 30 year fixed established a new record low.

The new record for the week ending in the first week of April was 4.78%, beating the previous record of 4.85%.

Remember that these are the average for rates nationally and LoanCentral has consistently beaten the average rates for our customers every single month since the inception of the company in 2006.

The housing market is looking healthier. Here are some reasons why the opportunity has never been better to purchase a home or investment property.

Mortgage Rates are at Historic Lows – As mentioned in a previous blog, interest rates on FIXED rate mortgages are at all time lows. Look at the graph below – the red arrow shows rates as of December 2008 compared to the recent market – and RATES HAVE DROPPED FROM HERE! (For a current interest rate chart click on the menu above “Interest Rate History”

Population Growth - I already covered this below in a prior blog post

It’s a HOME – we all have to live somewhere. - Kid’s happen. Deaths occur. Kid’s move out to college and get married. Married people get divorced. Job Transfers… Upsizing / Downsizing – these are all what I call “Life Events”. Every year there are 800,000 new households formed here in the USA. There is only a limited number of homes as the population increases and “Life Events” happen which means that even in a slow economy – houses are bought and sold.

What does low rates mean in terms of buying power? Did you know that if you are looking at a $500,000 home and think the price of the home will drop 5% ($25,000), that if rates increase only ½% while you are waiting – the end result will be that your payment will actually INCREASE at the lower sales price? Check out our interactive “Should I buy Now Calculator” and see for yourself!

CLICK on the above image to go to the "Should I Buy Now" Calculator

Leverage – know and understand the power

Caveat first – don’t EVER buy something you can’t afford. Now, with that said – leverage can be your friend. Tough times like these that we are in is when wealth can transfer. No doubt that the side do you want to be on is the receiving end… rather than the giving side right?

Simple analysis.

Option A - You buy $300,000 worth of stock – (it’s on sale right t now too right?)

• The stock goes up 10% - you’ve earned $30,000
• Risks – the stock drops
• 10% drop leaves you with $270,000
• 50% drop leaves you with $150,000
• 100% drop leaves you with $ 0
• Potential Returns
• 10% increase returns you $30,000
• 20% increase returns you $60,000
• etc

Option B – You take your $300,000 and pay CASH for a home

Risks

• The home price drops 5% after you purchase
• Your new value is $285,000
• If you HAVE to sell – you’ve lost $15,000 plus your costs to sell
• If you DON’T have to sell – you’ve lost nothing and can wait for the market to appreciate
• The home Price drops 10% after you purchase
• Same as above – you don’t lose unless you have to sell…
•  If you HAVE to sell or move in the next 2 years – you may be better off renting for the time being
• Note: One of the risks with stock is that a strong company which you’ve invested in may run into financial trouble and disappear (WAMU) leaving you no value left in your stock investment.
• Thoughts – do you think the same can happen with an investment in a home? People always need a place to live whether they purchase or rent. It is highly unlikely that the value of a home in the NW would decrease to nothing.

Option C – LEVERAGE – Take 10% of your $300,000 which is $30,000… and buy a home with a value of $300,000. This 10% investment will be compounded as the home appreciates. Here’s a couple of examples

• 5% appreciation over the next 2 years
• If you invest 10% or $30,000 and the homes value increases 5% over the next two years, the home would now be worth $315,000 or $5,000 more than you invested
• If you invest 10% or $30,000 and the homes value increases 10% over the next two years, the homes value would be worth $ 330,000 or tripling your $10,000 investment.
• Note: Of course you would need to sell and incur some costs to realize this gain, these examples are for illustrative purposes showing examples of how leverage works when buying a home.

There is LOTs of inventory to pick from!

Your choices have been increased as the number of available homes hitting the market increases. Two months ago, the inventory has changed directions and is starting to shrink – look now for the best options

Market Corrections can MAKE you money- There is no doubt that the entire country has suffered from housing prices decreasing. There are very few areas that have increased in price in 2008 (Clyde Hill for example). This presents the homebuyer with a great opportunity – If you purchase a home now while prices are low and inventory selection offers you many homes to choose from – when prices come back up you will gain instant equity in the home. The lower the prices have been driven down due to the credit crisis – the more potential for the prices to snap back giving the new owner far greater returns.

The FEDs are PAYING First Time Homebuyers! First-time buyers (defined as anyone who hasn’t owned a home in the last three years) are entitled to a maximum $8,000 tax credit; interest rates are at record lows; and the Federal Reserve is doing its best to make mortgage loans available

FIXED Rate Mortgage costs – P&I Payments don’t change. If you get a fixed-rate mortgage, the monthly payment stays the same – while everything else, including rent, goes every year.

OWNERSHIP - By the way, yes you OWN it! Putting aside all the investment strategy, sometimes it’s just nice to know that YOU own the house. If you rent now, you know what I mean – it’s nice to have the freedom to fix up the house, colors and yard the way YOU want it. And if you are going to pay someone’s mortgage payment – why not let it be your own!

Housing values have remained in a fairly stable range once adjusted for inflation. Since 1890, (- at least that's when Yale economist Robert Shiller started tracking the data) there were a few exceptions when housing had significant drops in value - World wars I and II and the Great Depression. These created excellent buying opportunities for individuals who took advantage of those "Buyers Markets".

The most recent run up of housing prices has caused a long needed "Correction" in the market. Some markets, such as Las Vegas, Phoenix, Miami and parts of California were seeing double digit appreciation for years. These markets will see much larger corrections before their markets can stablize. Las Vegas had as high as 29% appreciate in 1 year. Simply stated -a correction was needed.

Seattle and Eastside communities such as Bellevue, Kirkland, Clyde Hill, Medina, Mercer Island, Issaquah, Sammamish and Redmond had its fair share of appreciation as well, but not to the extent of the cities mentioned above. Values in Seattle are also insulated from the limits to building which are caused by the "Growth Management Act", and even our geography. We are trapped to the west by Sea, and to the East by mountains. (Think of Vegas & Phoenix which can build out further and further into the dessert).

With population growth and the quality of life here in the Northwest, along with the lack of available land - it is expected that our housing values will be one of the first to stabilize.

See the "Should I buy now" calculator below - it's interactive!

That's exactly the population boom that we are for if the latest Census Bureau data is correct. Imagine what that will do for our real estate values! Supply and Demand will drive prices up with the added demand of population growth.

In June 2008, the Census Bureau released their projections for population growth in the United States. They are projecting an INCREASE of an additional 135 million people in the USA by the year 2050 - just 42 years from now. 

• That's an additional 3,214,285 people per YEAR or
• 8,806 new people per DAY

 When all is said and done, if the projections are correct - it's the equivalent of the entire population of Mexico and Canada moving here to the United States. Think of what that would do to home values in the next 30 to 40 years!

By the way, if you were wondering - the driving factor is primarily fueled by immigration and not new babies. In the past, FNMA projected that the typical immigrant purchased a home within 10 years of moving to the USA. The projections are estimated to create a need for 52 million NEW housing units, not to mention the boost to our housing market and other local economies that support population growth.