LoanCentral's Real Estate Lending Blog

The Fed has told us repeatedly that their massive purchasing program of Mortgage Backed Securities is just about over - and this translates to home loan rates rising in the near future.

As you can see in the chart below, the amounts of Mortgage Backed Securities the Fed is purchasing are slowly dwindling, as the program is set to wrap up by March 31st, and are clearly trying to ration out the remaining portion. Last week, the Fed purchased $11 Billion in Mortgage Backed Securities, which leaves them with $66 Billion to spend out of their original $1.25 Trillion allotment. So about 95% of the total has already been spent and has purchased about 3 out of every 4 home loans during the past year. When such a large buyer leaves the market, it is very likely that prices will worsen.

This is very important because as the Fed has less money to last through the remaining months of the program, their ability to keep home loan rates low via their purchasing power will wane. And those who can take advantage of currently low home loan rates do not wait, as the clock on these historically low rates is ticking.

Chart: The Fed's Purchase of MBS (By Month)

TAX CREDIT ENDS if you don’t buy a home by April 30^th and Close by June 30^th, 2010

New years and holiday fun is over and now you are pulling the paperwork together to do your Taxes before the April 15^th deadline arrives. Now is the perfect time to consider an additional benefit from our US Government called the Extended and Expanded Home Buyer’s Tax Credit.

A Tax Credit is a GIFT. Well, really we pay for it but my feeling is if someone is going to get the benefit of what I’m paying for, it may as well be YOU! Understand that a tax credit is far more advantageous than a deduction. With a tax “CREDIT”, for example - if you owe $10,000 of taxes, the tax credit will basically pay for $8,000 of the tax owed leaving you to pony up for the remaining $2,000. (You may even be able to get a refund from the IRS if you owe less than $8,000 !)

First time homebuyers who qualify in 2009 and 2010 can get up to 10% of the home's purchase price as a tax credit – up to a maximum of $8,000. You don't have to pay it back (as long as you stay in your qualified home for at least 3 years). And by the way – if you qualify for the tax credit – you can use the credit for your 2009 returns, even if you have already filed. Seek advice from a qualified CPA to learn how to file an extension.

In November 2009, legislation extended a tax credit of up to $6,500 (or up 10% of the home's purchase price) to long-time residents of the same primary residence if they purchase a new main home. To qualify, eligible taxpayers must show that they lived in their previous homes for a five-consecutive-year period during the eight-year period ending on the closing date of the new home.

Note that there are qualification requirements such as income limits and other restrictions that you will need to consider – but you don’t have much time to beat the April 30^th deadline to buy!

Give a LoanCentral loan officer a call or email today for all the details. We can help!

The Truth About Appraisals
Knowing the Guidelines Solves the Mystery

The appraisal process often baffles consumers. They may feel that their home is worth a higher dollar amount, and so the appraised value doesn't always make sense to them. It is important to know that the appraiser is completely independent from lenders, buyers, sellers, and real estate agents, and that the guidelines to which they adhere are dictated by the Uniform Standards of Professional Appraisal Practice (USPAP) and Fannie Mae. In most states, the mortgage lenders must also disclose the purpose of the appraisal, as each transaction carries its own set of rules.

In essence, these important guidelines help appraisers put a fair market value on homes based on comparable sales in the same area, and the home must be bracketed in size and value.

For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at a higher percentage of their value in newer homes because the only way to obtain those upgrades was to put more money into the cost of building the home. On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because typically 25-40% of the project involves demolition and the fixing of issues that aren't uncovered until the project has already begun, such as plumbing or wiring that may need updating.

Ultimately, the value of the upgrades must be supported by comparable examples within the same marketplace. These comparisons must be drawn from current market activity within the last six months. This is a safeguard to prevent appraisers from attaching too high a value to the home in question, and opening up the appraisal for review. This guideline further states that appraisers can only base their opinion on the value of home sales that have actually closed.

As a loan professional, I make a point to follow the appropriate guidelines at all times. This promotes a good relationship with the lender, and helps to create easier and much smoother closings for my borrowers.

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.